Trade Tensions:
a TEMPORARY RESPITE
May was a turbulent month for the U.S. stock market. Trade tensions with China threatened to derail the bull market, but stocks staged an impressive comeback. The Dow Jones rose 4.16%, the S&P 500 shot up 6.29%, while the Nasdaq rocketed up 9.65%. For a moment, it seemed like nothing could shake Wall Street’s confidence, as if the bull market was unstoppable. But the story is far from over.
Mid-May brought a glimmer of hope as U.S.-China trade talks appeared to make progress, calming investors and pushing stocks to fresh highs. The easing of levies and reduced tensions sparked a rally, fueling optimism that the good times might continue.
But the optimism was fleeting. By month’s end, President Donald Trump reignited tensions through a series of TruthSocial posts accusing China of violating the agreement.
Understanding Why
Market Performance: Highs, Lows, and Everything in Between
In May, the markets reflected the ebb and flow of trade tensions, with some sectors thriving while others faced challenges. Technology took the lead, followed by impressive gains in communication services, consumer discretionary, and industrials. In contrast, healthcare, energy, real estate, and financials struggled to keep pace.
Sector Returns for May 2025
The table below is for the time period of 4/30/2025 – 5/30/2025 as measured by ETF in corresponding sector
- Technology (XLK) 9.97%
- Industrials (XLI) 8.84%
- Consumer Discretionary (XLY) 8.38%
- Communication Services (XLC) 6.24%
- Financial (XLF) 4.51%
- Materials (XLB) 2.92%
- Energy (XLE) 1.28%
- Real Estate (XLRE) 1.04%
- Health Care (XLV) -5.57%
Fortis
Stock Strategy
Overview
May 2025
Amid market turbulence in May, corporate America provided an unexpected lift: S&P 500 companies reported an impressive 12.5% growth in Q1 earnings. However, this optimism was tempered by cautious projections, with many companies warning that tariffs could weigh on future profits.
By maintaining a strategic focus and cutting through the noise, our emphasis on value stocks has successfully reduced portfolio volatility. At the same time, a balanced allocation to higher-risk stocks allowed us to seize the dramatic market rebound in May.
A Cautious Outlook: Reducing Equity Exposure
Although the bull market held its ground in May, the latest developments in trade and monetary policy suggest choppy waters ahead. Investors are bracing for increased volatility, with the mood on Wall Street more subdued than broader market gains might suggest.
In response, we’ve reduced equity exposure to capture what appears to be a short-term rally. This decision stems largely from concerns about the comments during the FOMC Minutes and lack of demand in the U.S. Treasury auction:
The Fed maintained interest rates at 4.25%–4.50%, citing inflationary pressures and a weakening labor market.
The May 22 FOMC Minutes highlighted concerns that progress on inflation had stalled, while job market softening raised additional risks.
A $16 billion 20-year Treasury bond auction saw very little demand, forcing higher yields to draw buyers—a troubling sign for safe-haven assets.
The Ripple Effects of Weak Treasury Demand:
The disappointing bond auction signals more than just a market hiccup—it reflects a fundamental shift in how investors view Treasuries as a safe asset. Confidence is eroding, with institutional investors and everyday traders alike shifting capital away from long-duration assets. The implications of this shift could reshape the financial landscape, as higher yields and dwindling demand alter the dynamics of “safe money.”
This year, prioritizing high-quality corporate debt has proven to be a more effective safe haven than U.S. Treasuries. At the same time, short-term U.S. Treasuries and Treasury Inflation-Protected Securities (TIPS) have played a key role in stabilizing our bond portfolio. We remain focused on closely monitoring this trend moving forward.
Looking Ahead
Key Events to Watch
All eyes are on the data this week. The upcoming nonfarm payrolls report is projected to show 128,000 new jobs, with unemployment holding steady at 4.2%. However, a rise in jobless claims could weigh on economic sentiment.
Meanwhile, trade developments out of Washington will be key to watch, especially as earnings season wraps up. On June 20, we’ll see “triple witching” options expiration and S&P Index rebalancing—two events that could shake up market liquidity. Looking ahead, June 27 marks Russell Reconstitution, historically one of the busiest trading days of the year.
Looking at the bigger picture, Bespoke Investments noted that as of May 27, the S&P 500 closed the first 100 trading days of 2025 with a modest year-to-date gain of 0.11%. What’s even more impressive? This happened despite it being the 7th most volatile start to a year in over 70 years. It’s a reminder that big market swings don’t always translate to big gains or losses.
So, how do we stay consistent in such a wild market? It boils down to discipline, research, and adaptability. Early 2025’s volatility highlighted why sticking to a structured strategy beats reacting to short-term noise. By focusing on evolving trends, strong fundamentals, and a long-term outlook, we’ve been able to navigate the uncertainty.