MONTHLY ECONOMIC REVIEW : MAY 2025
In this month’s recap: Volatile stocks, inflation moderation, May flowers?
Presented by The PensionmarkMeridien Team, May 2025
Last month brought volatile markets early in April, yet it also presented moderating inflation metrics and a strong finish for large-cap technology stocks. With all of these developments in mind, now feels like a good time to share an overview of what happened and what could be ahead.
MAJOR U.S. STOCK INDEXES
April was a remarkably volatile month on Wall Street, courtesy of tariff talk and uncertainty. However, major U.S. stock indexes finished the month well off their lowest levels seen during the early part of the month.
Here’s how major U.S. stock indexes fared in April:
- The S&P 500 declined by 0.76%1.
- The NASDAQ 100 rose by 1.52%2.
- The Dow Jones Industrial Average decreased by 3.17%3.
A MONTH OF TARIFF UNCERTAINTY & VOLATILITY
April delivered a wild ride for the markets, dominated by ongoing tariff headlines and elevated volatility.
The month began with a sharp downturn in U.S. stock market averages, as additional imposed and looming retaliatory tariffs triggered the worst weekly performance since 2020. By the end of the first trading week, the Dow entered correction territory, and the NASDAQ Composite officially fell into a bear market, with a decline exceeding 20% from recent highs.
However, by the second week, the narrative began to shift. Market volatility remained pronounced, but so did a sense of relief, as investors digested signs of potential tariff easing. Toward the end of April, the tone surrounding trade tensions appeared to soften slightly, with growing investor optimism for progress in the weeks ahead.
INFLATION MODERATION
Amid the market’s tariff-driven turbulence, April brought welcome signs of moderating inflation.
CONSUMER PRICE INDEX (CPI)
The Consumer Price Index for March, released in April, showed an annual inflation rate of 2.4%. That marked a 0.1% decline from the prior month and a notable drop from February’s 2.8%, bringing the rate to a six-month low. The reading also came in below Dow Jones estimates of 2.6%. Even more encouraging, Core CPI—excluding volatile food and energy components—reached a four-year low in March, a particularly reassuring development given the inflationary concerns surrounding tariffs.
PRODUCER PRICE INDEX & CORE PCE
Supporting the cooling inflation narrative, the Producer Price Index (PPI) unexpectedly fell by 0.4% in March. Meanwhile, the Core Personal Consumption Expenditures (PCE) index—the Federal Reserve’s preferred inflation gauge—was released late in the month and showed a slowdown to 2.6%. This reading matched consensus expectations and marked a multi-year low, reinforcing hopes for sustained disinflation.
Together, April’s inflation data paints a picture of easing pressure—though the ultimate impact of tariffs remains a wildcard.
Q1 EARNINGS SEASON
As we move into May, Q1 earnings season is in full swing. While some of the highly anticipated reports from the “Magnificent 7” are still forthcoming, early results offered some optimism. Meta delivered stronger-than-expected revenue for the quarter, and Microsoft also posted solid performance, helping to stabilize sentiment in an otherwise uncertain market environment.
FED & TREASURIES
Although the Federal Reserve did not meet in April, the minutes from its previous meeting were released and revealed concerns about the inflationary risks associated with tariffs. These concerns have contributed to a “wait-and-see” stance on interest rate cuts.
As of April 30th, futures markets priced in a 91.6% probability4 that the Fed will keep rates unchanged at its upcoming May 7–8 meeting. Looking further ahead, the June meeting shows a more divided outlook, with a 59.6%4 chance of a 25-basis-point rate cut.
In the bond market, the yield on the U.S. 10-year Treasury note fell approximately 6.9 basis points over the month, ending April near 4.177%5.
GDP CONTRACTION
First-quarter GDP data added another layer of complexity to April’s market environment. The U.S. economy contracted at an annualized rate of 0.3%6 in Q1 2025, marking the first decline in economic growth since Q1 2022. The contraction was slightly worse than the -0.2% estimate from Bloomberg economists and was influenced in part by a sharp rise in imports ahead of anticipated tariffs, which weighed on the GDP calculation.
To read what we had to say in our Aprils Economic Recap
LABOR MARKET
Despite April’s market swings, the labor market demonstrated resilience. March payrolls increased by 228,000—well above the expected 140,0007. The unemployment rate edged up slightly to 4.2%. Job growth was led by the healthcare sector, and average hourly earnings rose by 0.3%. Though strong labor market data usually attracts investor attention, this report was largely overshadowed by the tariff-driven volatility at the start of the month.
THE CONSUMER: RETAIL SALES VS. SENTIMENT
Consumer data offered mixed signals in April. Sentiment, as measured by the University of Michigan, declined for the fourth consecutive month, hitting one of its lowest recorded levels. Still, the reading of 52.2 was better than the expected 50.8.
Retail sales told a different story. In March, consumer spending surged, with analysts likening the behavior to a “gigantic clearance sale8” as buyers raced to make purchases ahead of expected price increases. The 1.4% increase in retail sales far exceeded expectations of 1.2% and marked a significant rise from February’s modest 0.2% gain—especially pronounced in the motor vehicle sector.
MAY FLOWERS?
Spring arrived alongside a turbulent but ultimately more balanced April for financial markets. While volatility, GDP contraction, and policy uncertainty remained, investor sentiment had shifted somewhat by month-end, with focus turning toward earnings and the upcoming Fed meeting on May 8.
Though the future path of tariffs and inflation remains uncertain, April served as a powerful reminder of the importance of staying calm and disciplined9 during times of market disruption. What started as one of the roughest market stretches in years ended with a more constructive tone.
If you’d like to discuss the current market outlook or explore how to align your investment strategy with these developments, we welcome the conversation.
We are always here as a resource for you.
Please consult your financial professional for additional information. This content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and they should not be considered a solicitation for the purchase or sale of any security.
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