Newsletter | June 2025 | Market Recovery Hits a May Milestone

US Recovery Rally Enters New Gear in May

The month of May once again challenged the adage ‘sell in May and go away’, as markets continued to rebound from April’s lows. US equities delivered strong monthly gains, with the S&P 500 rising by 6.3% in US$ dollar terms, marking its best May since 1990 and its strongest month since November 2023. The information technology sector led the charge, driving the Nasdaq Index up by 9.1% in dollar terms for the month.

A key driver behind the continued market recovery was the easing of trade tensions, particularly the temporary pause in tariff escalations between the US and China. In addition, earnings from large-cap US companies significantly outperformed their 10-year average, according to FactSet.

Markets were Mute, but Pristine Credit Rating Lost

Adding to the broader news turbulence, Moody’s made a historic decision to downgrade the United States’ sovereign credit rating from its long-held AAA status (the agency’s highest possible rating) to Aa1, while maintaining a stable outlook. This move brings Moody’s in line with S&P and Fitch, which downgraded the US in 2011 and 2013, respectively.

Despite the significance of the downgrade, global equity and bond markets remained largely stable in the week that followed. Nevertheless, headwinds persist, particularly with the US Federal Government continuing to operate under a substantial deficit, irrespective of the country’s economic growth. The chart below illustrates the widening deficit, a trend that increasingly appears unsustainable: 

Although all three major credit rating agencies no longer assign the US their highest possible credit rating, confidence in the country's financial strength remains firm.

Global Markets Move Outside the US

The European Commission viewed President Trump’s latest proposal to double steel tariffs from 25% to 50% as a setback to ongoing trade negotiations. Meanwhile, the European Central Bank (ECB) kept interest rates steady at 2.25%, following a 25-basis point cut in April. ECB President Christine Lagarde acknowledged that inflation remains vulnerable to external shocks, with the trade relationship with the United States cited as the most significant factor.

In the United Kingdom, the Bank of England (BoE) cut interest rates by 25 basis points in May, in line with market expectations, lowering the benchmark rate to 4.25% following a narrow 5–4 vote. Inflationary pressures from external shocks eased somewhat, as the UK became the first country to reach a tariff agreement with the United States. However, the deal still requires approval from the US Congress. The agreement reduces tariffs on certain UK exports to the US, including cars and aluminium, and crucially, exempts the UK from the anticipated increase in steel tariffs targeting the European Union.

Moving east, China’s economy continued to show signs of strain, with industrial activity contracting for a second consecutive month. A 90-day pause on the steep bilateral tariffs imposed by the US and China back in April has been agreed. In response to ongoing economic pressure, the People’s Bank of China (PBoC) announced further monetary easing measures aimed at stimulating loan demand and increasing supply-side support. However, uncertainty over the long-term outlook for US–China relations persists, contributing to a muted performance in China’s equity markets over the month of May. 

Japan also faces challenges, particularly from the prospect of increased tariffs that could raise the cost of its exports. The United States is Japan’s primary export destination, accounting for 20% of its goods exports. Notably, automobile exports to the US represent approximately 6% of Japan’s GDP, meaning any escalation in tariffs would have a direct and significant impact on the Japanese economy. 

South Africa, on the other hand, made diplomatic headlines as President Cyril Ramaphosa visited the White House, re-establishing relations with President Trump. Domestically, the South African Reserve Bank (SARB) cut interest rates by 25 basis points, with Governor Lesetja Kganyago emphasising a cautious approach. He noted that the combination of rising trade barriers and heightened global uncertainty is likely to weaken the world economy, prompting a downward revision of global growth forecasts. On the local economic front, mining and manufacturing data disappointed, while the country also saw a further rise in unemployment.

Market Index Performances Around the World

In rand terms, the Nasdaq Index rose by 5.9% for the month, while the MSCI World Index gained 2.8%, and the MSCI US Index was up 3.3%. In contrast, the MSCI China Index declined by 0.3%, and the MSCI India Index fell by 1.9%. The broader MSCI Emerging Markets Index delivered a positive return of 1.2%. Meanwhile, the MSCI UK and MSCI Europe Indices were up 1.3% and 1.5%, respectively.

Locally, it was a broadly positive month. Resource stocks continued their strong performance in 2025, returning 2.1% in May. Industrials rose by 3.7%, while Financials also gained 2.1%. The Property sector advanced by 2.3%, and Bonds delivered a solid return of 2.7%, supported by a decline in the South African 10-year bond yield from 10.6% to 10.1% over the month. The FTSE/JSE All Share Index ended May up 3.1%, while the rand appreciated by 3.0% against the US dollar, closing at R18.06.

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