Insights & Resources

North American stock indices rose in May, with the NASDAQ in particular putting in a strong showing on the back of resilient tech companies. Stocks gained on moderate US inflation data and an emerging perception that the Trump administration won’t enact its most severe global tariff threats after the US first announced and then rolled back hefty tariffs on China and the European Union in May. In Canada, equities also posted solid gains as the S&P/TSX Composite Index put in its best monthly performance since November.

However, fixed income markets signaled greater caution. The yield on the US 10-year note finished the month higher and the yield on the 30-year bond crested 5% in the second half of May before retreating to 4.9% by month-end. This contrasts with a yield of just below 4% on the 30-year note in mid-September 2024. Bond yields rise as prices fall. At May 30^th, the S&P 500 had inched back into positive territory for the year. The Dow and the Nasdaq ended the month essentially flat, year to date, but the S&P/TSX Composite Index remains firmly ahead in 2025 and continued to outperform US equity indices on a rolling one-year basis. Gold fell for the month after touching a record high early in May.

The S&P/TSX Composite Index ended the month up 5.56%, the S&P 500 Index rose 6.25%, the Nasdaq Index climbed 9.65%, the MSCI World Index was up 5.93% and the MSCI EAFE Index rose 4.66%. The FTSE Canada Universe Bond Index rose 0.02%.

Monthly market developments

• April employment data for Canada released in May indicated the labour market remained tepid, with just 7,400 jobs added. The gain was largely in the public sector as private sector employment fell for a second straight month. Job losses were broad-based, reflecting tariff impacts, particularly in manufacturing, which lost 30,600 jobs. This was the biggest drop since April 2020 and the overall unemployment rate rose to 6.9%.
• Canadian inflation slowed to 1.7% in April, year-over-year, from 2.3% in March, according to Statistics Canada. The fall was in part due to the end of the carbon tax and lower energy prices as global oil prices slid on lower demand and excess supply. Both gas and natural gas prices fell in April. However, core inflationary pressures rose, with the Bank of Canada’s (BoC) CPI-trim and median measures up an average 3.1%, year over year, the highest increase since March 2024. Tariff impacts pushed up food and vehicle prices.
• March retail sales data released in May ticked up 0.8%, according to Statistics Canada, with sales rising in six of nine subsectors. Activity was strongest at motor vehicle and parts dealers. Core retail sales, excluding gasoline, motor vehicle and parts dealers, rose 0.2% in March. Retail sales were up 1.2% in Q1 2025, the fourth consecutive quarterly increase.
• Statistics Canada’s advance estimate for April retail sales indicated an increase of 0.5% but the data will be revised at a later date.
• Q1 GDP data revealed an annualized gain of 2.2%, above expectations and a slight increase from 2.1% in Q4, 2024. Earlier estimates foresaw Q1 growth of between 1.5%-1.7%. Statistics Canada ascribed the better performance to both importers and exporters ramping up activity in hopes of avoiding tariff impacts.
• In the US, news of progress in US-China trade talks boosted US stocks in May. Key details included a 90-day reduction in tariffs, with the US slashing its additional import tariff on China from 145% to 30%, while China dropped its own from 125% to 10%. However, at the end of the month Trump accused China of violating aspects of the truce.
• Solid Q1 US corporate earnings added to an upbeat tone for equities. Profits at S&P 500 companies are expected to have risen about 13% in Q1 from a year earlier, according to FactSet. As recently as the end of March, analysts foresaw 7% earnings growth. 
• In contrast, rising US debt levels and interest payment costs were cited as key reasons global credit rating agency Moody’s stripped US debt of its triple-A rating in mid-month. Softer than expected demand for US Treasurys at a May 21 auction added to concerns. 
• Earlier in the month, the US Labor Department reported that employers added a surprising 177,000 jobs in April and the unemployment rate held at 4.2% as the job market showed resilience despite trade turbulence.
• However, subsequent data from the Labor Department suggested a softening outlook in May. For the week through May 24, 240,000 new unemployment claims were filed, up from 226,000 a week before. The number of ongoing claims, one measure of overall unemployment, climbed to 1.92 million in the week through May 17. This was up from 1.89 million a week before and the highest reading since 2021.  
• April US retail sales data suggested slowing consumer activity. Softer spending showed up in autos, sporting goods, and other goods categories sensitive to tariff price hikes.
• The US annual inflation rate was 2.3% in April, down from 2.4% in March, according to the Bureau of Labor Statistics. The index for all items less food and energy increased 0.2% percent in April, up 2.8 % over the year.
• The Federal Reserve kept the federal funds rate steady at 4.25% to 4.50%, noting increased economic uncertainty. Chair Powell expressed caution and said the Fed is waiting for more clarity before deciding on any further rate moves.
• Q1 Eurozone GDP grew by 0.4%, quarter over quarter, better than expected.
• Later in May, Trump threatened the European Union with a 50% tariff on all EU goods, escalating trade tensions and triggering market volatility. However, he soon postponed the proposed action until July 9^th as broader trade negotiations with the EU continue. European stocks rallied on the news.
• UK GDP rose 0.7% in Q1, on a quarter over quarter basis, helped by solid retail sales, car buying, and tech activity.
• A US–UK trade deal announced early in May was followed later in the month by a UK–EU deal meant to reinvigorate trade curtailed by Brexit.
• UK headline inflation data for April rose to 3.5%, annualized, driven by expected increases in utility and train prices and local tax rates. Airfares rose more than expected.
• The Bank of England cut its policy rate from 4.50% to 4.25% at its May meeting but expectations for a further trim in June have declined.
• China’s economic data for April indicated exports held up despite US trade tensions thanks to global trade diversion. But retail sales came in below expectations and real estate remained a drag, with prices falling at the fastest rate since November.
• Broad Q2 Chinese GDP growth is tracking 2.4%, quarter over quarter, annualized, significantly under the government’s official 5% growth target. China’s central bank trimmed rates during the month.
• Japan’s economy shrunk -0.7% in Q1 with weak exports and tepid consumer activity. Inflationary pressures remained firm, however, as the core reading (ex-fresh food) jumped 3.5% in April, annualized, the fastest pace in over two years. The poor GDP data plus inflation raises potential stagflation risks and complicates the outlook for the Bank of Japan.
• Australia’s central bank lowered its key policy rate to 3.85%, flagging a shift in focus from inflation to downside growth risks as it trimmed GDP growth forecasts to 2.1% for 2025 and foresees inflation hovering within the 2-3% target range.

How does this affect my investments?

Equity markets performed strongly in May, a welcome development for investors following some volatile periods earlier in the year. Canadian Q1 bank results released in May were a mix of above and below expectations but higher loan loss provisions for the future was a common theme and Canada’s unemployment rate continues to creep up. Trump’s declaration at the end of the month that he will double tariffs on steel and aluminum imports highlights, again, that uncertainty remains a factor and China, the biggest target of US tariffs, has shown few signs of backing away from confrontation. But in the final week of May, the US Court of International Trade ruled that the Trump administration’s use of the International Emergency Economic Powers Act to impose broad-based tariffs was illegal. The US government immediately appealed, and a federal appeals court quickly issued a temporary stay, allowing the US to continue collecting the tariffs while litigation proceeds, but this legal wrangle could become pivotal. Another key issue that markets, particularly fixed income, are monitoring is the massive and controversial US budget bill passed by one vote in the US House of Representatives in May and now being taken up by the Senate. The bill as currently written will increase the US debt and deficit substantially and is causing some unease in bond markets. While Canadian equities continue to outshine their US counterparts year to date and on a rolling one year basis, the evolution of trade issues with the US will remain critically important for our economy through 2025 and beyond.

Disclaimers

The information in this letter is derived from various sources, including Wall Street Journal, ISM World, U.S. Bureau of Labor Statistics, The Globe and Mail, BNN Bloomberg, Financial Times, Bureau of Economic Analysis, Toronto Star, and Statistics Canada at various dates. This material is provided for general information and is subject to change without notice. Every effort has been made to compile this material from reliable sources and reasonable steps have been taken to ensure their accuracy. Market conditions may change which may impact the information contained in this document. Before acting on any of the above, please contact me for individual financial advice based on your personal circumstances. Certain statements contained in this communication are based in whole or in part on information provided by third parties and CI Global Asset Management has taken reasonable steps to ensure their accuracy. Market conditions may change which may impact the information contained in this document.