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The Quick Facts
- U.S. equities posted a strong recovery, with the S&P 500 up 6.3%, its best May since 1990.
- Growth stocks outpaced Value by 5.3%, with the Russell 1000 Growth Index gaining 8.8% in May, while Large Cap U.S. stocks outperformed international markets.
- Persistent inflation pushed expectations for Federal Reserve (Fed) rate cuts further out, contributing to rising Treasury yields and a volatile bond market.
- Trade policy remained uncertain amid a temporary U.S./China tariff pause and a court ruling against global tariffs.
- President Trump’s sweeping fiscal package — combining tax cuts, welfare reform, and tariff revenue expansion — sparked bond market volatility and raised concerns about fiscal sustainability.
U.S. equities experienced a strong rebound in May, fueled by renewed optimism over easing tariff tensions. The S&P 500 climbed 6.3% for the month (+1.1% year-to-date), marking its best May performance since 1990. Growth stocks made a strong comeback, outperforming Value by 5.3%.
Although concerns over the fiscal deficit, inflation, and ongoing geopolitical tensions persist, robust earnings—particularly from mega-cap Tech—propelled the market upward. The “Magnificent 7” reemerged as market leaders, contributing 57% of May’s total return, according to data from S&P Global.
U.S. Large Caps outperformed equities in Europe, Australasia, and the Far East (EAFE) and Emerging Markets (EM) in May. However, they still lag year-to-date, with returns of +1.1% vs. +17.3% and +8.7%, respectively.
The U.S. economy showed further signs of strain. Q1 GDP contracted by 0.2%, and early Q2 indicators suggest continued weakness. The Fed noted rising uncertainty in the economic outlook, citing increased risks of both higher inflation and rising unemployment. These concerns are partly driven by ongoing trade tensions and tariff policies. Sticky inflation continues to complicate the Fed’s data dependent path. Expectations for rate cuts were delayed, contributing to rising yields.
May Asset Class Performance
The Global Industry Classification Standard (GICS) sectors mostly posted gains in May. Ten out of eleven sectors rose, led by Technology (+10.0%), Industrials (+8.8%), and Consumer Discretionary (+8.4%). Health Care was the only sector to decline (-5.6%).
Large Cap Value stocks underperformed Large Cap Growth, with the Russell 1000 Value Index up 3.5% in May (+8.9% over 12 months), compared to an 8.8% gain for the Russell 1000 Growth Index (+17.6% over 12 months). Over the past three years, Value has trailed Growth by 45.7%.
The Russell 2000 Index, a key measure of smaller companies, also had a strong May, returning 5.3% (-6.9% YTD). The ESG segment, as measured by the MSCI USA ESG Select Index, rose 6.3% in May (+0.8% YTD), trailing the S&P 500 by 0.3% YTD. Over three years, the ESG index appreciated 44.8%, underperforming the S&P 500 by 4.9%.
Non-U.S. equities underperformed in May, largely due to the strong performance of U.S. mega-cap Tech stocks. The EAFE Index rose 4.7%, while the EM Index gained 4.3%. Over the past three years, both EM and EAFE have lagged U.S. Large Caps by 33.4% and 8.7%, respectively.
At the Fed’s May 6–7, 2025 meeting, the central bank held interest rates steady at a target range of 4.25% to 4.5%, unchanged since December 2024. Concerns about stagflation—a mix of slowing growth and persistent inflation—grew, complicating monetary policy decisions.
The U.S. Treasury market experienced significant turbulence following Moody’s downgrade and the introduction of President Donald Trump’s “Big Beautiful Bill,” both on May 16. The bill, passed by the House, combines sweeping tax cuts with aggressive welfare reform and expanded tariff revenues, aiming to stimulate domestic manufacturing and reduce the federal deficit.
The 10-year U.S. Treasury yield closed May at 4.40%, up from 4.16% a month earlier, and down from its October 2023 peak of 4.99%. The 2-year yield ended at 3.90%, up from 3.60% in April. The yield curve disinverted in September 2024, with the 10-year now 50 basis points above the 2-year. The U.S. Aggregate Bond Index was down 0.7% in May (+2.4% YTD), while the Municipal Bond Index rose 0.1% (-1.0% YTD). The U.S. Corporate Investment Grade Index was flat for the month and up 2.3% YTD.
The U.K. became the first major nation to reach a tariff agreement with the U.S. Meanwhile, the U.S. and China agreed to a 90-day suspension of additional tariffs, setting them at 30% on Chinese imports and 10% on U.S. imports through July 9, 2025.
A U.S. Trade Court ruled Trump’s global tariffs illegal, ordering all levies to stop within 10 days (by June 7). The White House obtained a temporary pause on the ruling until June 5, pending further legal arguments. Tariff uncertainty remains high, weighing on investor confidence and global supply chains.
Gold was flat in May ($3,289/Oz) with YTD gains of 25.3%, driven by safe-haven demand. Oil (WTI Crude) gained 4.4% to $60.8/bbl., recovering slightly from April’s steep drop, yet still down 15.2% YTD. Bitcoin extended its April gains, ending May at ~$104,000, up 10.8% for the month as investors continued to seek alternatives to traditional assets amid macroeconomic uncertainty.
The U.S. Dollar Index (DXY) fell just 0.1% in May, bringing its YTD decline to 8.4%, amid concerns over fiscal sustainability and the U.S. dollar’s global reserve status.
The CBOE Volatility Index (VIX) Index, often called the “fear gauge,” declined from 24.7 at the beginning of the month to 18.6 as equity market volatility eased amid improving sentiment. A VIX reading around 20 is generally considered neutral, while below 15 often suggests low volatility or complacency, and above 30 indicates heightened market stress or uncertainty.
The ICE BofA MOVE Index (MOVE), which measures U.S. Treasury market volatility, eased in May, closing at 92, after a spike to 140 in early April.
Chart of the Month – Impact of Being Out of the Market
One of the most important truths in investing is that it is extremely difficult to consistently time the market — even for fund managers and economists, let alone everyday investors. Market timing, or trying to buy low and sell high, is a strategy that rarely works consistently over time.
Markets are influenced by countless unpredictable factors—economic data, interest rates, earnings, global events, and sentiment. Even experts often get it wrong.
Missing just a few of the best days can significantly hurt long-term returns. Historically, major gains often occur shortly after sharp declines, when many investors are pulling out. Being on the sidelines during these moments could mean missing the recovery.
That’s why we believe the most reliable strategy is to stay invested. Time in the market—not timing the market—is what builds real wealth. Staying invested allows you to ride out volatility, benefit from compounding, and capture long-term growth.
Trying to avoid the lows often means missing the highs. Instead of guessing when to jump in and out, we believe it’s wiser to have a plan, stick to it, and let your investments work over time. Discipline and patience—not prediction—can help lead to lasting success.
Impact of Being Out of the Market – Performance of a $10,000 Investment in the S&P 500 from January 3, 2005, to December 31, 2024
Quote of the Month
“Far more money has been lost by investors trying to anticipate corrections that has been lost in the corrections themselves.” – Peter Lynch
Major Asset Class Dashboard
Curated by Julien Frazzo, Deputy Chief Investment Officer and Michael G. Dow, CAIA, CFA®, Chief Investment Officer
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Important Disclosure: The information contained in this article is for general informational purposes only. Opinions referenced are as of the publication date and may be modified due to changes in the market or economic conditions and may not necessarily come to pass. Forward-looking statements cannot be guaranteed. Past performance is not a guarantee of future results. Beacon Pointe has exercised all reasonable professional care in preparing this information. The information has been obtained from sources we believe to be reliable; however, Beacon Pointe has not independently verified or attested to the accuracy or authenticity of the information. The discussions, outlook, and viewpoints featured are not intended to be investment advice and do not consider specific investment objectives or risk tolerance you may have. All investments involve risks, including the loss of principal. Consult your financial professional for guidance specific to your circumstances. This document has been prepared with the assistance of Microsoft Copilot, an AI-powered tool designed to enhance productivity and provide support in drafting, editing, and organizing content. Microsoft Copilot leverages advanced AI models to generate text based on user input. Although Copilot generates original content based on user input, there is a risk that the generated text may inadvertently resemble existing works that may not be properly cited.
