S&P 500 Bulls Ride Wave Down to Close Best Month Since 2023

The S&P 500 (Index: SPX) fell 0.8% to close the trading week ending on Friday, 30 May 2025 at 5,911.69.

Despite that anticlimactic decline, May 2025 was the best month for the index since November 2023.

The index gained 342.63 points, or 6.2%, in the month since markets closed on 30 April 2025. Much of the strength behind the gain in stock prices came on the basis of two developments. First, the U.S. and China struck a deal to slash tariffs for 90 days.

Second, and perhaps more significantly, inflation was far lower than expected throughout the month, contradicting the predictions of Federal Reserve officials who have staked their interest rate policy on a hypothesis that tariffs would cause inflation to spike. The difference between hypothesis and reality may force Fed officials to reevaluate their course of action.

Overall, we find the trajectory of the S&P 500 is now consistent with investors focusing their forward-looking attention on 2025-Q4 as it has now moved beyond the end of the redzone forecast range on the alternative future chart. The latest update to the chart suggests the market may have experienced a new Lévy flight event in the past week, with investors shifting their attention from 2025-Q2 to the more distant future quarter of 2025-Q4. We think the change is being prompted by the changing likelihood of interest rate cuts later in the year based on the absence of the Fed’s predicted increase in inflation.

Though we’re favoring the Lévy flight explanation for the past week’s action, we haven’t fully ruled out the potential for another market regime adjustment like those that have become remarkably frequent in recent months. For now however, we think the past week’s change in stock prices is more consistent with a run-of-the-mill Lévy flight event.

Although it was a holiday-shortened trading week, there was quite a lot of market-moving news crammed into it. Here are the week’s market-moving headlines.

Tuesday, 27 May 2025

• Signs and portents for the U.S. economy:

• Trump delays 50% tariffs on EU to July 9
• Oil steady ahead of OPEC+ meeting as trade war concerns ease
• Swiss monthly gold imports from the U.S. hit highest since at least 2012

Fed minions ready to sit and wait on next rate cut, analysts claim they are ‘firefighting’:

• Fed’s Kashkari calls for steady rates, awaits clarity on tariff impact
• Trump’s tariff blitz prompts ‘firefighting’ response from Fed researchers

Bigger trouble, stimulus developing in China:

• Chinese savers decry falling deposit rates but still won’t spend more
• China auto shares sink after BYD offers trade-in incentives

• Exclusive: China regulator summons automakers to discuss ‘zero-mileage’ used car sales

China mulling new economic policy tools, Premier Li says

• Stimulus helps drive China’s industrial profits as trade risks loom large
• China shifts from developing world’s banker to debt collector, says Lowy Institute

BOJ minions hosting central bank conference on sticky inflation and failing economic growth:

• Global central banks talk harsh new economic realities in Tokyo

• BOJ’s Ueda calls for vigilance over food inflation risks

Japan’s super-long bond yields plunge on issuance cut speculation

• Japan auction of 40-year debt in focus for signs of sovereign fiscal stress
• Exclusive: Japan to consider trimming super-long bond issuance, sources say
• Stocks Jump As Japan Panics About Soaring Bond Yields

ECB minions want to keep cutting Eurozone interest rates, say the Euro’s time has arrived:

• ECB’s Villeroy: normalisation of interest rates in euro zone probably not complete
• Euro could become the dollar’s alternative, Lagarde says

Nasdaq jumps 2%, S&P, and Dow also rise as EU tariff extension keeps mood upbeat

Wednesday, 28 May 2025

• Signs and portents for the U.S. economy:

• Oil gains on supply concerns, investors await July OPEC+ output decision
• US banks tiptoe toward crypto, awaiting more green lights from regulators
• Most US households say finances all right even as inflation still bites, Fed survey shows

Fed minions “grappling with uncertainty“, claim they’ll do something if inflation deviates from their target:

• Fed saw inflation, jobless, stability risks at May meeting, minutes show
• Fed’s Williams calls for strong response if inflation deviates from target

Bigger trouble developing in China:

• China deflation fears grow among economists after trade truce

Chief ECB minion claims they won’t change jobs before term ends despite negotiations to change jobs sooner:

• ECB’s Lagarde determined to complete her term, spokesperson says
• Lagarde discussed leaving ECB early to head WEF, says Schwab

Eurozone carmakers negotiating with US over tariffs:

• German carmakers in talks with US over possible tariff deal, sources say

Wall Street ends lower ahead of Nvidia’s quarterly results

• Indexes end down after chip designers ease late; Nvidia jumps after the bell

• Nvidia pops as Q1 results, guidance top expectations, despite China controls
• NVDA in charts: Data Center revenue rises to $39.1B

Thursday, 29 May 2025

• Signs and portents for the U.S. economy:

• Trade court strikes down Trump’s April tariffs

• Four ways Trump can re-impose tariffs struck down by trade court
• Trump’s tax and spending bill would raise some tariffs as well

Trump’s tariffs to remain in effect after appeals court grants stay

U.S. Q1 GDP decline pared to -0.2% in second estimate

US pending home sales fall sharply in April

Oil prices fall as investors assess US court ruling on Trump tariffs

Fed minions told they’re making mistake by choosing to not cut rates sooner:

• Trump tells Powell Fed is making a ‘mistake’ by not cutting interest rates

• US labor market showing cracks; corporate profits post largest drop since 2020

Fed’s Kugler says monitoring markets amid big policy shifts

Fed’s Goolsbee: US trade court ruling may extend tariff uncertainty

• Fed’s Goolsbee: if tariffs are avoided, policy rate can come down

BOJ minions holdings of long-term debt fall after Japan’s government stop issuing so much of it after market rejection:

• BOJ long-term government bond holdings fall for first time since 2008

ECB minion suddenly focused on different problem:

• ECB governing council member convicted of bribery

Wall Street ekes out gain, bonds rally after weak GDP data

Friday, 30 May 2025

• Signs and portents for the U.S. economy:

• US consumers pulling back spending; inflation slowing for now

• VIEW US inflation tepid in April, consumer spending slows

US goods trade deficit narrows sharply in April as imports plunge

• Trump’s tariffs to remain in effect after appeals court grants stay
• Trump says China has ‘totally violated’ Geneva deal with US on tariffs, minerals

Trump wants to see bigger tax cuts in the budget bill

• Tax bill contains ‘sledgehammer’ for Trump to retaliate against foreign digital taxes

Oil price outlook weakens on OPEC+ hikes, lingering trade concerns

Fed minions say they’re worried about everything:

• Fed’s Logan says it ‘could take quite some time’ to see a shift in balance of risks
• Fed’s Daly says inflation her main focus right now
• Fed’s Kugler says monitoring markets amid big policy shifts

Bigger trouble, stimulus developing in China:

• China’s May manufacturing activity likely contracted for second straight month

BOJ minions get inflation data they want to hike Japan’s interest rates:

• Core inflation in Japan capital hits 2-year high, keeps rate hike chance alive

S&P 500 ends near flat but posts biggest monthly pct gain since November 2023

• Wall Street takes home massive May gains for best monthly climb since Nov 2023

The CME Group’s FedWatch Tool still projects the Fed will avoid cutting the Federal Funds Rate until the conclusion of its 17 September (2025-Q3) meeting, at which time, it will cut rates by a quarter percent to a target range of 4.00-4.25%. After that, the FedWatch Tool forecasts the Fed will reduce U.S. interest rates by another quarter point on 10 December (2025-Q4), but curiously, may act to cut rates by a quarter point a third time just six weeks later on 28 January (2026-Q1).

The Atlanta Fed’s GDPNow tool projection of real GDP growth in the U.S. during the current quarter of 2025-Q2 spiked upward to +3.3%, up from the +2.4% that it previously projected.

Image credit: Microsoft Copilot Designer. Prompt: “An editorial cartoon of a Wall Street bull who is riding a surfboard and is made from plasticene.”