Stocks End Month With Fresh Tariff Worries After Best May Since 1990

U.S. stocks rallied strongly in May, with major indexes recording impressive gains as global trade tensions temporarily eased. However, developments late in the month suggest that the upward momentum could face some obstacles ahead, especially with ongoing concerns around tariffs and trade policy.

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The S&P 500 surged 6.2% in May, snapping a three-month losing streak and delivering its biggest monthly advance since November 2023. This also marked its strongest May performance since 1990, according to Dow Jones Market Data. The rally helped lift the index slightly into positive territory for the year, ending the month at 5,911.69.

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Despite this bullish turnaround, some market strategists remain cautious about how much higher the index can go from here. “I think it’s going to be very hard for the S&P 500 to crack above 6,000 with where things stand right now,” said Anthony Saglimbene, chief market strategist at Ameriprise Financial. He emphasized that markets remain highly reactive to news about trade developments.

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A key driver of May’s gains was a mid-month breakthrough in trade talks between the United States and China. This temporary resolution helped reduce tensions between the two largest economies, leading to an agreement on lighter tariffs for the time being. However, optimism was dampened by the end of the month after former President Donald Trump accused China of breaching its trade agreement in a post on his social media platform.

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That post caused a brief bout of volatility in the stock market on the last trading day of May. While major indexes initially struggled on Friday, they rebounded by the afternoon. The S&P 500 ended the session nearly unchanged, the Dow Jones Industrial Average edged up 0.1%, and the tech-heavy Nasdaq Composite slipped 0.3%.

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Saglimbene said Trump’s remarks highlight ongoing unpredictability in trade policy and tariff negotiations. Yet, all three major benchmarks managed to post strong weekly and monthly gains. The Nasdaq led the way in May, jumping 9.6%, its best monthly performance since November 2023 and the strongest May since 1997. The Dow also had a solid month, rising 3.9%—its largest May advance since 2020 and best monthly showing since January.

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Markets had initially stumbled in early April when Trump first introduced wide-ranging reciprocal tariffs on imports. Fears emerged that these measures could spark inflation and potentially trigger a recession. However, when Trump later opted to pause the rollout of these tariffs, investor sentiment improved, contributing to the May rebound.

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Another factor supporting stocks late in the month was a new inflation report that showed prices rose modestly in April. The personal consumption expenditures (PCE) index, the Federal Reserve’s preferred inflation measure, climbed at a 2.1% annual pace. Meanwhile, core PCE inflation, which strips out volatile food and energy prices, eased to 2.5% year-over-year.

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Barclays analysts, in a note on Friday, said that April likely represents the lowest point for core PCE inflation this year. They cautioned that as the base effects wear off and tariffs start to push prices higher, inflation could climb again in the coming months.

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Despite the looming inflation risk, concerns about a potential economic downturn seemed to ease somewhat in May. Saglimbene noted that markets are starting to get comfortable with the possibility of the U.S. implementing steep tariffs—30% on Chinese goods and 10% on other countries—without necessarily tipping into a recession.

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Still, legal hurdles have added new complications to the tariff situation. In a recent development, the U.S. Court of International Trade struck down some of Trump’s tariffs that were enacted under the International Emergency Economic Powers Act. However, after the Biden administration appealed the ruling, those tariffs were temporarily reinstated the next day.

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According to Saglimbene, Trump’s trade strategy appears aimed at fundamentally reshaping global commerce. “He is not going to abandon tariffs,” he said. The persistence of these policies suggests that trade headlines will continue to drive market sentiment.

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Since Trump first announced the new round of tariffs on April 2, the S&P 500 has risen 4.2%, reflecting the market’s resilience despite the uncertainty. After the gains in May, the index is now up 0.5% for 2025, a modest improvement but one that leaves investors cautious about what lies ahead.

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In summary, while U.S. stocks made a robust recovery in May, the road forward could be rocky as markets continue to react to trade-related developments, inflation concerns, and political uncertainty surrounding tariff policy.

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