Global Market Commentary – May 2025
Please note that the content of this review should not be considered as investment advice or any form of recommendation. If you require investment advice, please do not hesitate to get in touch with a member of our qualified team.
A Return to Normal?
- Stock markets (MSCI World Index) made good gains in May and have risen 3.6% so far this year
- Bond markets (Bloomberg Global Aggregate Index) have gained 5.7% this year
- The worst of the tariff shock appears to have passed, but uncertainty remains high
Key Themes
Central banks continue to cut interest rates across most of the developed world, with the EU, Australia and New Zealand all cutting in the last fortnight and the UK and US expected to do so again as the year progresses. Inflation remains slightly above the 2% target, but appears largely under control and within a tolerable range. In such an environment, and absent external political shocks, stocks have been free to rally.
UK
The UK stock market has continued to recover from April’s tariff-driven selloff. The AIM All-Share index gained 8% in May to reach its highest level since September – shortly before the Autumn Budget which reduced the inheritance tax relief on AIM shares by 50%. Small caps also outperformed large caps on the main market, in a potential sign that risk appetite is returning. Takeover activity has continued apace, with the nation’s largest pawnbroker, H&T Group, being bought by a pawnbroker in the US at a 44% premium to its previous price.1
United States
The latest acronym to take the investment world by storm is TACO (Trump Always Chickens Out).2 With trade tariffs being announced and then abandoned within days, stock markets have begun to look through the noise and focus on something more tangible: the massive US budget proposal that sits with the Senate. Designed to cut taxes and increase spending, the budget could add $2.5 trillion to the US deficit over 10 years.3 All else equal, such fiscal largesse should be very good for stocks. The growth-focused Nasdaq index bounced almost 10% in May, with Microsoft approaching new highs.
Europe
European stocks are the best performers this year, with the Stoxx 50 index up 12.5%. Within the region, the FTSE Greece index has surged 30% on hopes the country will finally regain its developed market status.4 This would open up significant capital flows from global investors and complete a redemption which has been more than a decade in the making, after Greece was demoted to emerging market status in 2013 during its infamous debt crisis.
Asia & Emerging Markets
Cash-rich Japanese companies have now increased their shareholder returns (dividends + buybacks) to 4% per annum on average.5 Some are also seeking investment opportunities overseas, with Nippon Steel attempting a high-profile $15 billion takeover of US Steel, which may help it mitigate the impact of Trump’s steel tariffs.6 Meanwhile, South Korean stocks were boosted by a favourable election result, with the new president promising stimulus measures and action to close the “Korean discount”.7,8 British politicians should perhaps take note.
Bonds
The US budget may be good for stocks, but it does nothing to appease the “bond vigilantes” who warn about the spiralling cost of government debt across the developed world.9 Bond yields have thankfully stabilised in recent weeks, with a 10-year US Treasury yielding 4.35% per annum. However, the cost of government debt has risen significantly overall, five years on from the zero interest rate period sparked by the Covid pandemic. The US interest expense has now reached $1.1 trillion per annum – double the level of 2020 and equating to 3.0% of GDP, which is close to the highest percentage in history.10,11
Points of Interest
Elon Musk has abandoned his efforts to cut expenditure across the US government after only six months. His Department of Government Efficiency (DOGE) started with the grand ambition of eliminating $2 trillion of unnecessary spending. It has achieved less than one-tenth of that.12 Now on the outside of the government looking in, Musk has complained vociferously about the increased spending contained within the budget.
Tesla stock got a boost from his return to the company, rising as much as 50% in the past month. Nevertheless, the stock price remains well below its past highs, with EV revenue declining 20% year-on-year amid tough competition and brand damage related to Musk’s political views.13
Summary
2025 has been a very noisy year so far. Important news has come thick and fast, be it related to trade tariffs, defence spending, artificial intelligence or other themes. Bond yields, foreign exchange rates and stock prices have all been volatile, as a result. Trump will continue to shout loudly from his podium, but maybe – just maybe – there are signs that the market is now settling down into its own path, as we approach the six-month mark of his final term. The summer is usually a quieter time for investors, and now more than ever, that would be very welcome.
Note: Past Performance Is Not A Reliable Indicator Of Future Performance
Sources may be found online HERE, or provided on request
GWA Portfolio Performance
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MGTS Qualis Funds
Please note that this should not be considered as investment advice or any form of recommendation or inducement to invest. If you require investment advice, please contact your financial adviser.
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