MONTHLY MARKET UPDATE

30 May, 2025

Author: Jesmar Halliday, CFA

Equity markets recorded their most impressive monthly advance since late 2023, driven by renewed investor confidence in the resilience of economic fundamentals and a gradual decline in inflationary pressures. Market participants appeared largely unfazed by uneven earnings releases and persistent trade-related headlines, instead focusing on macroeconomic stabilisation and the strength of cyclical sectors. US equities gained further traction on hopes that aggressive trade policies under review would be softened or delayed, helping push benchmark indices closer to previous highs. Technology shares performed particularly well, reflecting strong corporate results and optimism around artificial intelligence innovation. However, bond markets painted a more cautious picture. Yields on longer-dated US Treasuries climbed steadily, amid concerns about fiscal sustainability and diminished investor appetite for government debt issuance. Uncertainty surrounding tariff enforcement (fuelled by court rulings and shifting political rhetoric) has added a layer of ambiguity, prompting several corporates to withhold forward guidance. Meanwhile, monetary authorities are adopting a wait-and-see approach. With inflation moderate and consumption holding firm, central banks are expected to keep policy rates unchanged in the near term, contingent on incoming data and further clarity on global trade developments.

Large-cap technology names, including the so-called “Magnificent Seven,” rebounded strongly, spearheaded by Nvidia’s stellar financial results. This helped lift the Nasdaq Composite by nearly 10% for the month. European markets also attracted solid investor inflows, with Italy’s FTSE MIB leading regional gains. Broader indices such as the S&P 500 and the EuroStoxx 50 both posted monthly gains of approximately 6%, reflecting broad-based optimism across developed equity markets. Equity market activity in Asia presented a more mixed picture. Hong Kong saw renewed momentum thanks to a wave of mainland Chinese listings across high-growth sectors such as electric vehicles and advanced manufacturing. New equity issuance surpassed HK$77 billion year-to-date (marking the highest total since 2021) and reignited hopes that the city may reassert itself as a hub for innovative capital formation. Despite this progress, geopolitical tensions resurfaced later in the month when former President Trump accused China of breaching recent trade agreements, citing concerns over export controls on strategic resources.

Regional equity performance varied. The CSI 300 in China and India’s Nifty 50 both delivered modest 2% gains, trailing their developed market counterparts. In contrast, Taiwanese equities outperformed, powered by a 16% monthly rise in Taiwan Semiconductor Manufacturing Company (TSMC), which represents over one-third of the nation’s stock index. As a result, the Taiwan benchmark closed May with a gain of 5.5%, underscoring the market’s heavy reliance on semiconductor exports.

Across sectors, US equities outpaced European peers in many areas, led by Information Technology, where the S&P 500 sector index climbed 10.89% compared to Europe’s 8.90%. Communication Services in the US delivered gains of 9.63%, more than double the return seen in Europe. Overall, broader cyclical performance was stronger in the US, with equity benchmarks there rising 9.44% versus 4.29% in Europe. Industrial stocks delivered strong returns in both regions, though Europe narrowly led with a 9.67% gain compared to 8.83% in the US. Financials displayed a wider divergence, with Europe advancing by 7.85%, while US peers rose by just 4.43%. Europe also outperformed in Consumer Discretionary, gaining 5.95% against the US’s 0.99%. Utilities posted positive but modest returns in both areas, with the US at 3.83% and Europe at 2.71%. The performance of Materials was broadly aligned across the Atlantic, with US stocks gaining 3.03% and European counterparts 2.90%. Energy followed a similar pattern, though gains were more muted: 2.47% in Europe versus 0.99% in the US. Consumer Staples moved higher in both regions, with the US edging out a 1.81% return and Europe close behind at 1.77%. Health Care was the sole underperformer, with both US and European indices in negative territory, the former down by -5.55% and the latter by -2.12%.

Bond markets experienced renewed volatility, particularly in the United States, where surging long-term yields rattled equity investors. The 30-year Treasury yield approached levels last seen in 2023, while the 10-year rose above thresholds typically associated with weaker risk appetite. Market anxiety was heightened by soft demand at Treasury auctions and fears that the deficit-expanding tax proposal introduced by President Trump would exacerbate fiscal imbalances. Within the investment grade universe, US long-duration government bonds faced the heaviest losses, with the 15+ year segment falling by around 3%. The US yield curve steepened, with the 2-year to 30-year spread widening from 64 basis points to 103 basis points, reflecting concerns that tariff-related inflation could push rates higher. In contrast, European long-dated sovereigns were more stable, ending the month largely unchanged. European IG corporate debt outperformed within the IG space, generating a modest 0.5% positive return. Emerging market high yield bonds stood out in May, delivering a monthly gain of 1.8% and outperforming both US and European high yield segments. Sterling-denominated high yield debt underperformed, posting a return of -0.5% amid domestic uncertainty and higher funding costs.

The Federal Reserve held rates steady at 4.25%–4.5% during its May meeting, citing continued economic expansion and low unemployment, despite elevated inflation levels and volatile trade data. The central bank reaffirmed its commitment to a data-driven approach, signalling caution in light of mounting risks to both price stability and labour markets. While no immediate policy shifts were enacted, Chicago Fed President Austan Goolsbee noted that rate cuts remain on the table for later in the year, though further clarity on trade policy would be necessary before any action is taken. In the euro area, wage growth decelerated sharply in the first quarter to 2.4% from 4.1%, providing the European Central Bank with additional room to ease policy. With inflation approaching the 2% target, markets are now anticipating a rate cut at the next ECB meeting, with the possibility of another reduction later in the year.

Markets entered June with a cautiously constructive tone: equity momentum remains intact, but macro volatility (particularly around geopolitics, trade, and fiscal policy) continues to pose downside risks. Investors are likely to remain focused on central bank guidance, earnings quality, and further clarity on global trade developments in the months ahead.

Disclaimer:

The Market Update was prepared by Jesmar Halliday, CFA, Portfolio Manager at MZ Investments and is intended solely for information purposes. The contents of this article should not be construed as investment, legal or tax advice, or as a recommendation to buy, sell, or hold any securities, investment strategy or market sector. The information contained in this article was obtained from sources believed to be reliable and has not been verified independently. MZ Investments, its directors and employees give no warranties of any kind, expressed or implied, with regard to the accuracy, correctness or completeness of this article and accepts no responsibility or liability for any loss or damages arising out of the use of all or any part of this article. MZ Investments is under no obligation to update or keep current the information contained therein. All investments involve risk. The value of investments may go down as well as up and investors may not get back the amount originally invested. Investors are urged to seek professional advice before making investment decisions.

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