Market Commentary

Calm Amid Chaos

May 2025

Summary

• S. large-cap stocks, as measured by the S&P 500, gained 6.3%—the strongest May return since 1990. U.S. small-cap stocks ended the month up 5.3%.
• The May jobs report showed steady job growth and unemployment, supporting the Federal Reserve’s stance to keep interest rates unchanged, and market expectations for rate cuts this year dropped from four to two by year end.
• Despite the many headlines surrounding tariffs and Trump’s tax and spending bill, equity markets remained relatively calm. The S&P 500 ended May back in slightly positive territory for the year.
• Markets appear to be looking past near-term tariff-related disruptions, focusing instead on potential gains that could come from small business spending, domestic manufacturing, and capital investment.

Overview

U.S. large-cap stocks, as measured by the S&P 500, gained 6.3%, the strongest May return since 1990 when the index rose 9.3%. Similarly, the U.S. small-cap Russell 2000 Index ended the month up 5.3%. In contrast, U.S. intermediate-term bonds, represented by the Bloomberg U.S. Aggregate Bond Index, declined 0.7% in May.

 

Updated first-quarter GDP estimates show that the U.S. economy contracted at an annualized 0.2% quarter over quarter—a marginal improvement from the initial estimate of a 0.3% decline.¹ The upward revision was driven by stronger business investment and inventory accumulation. However, consumer spending was revised from 1.8% to 1.2%.¹ An additional sign of a slowdown in economic growth, the ISM Services PMI fell into contractionary territory in May for the first time in 11 months, posting a reading of 49.9.²

The May jobs report showed a resilient, yet gradually moderating, labor market. The economy added 139,000 new jobs—slightly above the expected 126,000—while the unemployment rate held steady at 4.2%. However, downward revisions totaling 95,000 jobs across the previous two months tempered some of the optimism.³ Still, the slightly better-than-expected jobs report likely gave the Federal Reserve sufficient justification to keep interest rates unchanged at the next Federal Open Market Committee (FOMC) meeting. While the May 7 FOMC meeting minutes signaled the Fed’s inclination to hold rates steady, market expectations have shifted: investors now anticipate the equivalent of two 0.25% rate cuts by year end, down from four projected cuts just a month ago.^4,5

Calm Amid Chaos

On April 2, President Trump invoked the International Emergency Economic Powers Act (IEEPA), declaring a national emergency to impose broad tariffs, including a 10% tariff on imports from all countries and higher rates for nations with large trade deficits. On May 28, the U.S. Court of International Trade ruled that the tariffs exceeded the president’s authority under IEEPA and blocked most of those imposed on April 2. ^6,7 However, the U.S. Court of Appeals for the Federal Circuit issued a temporary stay on May 29, allowing the tariffs to remain in effect while the government appeals the ruling.^8,9

On May 22, the House of Representatives passed Trump’s spending and tax bill, the One Big Beautiful Bill Act (OBBBA).^10,11 As of the end of May, the bill was under consideration in the Senate. OBBBA seeks to extend major provisions of the 2017 Tax Cuts and Jobs Act (TCJA)—currently set to expire at the end of 2025—while introducing spending cuts and new revenue measures.^10,11 The Congressional Budget Office (CBO) estimates the bill would add roughly $2.4 trillion to the federal deficit over the next decade.¹² However, the true fiscal impact, according to the CBO, does not account for second-order growth effects, potential recession scenarios, or the possibility that the TCJA will be extended beyond its scheduled expiration. Notably, tariff revenues were much higher this May: a record $23.3 billion in customs and excise taxes were collected, though future tariff revenues are less certain given the May 28th ruling.  Additionally, the CBO flagged some trade-offs: higher inflation over the next two years and slower economic growth.¹³

By the end of May, nearly all S&P 500 companies had reported first-quarter earnings. Earnings growth for the index has nearly doubled since March 31, rising from 7% year-over-year to 13%.¹⁴ The strongest gains came from healthcare (43%), communication services (29%), and technology (16%). However, as earnings season progressed, full-year earnings growth projections declined—from 11% to 9%.¹⁴ On May 28, Nvidia reported first-quarter results, beating both revenue and earnings expectations. Revenue rose nearly 70% year-over-year to $44.1 billion, despite a $2.5 billion hit from unsold H20 chips due to U.S. export restrictions on China.¹⁵ Nvidia’s share price has climbed 50% since the April 4 market low. The strength in mega-cap tech endures, with capital expenditure guidance from Amazon, Alphabet, Microsoft, and Meta pointing to a combined $330 billion in AI investment in 2025—a 35% year-over-year increase—and a projected $1 trillion over the next three years.^{16, 17,18,19} Notably, computer equipment spending added a record 1% to first-quarter U.S. GDP, reinforcing the view that the AI boom continues to quietly drive economic momentum.²⁰

U.S. large-cap stocks posted their best May since 1990. Despite headline chaos from tariffs, the OBBBA, and other market and geopolitical events, this strong May helped bring year-to-date returns for the S&P 500 to a very calm +1% and just 4% below an all-time high–achieved in spite of a nearly 20% decline between February 19 and April 8. Credit spreads, which spiked to 4.3% in mid-April amid tariff concerns, fell to 3.1% by month end, continuing to signal economic resilience despite softening macro data. Betting market odds of a recession also dropped sharply—from 66% on May 2 to 34% at month-end.²¹ In contrast to the relative calm in equities, fixed income markets were volatile throughout the month. The 10-year Treasury yield surged to 4.6% following news of the OBBBA’s passage in the House, before retreating to end May at 4.4%.

Markets

U.S. large-cap stocks ended May up 6.3%, and international developed large-cap stocks gained a still-respectable 4.7%. U.S. small-cap stocks marginally underperformed their international counterparts. The former gained 5.3%, and the latter ended the month up 5.7%. Emerging and frontier market stocks gained 4.3%. U.S. intermediate-term bonds ended May down 0.7%.

Gold, which remains a strong performer for the year to date (gaining 26% since January), ended the month up 0.3%, at $3,290 per ounce. Despite sharing many of the same qualities as gold, platinum had thus far been noticeably absent from the precious metals rally. Through the end of May, platinum prices increased by nearly 10% over the month (and gained 16% year-to-date) on tightening demand-supply dynamics and renewed investor interest.²²

Looking Forward

Despite the chaotic headlines, investors seem unfazed by the uncertainty surrounding tariffs and instead appear more focused on potential long-term positives, including a resilient U.S. economy, a broadening global equity rally, and the more pro-growth aspects of this administration’s policy agenda. Earnings growth estimates for the S&P 500 in 2025, while off their highs, are over 9%, credit spreads remain contained, and the AI infrastructure boom appears durable. Although notable risks remain and volatility could increase during the second half of the year, areas like small business spending, domestic manufacturing, and capital investment could deliver welcome surprises. If the positive economic factors outweigh the negative ones, the current market calm may continue. However, this calm could be disrupted if the U.S. administration renews its focus on spending cuts, inflation increases significantly, or Treasury yields rise meaningfully—just some of the key risks we are monitoring.

Performance Disclosures

All market pricing and performance data from Bloomberg, unless otherwise cited. Asset class and sector performance are gross of fees unless otherwise indicated.

Citations

1. Bureau of Economic Analysis: https://www.bea.gov/news/2025/gross-domestic-product-second-estimate-corporate-profits-preliminary-estimate-1st-quarter
2. ISM: https://www.ismworld.org/supply-management-news-and-reports/reports/ism-report-on-business/services/may/
3. Bureau of Labor Statistics: https://www.bls.gov/news.release/empsit.nr0.htm
4. Federal Reserve: https://www.federalreserve.gov/monetarypolicy/files/fomcminutes20250507.pdf
5. CME: https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html
6. Reuters: https://www.reuters.com/world/us/us-court-blocks-trumps-liberation-day-tariffs-2025-05-28/
7. Wall Street Journal: https://www.wsj.com/politics/policy/trade-court-strikes-down-trumps-liberation-day-tariffs-9befa448
8. Reuters: https://www.reuters.com/business/us-ruling-that-trump-tariffs-are-unlawful-stirs-relief-uncertainty-2025-05-29/
9. BBC: https://www.bbc.com/news/articles/c93ywvl7yy5o
10. Thomson Reuters Tax & Accounting: https://tax.thomsonreuters.com/news/house-rules-committee-debates-one-big-beautiful-bill/
11. Politico: https://www.politico.com/news/2025/05/22/house-republicans-pass-big-beautiful-bill-after-weeks-of-division-00364691
12. Congressional Budget Office: https://www.cbo.gov/publication/61461
13. Congressional Budget Office: https://www.cbo.gov/system/files/2025-06/61389-Tariff-Effects.pdf
14. FactSet: https://advantage.factset.com/hubfs/Website/Resources%20Section/Research%20Desk/Earnings%20Insight/EarningsInsight_060625A.pdf
15. Nvidia: https://nvidianews.nvidia.com/news/nvidia-announces-financial-results-for-first-quarter-fiscal-2026
16. CNBC: https://www.cnbc.com/2025/02/06/amazon-expects-to-spend-100-billion-on-capital-expenditures-in-2025.html
17. Reuters: https://www.reuters.com/technology/alphabet-ceo-reaffirms-planned-75-billion-capital-spending-2025-2025-04-09/
18. CNBC: https://www.cnbc.com/2025/02/24/microsoft-reiterates-plan-to-invest-80-billion-in-ai-.html
19. Reuters: https://www.reuters.com/technology/meta-invest-up-65-bln-capital-expenditure-this-year-2025-01-24/
20. Bloomberg
21. Polymarket: https://polymarket.com/event/us-recession-in-2025
22. Mining.com: https://www.mining.com/platinum-price-surges-to-highest-since-2021-as-market-tightens

Asset Class Definitions

Asset class performance was measured using the following benchmarks:  U.S. Large Cap Stocks: S&P 500 TR Index; U.S. Small & Micro Cap: Russell 2000 TR Index; Intl Dev Large Cap Stocks: MSCI EAFE GR Index; Emerging & Frontier Market Stocks: MSCI Emerging Markets GR Index; U.S. Interm-Term Muni Bonds: Bloomberg 1-10 (1-12 Yr) Muni Bond TR Index; U.S. Interm-Term Bonds: Bloomberg U.S. Aggregate Bond TR Index; U.S. High Yield Bonds: Bloomberg U.S. Corporate High Yield TR Index; U.S. Bank Loans: Morningstar LSTA US LL TR Index; Intl Developed Bonds: Bloomberg Global Aggregate ex-U.S. Index; Emerging & Frontier Market Bonds: Bloomberg EM USD Aggregate TR Index; U.S. REITs: MSCI U.S. REIT GR Index, Ex U.S. Real Estate Securities: S&P Global Ex-U.S. Property TR Index; Commodity Futures: Bloomberg Commodity TR Index; Midstream Energy: Alerian MLP TR Index; Gold: LBMA Gold Price, U.S. 60/40: 60% S&P 500 TR Index; 40% Bloomberg U.S. Aggregate Bond TR Index; Global 60/40: 60% MSCI ACWI GR Index; 40% Bloomberg Global Aggregate Bond TR Index.

Disclosures and Definitions

Advisory Person(s) may use proprietary financial planning tools, calculators and third-party tools and materials (“Third-Party Materials”) to develop your financial planning recommendations. The projections or other information generated by Third-Party Materials regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. Results may vary with each use and over time. Thrivent Advisor Network, LLC and its advisors do not provide legal, accounting or tax advice. Consult your attorney and or tax professional regarding these situations. ‌

The return assumptions in Third-Party Materials are not reflective of any specific product, and do not include any fees or expenses that may be incurred by investing in specific products. The actual returns of a specific product may be more or less than the returns used. It is not possible to directly invest in an index. Financial forecasts, rates of return, risk, inflation, and other assumptions may be used as the basis for illustrations. They should not be considered a guarantee of future performance or a guarantee of achieving overall financial objectives. Past performance is not a guarantee or a predictor of future results of either the indices or any particular investment. Investing involves risks, including the possible loss of principal. ‌

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Index Benchmarks presented within this report may not reflect factors relevant for your portfolio or your unique risks, goals or investment objectives. Past performance of an index is not an indication or guarantee of future results. It is not possible to invest directly in an index.

The Alerian MLP Index is the leading gauge of energy infrastructure Master Limited Partnerships (MLPs). The capped, float-adjusted, capitalization-weighted index, whose constituents earn the majority of their cash flow from midstream activities involving energy commodities, is disseminated real-time on a price-return basis (AMZ) and on a total-return basis (AMZX).

The Bloomberg Commodity® Index (BCOM) is a broadly diversified commodity price index distributed by Bloomberg Index Services Limited.

The Bloomberg EM (Emerging Markets) USD Aggregate Index® is a flagship hard currency Emerging Markets debt benchmark that includes fixed and floating-rate U.S. dollar-denominated debt issued from sovereign, quasi-sovereign, and corporate EM issuers.

The Bloomberg Global Aggregate® Index is a flagship measure of global investment grade debt from twenty-four local currency markets. This multi-currency benchmark includes treasury, government-related, corporate and securitized fixed-rate bonds from both developed and emerging markets issuers.

The Bloomberg Global Aggregate ex USD Index is a measure of investment grade debt from 24 local currency markets. This multi-currency benchmark includes treasury, government-related, corporate and securitized fixed-rate bonds from both developed and emerging markets issuers. Bonds issued in USD are excluded.

The Bloomberg U.S. Aggregate Bond® Index, or the Agg, is a broad base, market capitalization-weighted bond market index representing intermediate term investment grade bonds traded in the United States. Investors frequently use the index as a stand-in for measuring the performance of the U.S. bond market.

The Bloomberg U.S. Corporate High Yield Bond® Index measures the USD-denominated, high yield, fixed-rate corporate bond market. Securities are classified as high yield if the middle rating of Moody’s, Fitch  and S&P is Ba1/BB+/BB+ or below.

The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.

The LBMA (London Bullion Market Association ) Gold Price Index measures the performance of setting price of gold, determined twice each business day on the London bullion market by the five members of The London Gold Market Fixing Ltd.

The MSCI ACWI (Morgan Stanley Capital International All Country World Index) is a stock index designed to track broad global equity-market performance. Maintained by Morgan Stanley Capital International (MSCI), the index captures large and mid cap representation across 23 Developed Markets (DM) and 24 Emerging Markets (EM) countries.

The MSCI EAFE® (Morgan Stanley Capital International Europe, Australasia, and the Far East) Index is a broad market index of stocks located within countries in Europe, Australasia, and the Middle East.

The MSCI (Morgan Stanley Capital International) Emerging Markets® Index is a selection of stocks that is designed to track the financial performance of key companies in fast-growing nations.

The MSCI (Morgan Stanley Capital International) US REIT Index is a free float-adjusted market capitalization weighted index that is comprised of equity Real Estate Investment Trusts (REITs). The index is based on the MSCI USA Investable Market Index (IMI), its parent index, which captures the large, mid and small cap segments of the USA market.

The Morningstar LSTA (Loan Syndications and Trading Association) US Leveraged Loan Index is designed to deliver comprehensive, precise coverage of the US leveraged loan market.

The Russell 2000® Index measures the performance of the 2,000 smaller companies that are included in the Russell 3000® Index, which itself is made up of nearly all U.S. stocks. The Russell 2000® is widely regarded as a bellwether of the U.S. economy because of its focus on smaller companies that focus on the U.S. market.

The Standard & Poor’s 500 (S&P 500) is a market-cap weighted index comprised of the common stocks of 500 leading companies in leading industries of the U.S. economy. You cannot invest directly in an index.

The S&P Global ex-U.S. Property Index is a free-float-adjusted, market-capitalization-weighted index that measures the equity market performance of international real estate stocks in both developed and emerging markets.

The American Association of Individual Investors (AAII) Sentiment Survey is a weekly poll (indicator) of its members’ opinion on where the market will be in six months, is often written about by financial bloggers and other personal investment organizations, who consider the survey to be among the best of contrarian indicators.

The Bureau of Labor Statistics (BLS) is an agency of the United States Department of Labor. It is the principal fact-finding agency in the broad field of labor economics and statistics and serves as part of the U.S. Federal Statistical System. BLS collects, calculates, analyzes, and publishes data essential to the public, employers, researchers, and government organizations.

Gross domestic product (GDP) is the total monetary or market value of all the finished goods and services produced within a country’s borders in a specific time period. As a broad measure of overall domestic production, it functions as a comprehensive scorecard of a given country’s economic health.

The ISM Services (formerly Non-Manufacturing) Index released by the Institute for Supply Management (ISM) shows business conditions in the US non-manufacturing sector.

The Federal Open Market Committee (FOMC) is the branch of the Federal Reserve System that determines the direction of monetary policy. The FOMC has 12 voting members, including all seven members of the Board of Governors and a rotating group of five Reserve Bank presidents. The Chair of the Board of Governors also serves as Chair of the FOMC.

Capitalization (Cap) is used to describe the size of the company, by market capitalization as follows:

• mega-cap: market value of $200 billion or more;
• large-cap: market value between $10 billion and $200 billion;
• mid-cap: market value between $2 billion and $10 billion;
• small-cap: market value between $250 million and $2 billion; and
• micro-cap: market value of less than $250 million

CNBC is an American business news television channel, formerly called Consumer News and Business Channel until 1991.