In May 2025, financial markets experienced a strong rebound, marking one of the best months for equities in recent years.
The S&P 500 rose 6.3%, its best monthly performance since 2023. The NASDAQ Composite surged almost 10%, leading all major indices. The Russell 2000 (small caps) gained 5.3%. International markets also performed well, with the MSCI Emerging Markets Index up 4.3%.
Trade agreements calmed the markets
One of the main drivers of the rebound was the easing of trade tensions. In mid-May, a temporary 90-day reduction in U.S.-China tariffs was agreed upon, signalling progress in trade negotiations and reducing uncertainty for global businesses.
Moreover, broader trade deals beyond China, including agreements with European and Asian partners, contributed to a more optimistic global trade outlook.
Also driving the markets was the presentation of strong corporate earnings, with many companies reporting better-than-expected Q1 earnings (more than 75% of S&P 500 companies have beaten EPS estimates), especially in the tech and consumer discretionary sectors, which helped boost investor confidence.
Renewed optimism
On the economic front, employment remained solid, with wages up 3.8% year-over-year. The Fed held rates steady, cautious amid tariff uncertainty and mixed inflation signals.
Regarding debt, despite Moody’s downgrading the U.S. credit rating from Aaa to Aa1, markets remained resilient, although the 30-year yield broke above 5% for the first time since 2023.
After a volatile April, investor sentiment improved as economic data stabilized and fears of a recession receded. This led to renewed buying activity across sectors.
Given the volatile times, we reinforce the importance of a phased buy strategy to reduce investment risk and improve long-term outcomes. See our recommended portfolio composition:
