June 5, 2025

Written by: Ryan Kelly, CFA®
Chief Investment Officer, Legato Financial Group

Stock Market

May equity performance was solid, with the S&P 500, DJIA, and Nasdaq all in the green for the month, recovering from losses in April. Out of the 21 trading days in May, the S&P was positive on 13 of them, or 62% of the time, with 8 negative days. The tech-heavy Nasdaq led the way up over 9% for the month. International indices also rose in May, with the Nikkei 225 (Japan), Hang Seng (China), FTSE 100 (United Kingdom), and Dax (Germany) ending positive for the month, coinciding improved trade negotiations with China and the European Union (EU).

Source: Bloomberg – COMP – Daily returns 4/30/2025-5/30/2025

Bond Market

US bonds have continued their sluggish performance, which has been the trend over the past 5 years. The Bloomberg US Agg Index, known as an important benchmark for investment-grade US bonds, was down 0.72% in May, and the Bloomberg Global Aggregate Index was down 0.36%. On May 16^th, Moody’s, one of the major bond credit rating companies, downgraded the United States long-term credit rating from Aaa to Aa1 due to increased fiscal concerns surrounding debt levels and interest payments on said debt. This led to a sell-off in May, driving yields higher in a parallel shift of the yield curve as shown below:

Source: Bloomberg – CRVF – US TREASURES ACTIVES CURVES

The Federal Reserve

The Federal Open Market Committee (FOMC) met on May 7^th and decided to maintain the current federal funds rate range at 4.25%-4.50%. Pointing to inflationary pressures and unemployment concerns from US trade policy, Fed Chair Jerome Powell indicated that we do not need to be in a hurry to lower rates given a heightened uncertainty about the short- and long-term implications of tariffs. The April Consumer Price Index (CPI) rose 0.2%, which was less than forecasted. However, CPI is a lagging indicator, meaning the true impact of tariffs on inflation may not be immediately reflected in CPI. The May CPI report is scheduled to be released on June 11^th. Currently, there is a high probability the Fed will maintain the current Fed Funds target range at the June 18^th meeting.

Economic Growth

Gross Domestic Product (GDP) is a widely used measure of economic activity in the US. It is defined as the value of final goods and services produced in the US in each timeframe, typically measured each quarter. In Q1 of 2025, GDP declined 0.2% following a 2.4% increase in Q4 of 2024. The monthly decline was driven by an increase in exports with companies fearing increased prices due to tariffs. To visually understand this relationship, I’ve included the below GDP equation and variable definitions:

GDP = C + I + G +(X-M)

Where:

C = consumer spending (i.e. consumption)

I = investment spending

G = government spending

X-M = net exports (exports – imports)

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S&P 500 – measures the performance of 500 widely held stocks in US equity market. Standard and Poor’s chooses member companies for the index based on market size, liquidity and industry group representation. Included are the stocks of industrial, financial, utility, and transportation companies. Since mid-1989, this composition has been more flexible and the number of issues in each sector has varied. It is market-capitalization weighted.