Equity markets continued to recover from their tariff-induced wounds, marching higher in May as the global trade picture slowly sought an equilibrium.
The S&P 500 gained +6.3% for the month, bringing year-to-date returns back into positive territory at +1.1% for 2025.
Smaller company stocks continue to lag their blue-chip peers, with the Russell 2000 Index adding +5.3% in June for a -6.9% decline YTD.
International stocks churned higher despite trailing domestic performance in June, as the MSCI ACWI ex-US index added +4.6% for the month for a +14% full-year return.
Bond markets fell in June after Moody’s became the last of the three major credit rating agencies to downgrade US government debt from its top Aaa rating, citing persistently rising debt levels and an onerous interest burden. The Bloomberg Aggregate Bond Index fell -0.7% for the month for a +2.5% year-to-date return.
Commodities markets were mixed, with gold prices pulling back from recent highs while Bitcoin prices hit a new record level during the month.
As always, we filter the news and the noise through our data-driven Three Dials framework, which was unchanged during the month of May as we outline below:
After spending the first half of the month clawing back their tariff-driven losses, equities broadly leveled off as investors seek clarity on how future trade policy will impact markets.
Heading into the typically slower summer months, we leave our Momentum Dial in a Neutral position.
It appears for now that April’s economic data, incorporating the most punitive possible tariff rates, will be the low water mark as month-over-month comparisons should start to improve. However, we’ve still yet to scratch the surface of how any future price increases could impact consumer decision making.
As such, we leave our Fundamental Dial in a Negative position as we await an improvement in the data.
A combination of rising stock prices and higher bond yields did nothing in May to alleviate already stretched equity valuations. In this historically expensive market, our Valuation Dial remains in a Negative position.
On balance, we remain defensively positioned, with two dials sitting in a Negative position and one dial at Neutral.
Sources: Morningstar