May 2025 Monthly Review

A Look Back

The above line comes from the classic 1978 comedy, Animal House. Saturday Night Live legend John Belushi uttered it trying to fire his fraternity brothers up after the Dean of the university made it clear that most of the misfits would have their college career cut short because of their “underwhelming” grades. (Belushi’s character, John Blutarsky had the famous GPA of 0.0) My 21-year-old son had never seen the generational movie until we watched it together recently. After seeing my son’s puzzled face when we heard that line, it made me think about current markets and our overall economic situation here in the U.S. It truly is never over. We write and talk about it often, but the long-term resiliency of our financial markets and overall economy really is and has been amazing. In early April of this year, it felt like the sky was falling, as the S&P 500 was off 19% from highs made a couple months prior, and negative by 14% in 2025. The announcement of the broad-sweeping tariff policy known as “Liberation Day” was not greeted warmly by investors caught off guard by the overall scope of the proposed tariffs. Oh, what a difference a couple months (and a few social media posts) can make! The large-cap S&P 500 index proceeded to erase almost the entire negative move in the month of April by month-end. Then, May delivered the best month of performance, 6.29%, that’s been seen over the last 30 years. With that move, the index is now in positive territory for the calendar year by 1.06%, and shows outsized gains over the last 1, 3, and 5 years. Other major stock asset classes also performed extremely well in the month, and notably, International Developed countries are up nearly 17% in the first five months of the year. The lone negative performer in May was core bonds, posting a -.72% return, as yields on longer bond maturities creeped higher. A second look at GDP in the first quarter showed an overall contraction of .2% instead of .3%...still negative, but not quite as much. The May Jobs report was just released, and it showed nonfarm payrolls rising 139,000 versus the estimate of 125,000. The unemployment rate remained surprisingly low at 4.2%. Retail sales rose a slim .1%, and excluding bars and restaurants, were down .1% in the latest report. Personal income and spending indicators have held in there, impacted by quite a bit of frontrunning purchases in an attempt to escape tariff effects…both on the personal and business side. Many of our small/medium-sized business clients talked about building up inventory before higher potential prices came into play.

A Look Ahead

As we sit here on June 6th, there remains a sense of uncertainty in our markets and economy that can be unnerving. The “headline risk” that we talk to clients about is a real thing…and we saw it play out with the original tariff announcements in early April. However, as we step back to take a wider-lens look, we remain confident in the structure and resilience of both. After taking advantage of the downswing in early April and then trimming some gains after the outsized move up in May, we are now mostly neutral in our asset class allocations. We have a slight overweight to Developed International stocks and Large-cap U.S. companies. It is likely that we have not seen the last of volatility spikes as we navigate trade agreements, tax bills and whatever else may come our way. The Fed has kept short-term interest rates static at around 4-4.25% for the first half of 2025, as they balance their dual mandate of caretaking the employment and inflation situations. Belushi had it right. It’s never over…we will continue to take advantage of twists and turns as they happen.