Monthly market summary – Review of May 2025

The US was the strongest developed equities market returning 5.4% with the Magnificent Seven again performing well, up 12.4%. The easing of tariff fears and robust Q1 earnings were the primary drivers. Technology led the way, but the rally also extended to cyclical sectors such as industrials and consumer discretionary. Meanwhile, healthcare lagged due to proposed drug pricing reforms.

European equities advanced, returning 3.9%, supported by progress in US-EU trade talks, expectations of fiscal support, and upwards earnings revisions. The industrials, information technology, and financials sectors led the way, and, like the US, healthcare underperformed. A tariff threat from the US briefly rattled markets, but an extension of the negotiation deadline helped the market recover.

UK equities rose 4.1% in May, the weakest return among developed markets. The industrials and basic materials sectors led the way, while consumer staples and healthcare underperformed with pharmaceutical firms coming under pressure from proposed US drug pricing reforms. Elsewhere, the framework agreement with the US on tariffs and the new UK-EU deal to deepen post-Brexit ties offered support, but rising bond yields weighed on dividend-paying sectors like utilities.

Emerging markets posted gains of 3.3 % although this lagged their developed peers. Taiwan and Korea outperformed, supported by renewed optimism about artificial intelligence and strong earnings. Meanwhile, South Africa and Mexico also did well, whilst China, India, and Brazil underperformed. Despite easing trade tensions, China continues to face headwinds from weak domestic demand.

Fixed income markets were volatile amid concerns over inflation, slowing growth, and fiscal sustainability. US Treasuries were down 1.1% as yields rose following Moody’s downgrade of the US’s credit rating. Meanwhile, global bonds posted a loss of 0.4% and UK gilts were also down 1.4% despite the Bank of England cutting interest rates by 0.25%, as inflation surprised on the upside.