May 2025 Market Commentary

By Questa

What a couple of months it’s been – here’s what happened and what it means for investors.

Introduction

April didn’t tiptoe in quietly. The big jolt came on 2 April, when President Trump’s so-called ‘Liberation Day’ set off a chain reaction across global markets.

His surprise move to impose sweeping trade tariffs rattled investors, sparking a sharp drop in equity markets around the world. Although he backtracked quickly on some of the harshest measures, the damage was done – and confidence in US markets remains shaky.

The tension with China is far from over, and Trump’s unpredictability continues to be a major source of volatility. We’ll start this month’s commentary in the US, where the storm began.

United States

Trump’s first 100 days of his second term haven’t been kind to investors. The S&P 500 has fallen over 7% since inauguration – the worst such start since Gerald Ford in the mid-70s.

The steepest drops came on 3 and 4 April, when the S&P 500 and Nasdaq suffered their biggest two-day losses since the COVID era. The Dow Jones dropped more than 4,000 points.

So why the sudden change of heart on tariffs? One theory: Trump may have hoped to trigger a flight to US government bonds, lowering borrowing costs. But instead of buying, investors dumped US Treasuries. Yields jumped – not dropped – hitting levels not seen since 1982. That’s bad news when there’s $9.2 trillion of government debt to refinance this year.

Meanwhile, confidence in Trump’s economic stewardship is wavering. Q1 GDP contracted, and the IMF has slashed its US growth forecast for 2025 to 1.8%. It now sees a 40% chance of recession.

Markets briefly bounced when Trump announced a 90-day pause on further tariffs. But with a flat 10% tariff still in place and no clear plan going forward, investors are understandably wary.

Trump’s strategy of throwing bold punches and then softening the blow is familiar. But global markets don’t like unpredictability – and that’s now the biggest drag on US equities.

United Kingdom

April’s market chaos overshadowed some solid UK economic data. The economy grew by 0.5% in February, mainly driven by a strong services sector. But rising labour costs – including the higher minimum wage and National Insurance changes – appear to be softening the job market.

Job vacancies are down, though unemployment has stayed steady at 4.4%. The FTSE 100 took a hit early in the month but recovered most of its losses. It’s still in positive territory for the year, showing how quickly markets can rebound after sharp falls.

On the political front, PM Keir Starmer and Chancellor Rachel Reeves have had a bumpy start. But Trump’s actions have, oddly, given them a bit of breathing space. Starmer has kept UK tariffs to a minimum while balancing foreign policy stances, notably with Ukraine.

The Bank of England Governor, Andrew Bailey, remains calm. He sees tariffs as a growth risk, but not a recession trigger.

Europe

The Eurozone took a battering in April. The STOXX 600 fell nearly 9% in the first week alone – its worst run in five years. A sharp euro rally didn’t help, putting extra pressure on European exporters.

Firms like Unilever, SAP and L’Oréal – which earn much of their income from abroad – were hit hard by both tariffs and currency strength. Germany, as Europe’s export powerhouse, is particularly vulnerable, and recession fears there are growing.

Europe’s relations with Trump are more strained than the UK’s, and the initial tariffs were steeper. But the shift to a flat 10% rate has helped ease some concerns. For now, uncertainty lingers.

Far East

April brought the US–China trade war into full swing. China has remained relatively calm on the surface but is clearly hurting behind the scenes.

The manufacturing sector shrank in April, with the PMI falling to a two-year low of 49.0. Layoffs have begun in export-reliant industries, and there are signs Beijing is quietly softening the blow – granting tariff exemptions on some key US goods.

On 30 April, China passed a new Private Economy Promotion Law, aimed at giving its private sector a shot in the arm. It’s a clear attempt to keep growth near the 5% target without launching huge stimulus packages – for now.

Over in Japan, core inflation jumped to 3.4% year-on-year – mainly due to food prices and reduced subsidies. The Bank of Japan has held rates steady at 0.5%, but has revised down GDP forecasts for both 2025 and 2026.

Emerging Markets

Emerging markets showed impressive resilience in April. While volatility was high globally, countries like India and Brazil stood out.

India continues to draw investor attention with its strong growth and growing role in global supply chains. Brazil’s commodity exports and high real yields also made it a favourite among yield-hungry investors.

Interestingly, South America could be a surprising winner in the US–China trade fallout. With most countries on the continent now facing the lowest 10% tariff from the US, they may become alternative suppliers for both US and Chinese buyers.

The IMF now expects emerging markets to outpace developed economies in 2025, and with inflation moderating, many central banks have room to support growth.

Conclusion

If March hinted at trouble, April delivered the storm. The market shock from US tariffs hit fast and hard, particularly in US and European equities.

But this month also reinforced a key truth: markets can bounce back just as quickly as they fall. While the outlook remains uncertain, many indices are still up for the year so far.

Selling during a dip is rarely wise – and trying to time the bottom is near impossible. Staying invested through turbulence tends to deliver better outcomes over time, both financially and emotionally.

It also proves why diversification matters. Nobody can predict next year’s winners or losers. That’s why spreading your investments globally, across different sectors and asset types, is key to riding out the ups and downs.

Sources Market data

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