Historically, the month of May has not been the strongest for the equity market.
Many investors may have heard the adage “sell in May and go away”. But, if an investor sold on May 1, 2025, they would be disappointed to have missed the best May (up 6.29%) for the S&P 500 index in 35 years. The market has fluctuated along with the Trump Administration’s trade policies this year. Stocks fell in February, March, and April as tariffs were threatened and added, and then rose in May as some levies were reduced and trade agreements were reached. The market’s advance in May was fairly widespread with small-cap equities (Russell 2000) up 5.3% and mid-cap equities (Russell Midcap) up 5.7%. Despite being up strongly in May, only large-cap and mid-cap indices are ahead year-to-date (the S&P 500 and the Russell Midcap are both up 1.1%), while small-cap stocks are still in negative territory (the Russell 2000 is down 6.9%).
During the first quarter, investors gravitated towards more defensive companies. However, there was a rotation evident among U.S. equities that started in April. The shift away from defensive sentiment persisted in May with higher growth stocks leading the way. While growth beat value across all capitalization indices in May, the market was very concentrated with seven companies (six of the “Magnificent Seven” and Broadcom) contributing 79% of the S&P 500 index monthly return.
International equities continued their relatively strong performance from the first 4 months of the year through the end of May. The equity leaders of Europe and China have the commonality of central banks that keep providing easing measures. The Eurozone has been seeing more meaningful disinflation and that is why the ECB has been more willing to cut interest rates. The biggest driver for non-U.S. investors is the currency, the EUR is up nearly 9% vs. the USD this year.
As stock indices advanced in May, so did bond yields. U.S. treasuries were sharply weaker across the curve, with the policy-sensitive 2-year yield up over 30 bp, and the 10- and 30-year yields up around 25 bp. The 10-year Treasury yield rose from 4.18% at the close of April to 4.40% at the end of May – leading to a 0.7% decline during the month for the Bloomberg Aggregate Bond index. Bond investors were concerned about elevated inflation expectations, foreign buyer boycotts, the recent Moody’s downgrade and the potential for more debt and deficit spending. Despite its monthly decline, the Bloomberg Aggregate Bond index is still up 2.5% year-to-date.
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