Weekly Market Update – May 23, 2025

Quick Takes

• U.S. stocks retreated last week, following the prior week’s best showing of the year. The S&P 500 dropped -2.6%, the tech-heavy Nasdaq Composite fell -2.5%, and the small cap Russell 2000 Index slumped -3.5%. All three indexes marked their worst week since April.
• A steady rise in Treasury bond yields since Moody’s Ratings downgraded the U.S. government and renewed tariff threats by President Trump dampened investor confidence. The 30-year U.S. Treasury bond yield closed the week at 5.04%, its highest level since 2023.    
• The Chicago Fed National Activity Index (CFNAI) and the Leading Economic Index (LEI) confirmed a slump in economic activity in April. However, the preliminary “flash” PMI readings for May showed much stronger than expected economic activity.

Source: Bloomberg. Data as of May 23, 2025.
Price Returns for Equity, Total Returns for Bonds.
* The term basis points (bps) refers to a common unit of measure for interest rates and other percentages in finance. One basis point is equal to 0.01%. Bond prices and bond yields are inversely related. As the price of a bond goes up, the yield decreases.

Stocks slump after best week of the year, bond yields jump

Stocks digested some of their gains last week following the best week of the year for the S&P 500 and Nasdaq Composite indexes the prior week. The S&P 500 dropped -2.6%, the tech-heavy Nasdaq Composite fell -2.5%, and the small cap Russell 2000 Index slumped -3.5%. All three indexes marked their worst week since April. 

The markets started the week with fears of a deficit crisis and ended with renewed anxiety over tariffs. The steady rise in Treasury bond yields since Moody’s Ratings downgraded the U.S. government and the House of Representatives passed a tax bill that could add to the country’s budget deficit were the chief detractors early in the week. But just as Memorial Day Weekend rolled around, tariffs took over the headlines again. Early Friday morning, President Donald Trump issued a series of social media posts that shook investors by targeting Europe and Apple with tariffs. Trump threatened to impose a “straight 50%” tariff on European goods starting June 1 – but over the weekend pushed it back to July 9. He also suggested a tariff of at least 25% on iPhones unless they were manufactured in the U.S. Apple was shifting manufacturing toward India to offset the tariffs on China, but Trump has criticized the tactic and called for Apple to build phones in the U.S. instead. Shares of Apple were down -3% on Friday. 

In terms of bond yields, the benchmark U.S. 10-year Treasury yield ended the week up just +3 basis points at 4.51%, about the same level as the high point during the worst of the tariff turbulence in April. It was the longer end of the yield curve that caught investors’ attention. The 30-year Treasury bond yield was up +9 basis points for the week to finish at 5.04%, its highest level since 2023. Bond prices fall when yields rise, and the Bloomberg U.S. Aggregate Bond Index was down -0.5%, its fourth consecutive weekly decline. The rising U.S. Treasury bond yields are likely a sign that investors are concerned about the country’s borrowing costs, which could crimp corporate earnings and slow economic activity. Non-U.S. bonds, as measured by the Bloomberg Global Aggregate ex U.S. Bond Index, bucked the trend and rose for the first week in the last three, up +1.3%. The Reserve Bank of Australia and the People’s Bank of China cut their benchmark lending rates, helping non-U.S. bonds. The U.S. dollar fell -0.11% for the week after four straight weeks of gains. A declining dollar is a tailwind for foreign stocks and bonds.

The MSCI EAFE Index (developed market non-U.S. stocks) was up +1.2% last week. The S&P Global Eurozone PMI unexpectedly fell, and the European Commission (EC) reduced its forecast for economic growth in 2025 to +0.9% from the +1.3% it had projected in late 2024. U.K. data was mixed, as inflation accelerated, retail sales surged, and PMI fell. On the other hand, the German economy expanded in the first quarter by +0.4% sequentially, twice the initial estimate and a rebound from the -0.2% contraction in the final quarter of 2024. Inflation also accelerated in Japan, while machine orders jumped, but PMI fell. 

The MSCI Emerging Markets Index slipped -0.2%, breaking a five-week win streak. Chinese stocks declined despite the U.S.-China trade truce. Industrial output was better-than-expected, but retail sales growth, a key consumption barometer, weakened. The Mexican central bank reduced its key interest rate by -50 basis points (0.50%), from 9.00% to 8.50%.

The Week Ahead

Markets were closed on Monday in observance of Memorial Day, but even with the shortened-trading week, the economic calendar is as busy as it’s been in weeks. The Conference Board releases its Consumer Confidence Index on Tuesday, while the minutes from the FOMC’s May monetary-policy meeting are released Wednesday. On Thursday, we get an updated estimate of first-quarter GDP growth from the Bureau of Economic Analysis (BEA). Then, on Friday, the BEA reports the PCE Price Index, which may be the highlight of the week. The Core version of the PCE Price Index, which strips out the Food and Energy components, is the Federal Reserve’s favored inflation gauge. Speaking of the Fed, there are several speakers on the docket next week.

Outside of economic activity, all eyes will be on Nvidia’s latest quarterly results after the market close on Wednesday. Seen as a barometer for the artificial intelligence space, the world’s second-largest company is expected to report a nearly 66% rise in revenue, but investors will be watching its guidance and commentary on export controls and tariffs. Also announcing earnings on Wednesday is Salesforce, Macy’s, and Abercrombie & Fitch. On Thursday, Costco Wholesale, Gap, Burlington Stores, American Eagle Outfitters, and Dell Technologies will be reporting earnings.

Chart of the Week

The preliminary “flash” S&P Global U.S. Composite Purchasing Managers Index (PMI) showed economic activity jumped in May by the largest amount since August 2022 – to 52.1 from 50.6 in April.  Wall Street was expecting a slight decline to 50.3. Levels above 50 indicate economic expansion, while levels below 50 indicate contraction. The Manufacturing PMI leapt to a three-month high of 52.3, up from 50.2. That easily beat forecasts for a decline to 49.9. The Services PMI rose to 52.3 from 50.8 the prior month, beating expectations for a 51.0 reading. The service side of the economy — such as retailers, banks, and hospitals — employs most Americans and has driven the expansion since the pandemic. The S&P Global “flash” PMI surveys are among the first indicators of each month to give a sense of how well the U.S. economy is doing. The improved performances were driven by an acceleration of new orders, which for manufacturing rose at the sharpest pace in 15 months, while services orders were the strongest since March. The report showed sentiment about output over the coming year rebounded to the highest level since January, and manufacturing input inventory holdings had the largest jump on record. On the downside, prices for goods and services had their biggest jump since August 2022, and employment fell slightly after rising in March and April.

U.S. Economy Improves in May After April Slump

S&P Flash PMI surveys jump in May

Source: S&P Global PMI. Data collected May 12-21.

Did You Know?

VOLATILITY EVAPORATES – After trading above 60 in early April and last closing above 40 on April 10, the CBOE Volatility Index (VIX) closed below 20 on May 12. The 21-days to below 20 was the fastest ever decline from above 40 to below 20 in the VIX’s history since 1990. (Source: Bespoke)

STOCK OWNERSHIP NEAR RECORD HIGH – For the second year in a row, 62% of Americans say they currently have money invested in the stock market through individual stocks, mutual funds or a self-directed retirement plan. This year’s level is just one percentage point shy of the record 63% that said they owned stocks in 2004. (Source: Gallup)

ANOTHER V-SHAPED RECOVERY – The S&P 500 was down -15.3% year to date on April 8, but it completely reversed its decline in the five weeks that followed with a V-shaped rally of +18.1%. The last time the S&P 500 erased a -15%+ year-to-date decline in less than six weeks was in September 1982. (Source: Bespoke)

This Week in History

JAVA TIME – On May 23, 1995, Sun Microsystems launched Java, a programming language that used a “virtual machine” to run on many operating systems and platforms. Java helped fuel the dot-com boom and ushered in a new generation of enterprise software—and later became the primary language for Android applications. (Source: The Wall Street Journal)

Economic Review

• Like consumer inflation, wholesale inflation was also weaker than expected in April. The headline Producer Price Index (PPI) was down -0.5% for the month, well below expectations for +0.02%, and follows the prior month’s flat reading (revised higher from -0.4%). That was the biggest decline since 2020. Year-over-year (YoY) PPI increased at a +2.4% rate, below expectations for a +2.5% increase and down from the prior month’s +3.4% annual rate (revised higher from +2.7%). That’s the lowest level since last fall. Core PPI, which strips out volatile food and energy costs, fell -0.4% for the month, far below expectations for a +0.3% rise and down from +0.4% the prior month (revised higher from -0.1%). YoY Core PPI was up +3.1%, matching expectations and down from the prior month’s +4.0% annual rate (revised up from +3.3%). The decline was largely tied to falling egg and gasoline prices and a quirky category, the index for Final Demand, that measures certain business profit margins. The collapse in company margins was likely a result of the firms absorbing tariff increases.
• Imports Prices rose +0.1% in April, after falling -0.4% the prior month, after being revised down from -0.1%. Wall Street was expecting a -0.3% decline. Import Prices ex Petroleum were up +0.4%, up from -0.2% the prior month (revised down from 0.0%) and above expectations for a +0.1% rise. Year-over-year, the cost of imports was up +0.1%, above expectations of -0.2% and down from +0.8% the prior month (revised down from +0.9%). Meanwhile, Export Prices were up +0.1%, above expectations for a -0.4% decline and in line with the prior month after being revised up from 0.0%. Export prices accelerated to +2.0% over the past year, down from last month’s +2.6% annual rate (revised up from +2.4%).
• The Commerce Department reported that the advance read on U.S. Retail Sales showed a slight +0.1% increase. That was just above Wall Street expectations for a flat reading but down from a +1.7% jump the prior month (revised higher from +1.4%). Retail sales represent about one-third of all consumer spending and offer clues on the strength of the economy. After rushing to buy new cars and other imported goods in March before tariffs raised prices, Americans reduced their spending at retail stores in April, suggesting that consumer spending may be erratic until the tariff negotiations play out. Motor vehicles and parts dealer sales surged +5.3% month-over-month following a -1.6% decline in February. Auto sales account for one-fifth of all retail sales. Retail Sales Ex-Autos were up +0.1%, below expectations of +0.3%. Sales Ex-Autos and Gas were stronger, up +0.2%, but still short of expectations for a +0.3% rise. Both were revised higher from the prior month, to +0.8% and +1.1% respectively. The Control Group, a figure used to calculate Gross Domestic Product (GDP), fell -0.2%, far below expectations for a +0.3% increase and down from +0.5% the prior month (which was revised higher from +0.4%). Restaurant Sales, a key economic barometer, rose sharply in April and are up almost +8% in the past year. Americans tend to eat out or buy more takeout when the economy is healthy and they feel secure in their jobs.
• The preliminary reading of the University of Michigan Consumer Sentiment Index for May fell to the lowest level in history at 50.8 from a 52.2 final reading the prior month and was well below expectations for 53.4. In the same period a year ago, the index stood at 69.1. The Current Economic Conditions component fell to 57.6 from the prior month’s 59.8 and was below expectations for a 59.9 reading. It was 69.6 a year ago. The Consumer Expectations component sank to 46.5, down from 47.3, and was short of expectations for 48.6. It was 69.6 a year ago. One-year inflation expectations increased to +7.3% from +6.5%, matching expectations. 5–10-year inflation expectations increase to +4.6% from +4.4% the prior month, where they were expected to stay. The report continues to reflect deteriorating views among consumers about their personal finances and inflation expectations, but the survey was conducted between April 22 and May 13, closing two days after the U.S.-China tariff de-escalation news, so it may not capture the full consideration of that promising development.
• The National Federation of Independent Business (NFIB) reported that their Small Business Optimism Index fell to 95.8 from an unrevised 97.4 the prior month, but that was ahead of expectations of 95.0. Six of the 10 component indexes declined, three improved, and one was unchanged. The improvements came from the Earnings Trend component, which was up +7 points to a net -21%, and Plans to Increase Employment and Current Inventory, which each rose by +1 point to +13% and -6% respectively. Now a Good Time to Expand was unchanged at +9%. The biggest decline came from Expect Economy to Improve, and Current Job Openings, which both fell -6 points to +15% and +34% respectively. The separately produced Uncertainty Index that is released with the Small Business Index fell -4 points to 92 after the prior month’s -6 drop. “While owners are still trying to fill a high number of current job openings, their outlook on business conditions is less supportive of future business investments,” said NFIB Chief Economist Bill Dunkelberg.
• The U.S. Treasury Department recorded a Federal Budget Surplus of $258.4 billion in April, compared to a +$209.5 billion surplus the same month last year, but slightly under expectations for a -$145.0 billion shortfall. Receipts were $850.2 billion, up +9.5% from the year earlier, while Outlays were $591.8 billion, a +4.4% annual increase. The increase in receipts was largely due to the Individual Income Taxes ($537 billion) and Social Insurance & Retirement receipts ($184 billion), while outlays were driven by Social Security ($132 billion), Net Interest ($89 billion), Medicare ($82 billion), Health ($76 billion), and National Defense ($70 billion). The cumulative budget deficit for the first five months of fiscal 2025 has widened to -$1.049 trillion, 23.3% higher than in the same period in fiscal 2024. The Treasury Budget data are not seasonally adjusted, so the current month cannot be compared to the prior month but rather needs to be compared to the year earlier data. The key takeaway is that there was some relief on the deficit side of things with tax receipts swelling in April.
• U.S. Industrial Production was flat for the month of April, below expectations for a +0.1% rise but up from the prior month’s -0.3% decline (unrevised). However, Manufacturing Production was down -0.4% versus the -0.3% expected by Wall Street, but down from +0.4% the prior month (revised higher from +0.3%). Manufacturing represents about three-quarters of total Industrial Production and was up for a fifth straight month, and remains non-recessionary. Year-over-Year, Industrial Production was up +1.5%, following the prior month’s +1.3% increase. Capacity Utilization slipped to 77.7% from an unrevised 77.8%, where it was expected to remain. Capacity Utilization reflects how much a manufacturing plant is being used to produce things. Year-over-year, Capacity Utilization was up +1.9% from a +1.8% annual rate the prior month.
• Homebuilder confidence sank in May, as the National Association of Home Builders (NAHB) Housing Market Index (HMI) fell to 34 from 40 in the prior month, where it was expected to stay. A year ago, the index stood at 51. The index is based on a 0-to-100 scale, where any number over 50 indicates a good reading, and below 50 is considered negative sentiment. The Current Sales component fell to 37 from 45, while Sales Expectations in the Next Six Months slipped to 42 from 43, and Traffic of Prospective Buyers dipped to 23 from 25. For the month, 34% of builders reported cutting home prices, compared to 29% the prior month. That’s the highest level since December 2023, when 36% reported cutting prices. The average price reduction was unchanged at 5%. The use of sales incentives beyond price cuts was 61%, also unchanged.
• The New York Fed’s Empire State Manufacturing Index, a gauge of manufacturing activity in the state, slipped to -9.2 in May from -8.1, worse than the -8.0 reading expected. New Orders were up to +7.0 from -8.8, and Shipments also turned positive, to +3.5 from -2.9. The Inventories index remained positive at +4.8, signaling that business inventories continued to move higher. Forward looking indicators remain pessimistic, with the index for Business Conditions Expected in Six Months at -2.0. Of concern, the inflation components rose for a fifth consecutive month, with the Prices Paid indicator up +8 points to +59.0, although the Prices Received indicator retreated -6 points to +22.9.
• The Philly Fed Manufacturing Business Outlook Survey improved to -4.0 in May from -26.4 the prior month. That was far better than estimates for a rise to -11.0. Readings above zero indicate economic expansion. The indexes for New Orders rose sharply, breaking three straight months of declines. New Orders rose +42.0 points to +7.5, nearly offsetting April’s decline of -42.9 points. Shipments fell for the fourth straight month, to -13.0 from -9.1. The Employment index rose to +16.5 from +0.5. The Average Workweek index was up to +2.0 from -12.7. Both employment indexes rose to their highest readings since June 2022. Firms indicated that current price indexes remained elevated, with Prices Paid and Prices Received rising further to 59.8 and 43.6, respectively.
• April Housing Starts were up an underwhelming +1.6% month-over-month to a seasonally adjusted annual rate of 1.361 million units, missing expectations for a +3.0% rise to 1.363 million units. That compares to a -10.1% drop, or 1.339 million units from the prior month (revised up from a -11.4% fall and 1.324 million units originally reported). Single-unit starts were down -2.1% to 927,000 units, compared to 947 million units the prior month. Multi-family units were +10.7% after being flat the prior month. Housing starts peaked at 1.8 million in April 2022. New construction starts were down -10.8% in the Midwest and -16.1% in the West, but were up +12.9% in the Northeast and +10.9% in the South. On the other hand, Building Permits, one of the leading indicators tracked by the Conference Board and an indicator of future construction activity, were down -4.7% to an annualized rate of 1.412 million units. That was worse than the expected -1.2% decline to 1.450 million units and down from the prior month’s +1.9% rise to 1.481 million units. Single-unit permits dropped -5.1%, and multi-family units were down -3.7%. Regionally, permits were down -8.1% in the Midwest and -9.6% in the South, but up +3.4% in the West and +14.3% in the Northeast. 
• Weekly MBA Mortgage Applications rose +1.1% for the week ending May 9, following a +11.0% jump the prior week. The Purchase Index was up +2.3% after rising +11.1% the prior week. The Refinance Index slipped -0.4% after an increase of +11.1% the prior week. The average 30-Year Mortgage Rate inched up to 6.86% from 6.84% the prior week.
• Weekly Initial Jobless Claims were unchanged at 229,000 for the week ending May 10, a bit above expectations for 228,000. The prior week was revised higher by +1,000. The number of people already collecting unemployment claims (i.e., Continuing Claims) rose by +9,000 to 1,881,000 in the week ending May 3, better than expectations for 1,890,000 claims. Last week’s reading was revised lower from 1,879,000 to 1,872,000.

Asset Class Performance

Source: Bloomberg.
Asset‐class performance is presented by using market returns from an exchange‐traded fund (ETF) proxy that best represents its respective broad asset class. Returns shown are net of fund fees for and do not necessarily represent performance of specific mutual funds and/or exchange-traded funds recommended by The Retirement Planning Group. The performance of those funds may be substantially different from the performance of the broad asset classes and to proxy ETFs represented here. US Bonds (iShares Core US Aggregate Bond ETF); High‐Yield Bond (iShares iBoxx $ High Yield Corporate Bond ETF); Intl Bonds (Vanguard Total International Bond ETF); Large Growth (iShares Russell 1000 Growth ETF); Large Value (iShares Russell 1000 Value ETF); Mid Growth (iShares Russell Mid-Cap Growth ETF); Mid Value (iShares Russell Mid-Cap Value ETF); Small Growth (iShares Russell 2000 Growth ETF); Small Value (iShares Russell 2000 Value ETF); Intl Equity (iShares MSCI EAFE ETF); Emg Markets (iShares MSCI Emerging Markets ETF); and Real Estate (iShares US Real Estate ETF). The return displayed as “Allocation” is a weighted average of the ETF proxies shown as represented by 24% US Bonds, 10% International Bonds, 6% High Yield Bonds, 13.8% Large Growth, 13.8% Large Value, 3.6% Mid Growth, 3.6% Mid Value, 1.2% Small Growth, 1.2% Small Value, 16.8% International Stock, 4.2% Emerging Markets, 1.8% Real Estate.
* The term basis points (bps) refers to a common unit of measure for interest rates and other percentages in finance. One basis point is equal to 0.01%. Bond prices and bond yields are inversely related. As the price of a bond goes up, the yield decreases.