May 2025 Market Commentary

Mayday No More: Markets Rebound as Calm Replaces Chaos

May 2025 brought a welcome shift in investor sentiment, as markets shook off April's tariff-induced jitters and embraced a more optimistic outlook. The S&P/TSX Composite Index soared to a new all-time high, closing the month at 26,175.05 reflecting the TSX’s resilience amid global trade tensions. Meanwhile, the S&P 500 ended May at 5,911.69, marking a steady recovery as investors digested positive developments in tariff and trade negotiations.

Canada’s economic indicators helped support the positive trend in markets. The Bank of Canada reported that inflation remained close to its 2% target. Past interest rate cuts were also beginning to boost economic growth, as both household and business spending increased. In addition, exports were supported from new transportation capacity for oil and gas. These factors, combined with a relative valuation trade among investors, created a favorable environment for Canadian equities. As a result, the TSX has outperformed its U.S. counterpart on a year-to-date basis.

In the United States, the economic picture was more mixed. The OECD downgraded its U.S. growth forecast for 2025 from 2.8% to 1.6%, citing the negative impact of President Donald Trump's trade tariffs. Inflation was expected to rise to 3.9% by year-end, potentially delaying further interest rate cuts by the Federal Reserve. Despite these challenges, the S&P 500's performance in May suggested that investors were cautiously optimistic, buoyed by hopes of de-escalation in trade tensions and a stabilization of economic conditions.

Overall, May 2025 was characterized by a sense of calm and improvement, as markets responded positively to developments in tariff and trade negotiations. Canada's relative value and previous proactive monetary policy contributed to the TSX's record performance, while the U.S. market showed resilience in the face of ongoing challenges. As portfolio managers and investors, we continue to monitor economic indicators and policy developments closely, but for now, the outlook appears more favorable than in the preceding months.

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