May 2025 Market Recap

We are excited to share the latest market insights from the Goldman Sachs Wealth Management Investment Strategy Group (ISG). 

In May, trade tensions de-escalated, as President Trump signed a deal with the UK, temporarily reduced tariffs on imports from China, and pursued deals with a range of other countries. The VIX index – a measure of stock market volatility – fell below 20 (which is considered more stable levels) after spiking close to 60 in April.

Here’s a recap on what happened in the market and economy.

The markets: de-escalation

In the US, the S&P 500 returned 6.3% and the NASDAQ 9.6% in May, as technology stocks surged following strong company earnings.

Outside the US, the MSCI EAFE (index including companies from Europe, Australasia, and Far East) returned 4.7%, with the German DAX hitting record highs after President Trump delayed the implementation of 50% tariffs on EU imports. MSCI EM (index including companies from 24 emerging market countries) also rose, returning 4.3%.

The US dollar (DXY) and gold were range-bound, while oil prices rose early in the month before stabilizing.

The bond markets: easing on recession pricing

Resilient macroeconomic data combined with progress on trade deals led market participants to ease from pricing in a possible recession scenario. As a result, the 10-year US Treasury yield rose to 4.40% in May from 4.16% in April. Longer-term global bonds also sold off across global rates markets as 30-year bond yields rose in the US, UK, Japan, and Germany.

This increase was attributable to 1) uncertainty around the US fiscal trajectory; 2) lower demand for long-term bonds from pension funds and insurers globally; and 3) a series of poorly received long-dated bond auctions.

These moves partly reverted late-May as the US Congress passed a reconciliation bill that included savings relative to current policy. Additionally, across developed markets, authorities are either considering or taking steps to lower the supply of long-dated bonds to help alleviate pressure on the long end of the curve.

With these factors in mind, ISG expects yields to edge lower until the end of the year

The economy: holding up well

The US economy is continuing to hold up well, while the risks to the outlook have lowered following the cooling of US-China trade tensions in early May. Economic data have come in stronger than expected, while financial conditions have eased meaningfully, following the sharp tightening in early April.

As a result, ISG modestly increased their 2025 real GDP growth projection to 1.6% from 1.4% (annual average). Although the outlook remains challenging amidst elevated policy uncertainty and softening private sector demand, the probability of a recession has likely receded to 35%. On inflation, the impact of higher tariffs is not yet evident – the April CPI data came out somewhat weaker than expected. Subsequently, the FOMC kept rates unchanged in May at 4.25-4.5%, highlighting they were comfortable to wait and see how tariff policy, inflation, and growth transpire.

ISG expects three consecutive 25 basis point cuts from September to the end of the year.

Looking ahead

ISG will be monitoring the central banks from the US, Europe, and the UK meetings in June, alongside a NATO summit that will take place on June 24-25. Political developments on the trade front will also be top of mind.