May Review
After the volatility we saw in April driven by US President Trump’s “Liberation Day” tariffs, equity markets recovered across the board as trade tensions began to ease. We also saw improving consumer sentiment and robust corporate earnings which all helped drive positive equity market returns.
The US equity market was the best performing region in May, delivering +5.5%, which was underpinned by a strong Q1 earnings season. Of the companies that reported, 77% exceeded earnings expectations. The euphoria was felt across the market cap spectrum, as small cap stocks rebounded buoyed by proposed tax cuts and potential regulatory changes. Saudi Arabia’s Crown Prince Mohammed bin Salman pledging to invest $600bn in the US also improved market sentiment. Trump’s “big, beautiful” tax bill got through the House of Representatives towards the end of the month. It now needs to get past the Senate by its 4 July deadline. The bill will extend tax cuts from Trump’s first term and provide more money for defence spending and funding mass deportations. Contentions over the estimated $2.4tn it will add to US debt was largely responsible for Trump and Musk’s subsequent public fallout.
US-EU trade negotiations and a temporary delay in planned tariff hikes, alleviated fears of a global trade war and led to European equity markets posting positive returns over +4%, while the UK market rose +4.4%. Trump initially threatened the EU with a 50% tariff, but this was put on hold as the deadline for US-EU negotiations was extended to 9 July. On the same day, Trump proposed a 25% tariff on any smartphone made outside the US that could start in June. The proposal wiped $70bn off Apple’s share price on the day.
The Bank of England cut interest rates by 25bps to 4.25%, which followed the European Central Bank’s rate cut in April. Central banks have felt confident in lowering borrowing costs as inflationary pressures have subsided. Though this did not lead to positive returns for most of the bond market, more on this later… UK Consumer confidence was better than expected, supported by falling inflation (CPI at 2.1% in April). Tax cuts and proposed infrastructure spending also helped the small cap part of the UK market, reflecting expectations of that domestic policy stimulus. During a productive month, Starmer & Co. secured an “Economic Prosperity Deal” with the US and a new UK-EU post-Brexit deal.
Bonds experienced heightened volatility, driven by shifting trade policies, fiscal concerns and evolving expectations around inflation and monetary policy. Global government and UK government bonds sold off -2.0% and -1.5% respectively. In the US, rising fiscal concerns, resulting in Moody’s downgrade of US sovereign credit rating, triggered a sell-off particularly in longer-dated bonds, pushing yields higher. Corporate bonds were more resilient on the back of positive corporate news flow, but returns were modest. Commodities and gold pulled back over the month. Gold as a defensive asset class declined over the month, as investors favoured equities, but the asset class has still had a meteoric rise over the last couple of years and has delivered very attractive returns through 2025.
Outlook for the year will probably continue to be dominated by geopolitics and Trump’s name will not be far from investors’ minds. By the end of early July, we should have a better idea what rate many of Trump’s tariffs will settle on and what amendments the Senate will make to Trump’s tax bill. We’ll also have a clear understanding of the ramifications from tomorrow’s UK Spending Review. In these challenging times, diversification remains the key but as always opportunities will come up as we approach yet another month where a calm head is vital.
10th June 2025
Cappuccino Commentary
A relaxed read on the issues of the day
May Review
After the volatility we saw in April driven by US President Trump’s “Liberation Day” tariffs, equity markets recovered across the board as trade tensions began to ease. We also saw improving consumer sentiment and robust corporate earnings which all helped drive positive equity market returns.
The US equity market was the best performing region in May, delivering +5.5%, which was underpinned by a strong Q1 earnings season. Of the companies that reported, 77% exceeded earnings expectations. The euphoria was felt across the market cap spectrum, as small cap stocks rebounded buoyed by proposed tax cuts and potential regulatory changes. Saudi Arabia’s Crown Prince Mohammed bin Salman pledging to invest $600bn in the US also improved market sentiment. Trump’s “big, beautiful” tax bill got through the House of Representatives towards the end of the month. It now needs to get past the Senate by its 4 July deadline. The bill will extend tax cuts from Trump’s first term and provide more money for defence spending and funding mass deportations. Contentions over the estimated $2.4tn it will add to US debt was largely responsible for Trump and Musk’s subsequent public fallout.
US-EU trade negotiations and a temporary delay in planned tariff hikes, alleviated fears of a global trade war and led to European equity markets posting positive returns over +4%, while the UK market rose +4.4%. Trump initially threatened the EU with a 50% tariff, but this was put on hold as the deadline for US-EU negotiations was extended to 9 July. On the same day, Trump proposed a 25% tariff on any smartphone made outside the US that could start in June. The proposal wiped $70bn off Apple’s share price on the day.
The Bank of England cut interest rates by 25bps to 4.25%, which followed the European Central Bank’s rate cut in April. Central banks have felt confident in lowering borrowing costs as inflationary pressures have subsided. Though this did not lead to positive returns for most of the bond market, more on this later… UK Consumer confidence was better than expected, supported by falling inflation (CPI at 2.1% in April). Tax cuts and proposed infrastructure spending also helped the small cap part of the UK market, reflecting expectations of that domestic policy stimulus. During a productive month, Starmer & Co. secured an “Economic Prosperity Deal” with the US and a new UK-EU post-Brexit deal.
Bonds experienced heightened volatility, driven by shifting trade policies, fiscal concerns and evolving expectations around inflation and monetary policy. Global government and UK government bonds sold off -2.0% and -1.5% respectively. In the US, rising fiscal concerns, resulting in Moody’s downgrade of US sovereign credit rating, triggered a sell-off particularly in longer-dated bonds, pushing yields higher. Corporate bonds were more resilient on the back of positive corporate news flow, but returns were modest. Commodities and gold pulled back over the month. Gold as a defensive asset class declined over the month, as investors favoured equities, but the asset class has still had a meteoric rise over the last couple of years and has delivered very attractive returns through 2025.
Outlook for the year will probably continue to be dominated by geopolitics and Trump’s name will not be far from investors’ minds. By the end of early July, we should have a better idea what rate many of Trump’s tariffs will settle on and what amendments the Senate will make to Trump’s tax bill. We’ll also have a clear understanding of the ramifications from tomorrow’s UK Spending Review. In these challenging times, diversification remains the key but as always opportunities will come up as we approach yet another month where a calm head is vital.
This information is intended for regulated financial advisers and investment professionals only. Copia does not provide financial advice. This information is not intended as financial advice and should not be interpreted as such.