Uncertainty continued to lead to market volatility in May 2025. However, there was some good news for investors as some markets recovered the losses they experienced in April 2025. Read on to find out more and what factors may have influenced your portfolio’s performance recently.

While market movements may be worrisome, remember, it’s a normal part of investing. Keep your long-term goals and strategy in mind when you review how the value of your investments has changed.

US - Tariff announcements continued to affect markets towards the end of May 2025

The month got off to a good start for investors – the FTSE 100, an index of the largest 100 companies listed on the London Stock Exchange, recorded its longest-ever winning streak. On 3 May, the index had made gains for 15 consecutive days and almost recovered all the losses that followed tariff announcements in April.

The European markets experienced some volatility at the start of the month as Friedrich Merz lost the vote to become Germany’s chancellor. It led to some calling for a fresh election, and also uncertainty – on 6 May, the German index DAX fell 1.9%.

After a tit-for-tat trade war sparked investor fear in April, many were optimistic when trade discussions between the US and China began on 7 May. Combined with the People’s Bank of China cutting interest rates by half a percentage point, this led to Asian stocks lifting. Indeed, the Shanghai Composite rose by almost 0.5%. 

This was followed by Donald Trump, president of the US, announcing a “full and comprehensive” trade deal with the UK. When markets opened on 8 May, Wall Street was up 0.6%.

Hope that other countries will also reach agreements with the US lifted European markets. The DAX in Germany increased by 0.6% to reach a record high, while France’s CAC was up 0.5% on 9 May.

Wall Street surged on 12 May when it was revealed the US and China had agreed to a 90-day pause on tariffs. The Dow Jones Industrial Average (2.3%), S&P 500 (2.6%), and Nasdaq (3.6%) all rallied.

Similarly, when markets opened in Asia, Chinese indices jumped, particularly technology and financial stocks.

However, the positive news didn’t last throughout the month.

On 19 May, credit ratings firm Moody’s downgraded the US’s rating from triple-A to Aa1. The decision was linked to the growing US national debt, which is around $36 trillion (£26.6 trillion) and rising interest costs. The announcement led to global volatility.

UK

The Bank of England (BoE) decided to cut its base interest rate by a quarter of a percentage point to 4.25% – the lowest rate in two years – at the start of the month.

However, inflation data may raise concerns for the BoE. While inflation was expected to rise, it was higher than predicted. In the 12 months to April 2025, inflation was 3.5%, with increasing energy costs playing a key role in the rise.

GDP data was positive. The UK grew by 0.7% in the first quarter of 2025 but the think tank Resolution Foundation warned a rebound is unlikely, and it expected April data to be weaker.

The UK unveiled a trade deal with India, covering a range of products from cosmetics to food. The agreement represents the biggest trade deal since Brexit in 2020 and is expected to increase bilateral trade by more than £25 billion over the long term. In my opinion, this has the potential to be massive and steer some of our dependency on China towards India, which is a good thing.

Europe

Inflation in the eurozone continued to hover above the 2% target at 2.2% for the 12 months to April 2025.

Eurostat lowered its estimate for economic growth in the eurozone in the first three months of the year to 0.3%. In the first quarter of 2025, Ireland boasts the fastest-rising GDP (3.2%), while contractions were measured in Slovenia, Portugal, and Hungary.

The European Commission also cut its growth forecast for the eurozone in 2025 from 1.3% to 0.9%.

HCOB’s PMI output index for the eurozone fell from 50.9 to 50.4 in April – a reading above 50 indicates growth. While still growing overall, it’s notable that France’s private sector contracted for the eighth consecutive month and Germany’s output barely rose once more.

Asia

At the start of the month, the Bank of Japan cut its economic growth forecast for the fiscal year ending March 2026 from 1.1% to 0.5%. The bank cited trade policies as the reason for the fall.

Indeed, GDP for the first quarter shows Japan’s economy contracted by 0.7% due to a decline in exports and private consumption as households cut back their spending.

Trade between China and the US fell sharply in April. Shipments to the US fell 21% year-on-year, and imports declined by 14%. However, the data suggests that Chinese manufacturers have found alternative markets. Overall exports jumped by 8.1% compared to the forecast rise of 1.9%.

Please note: This blog is for general information only and does not constitute financial advice, which should be based on your individual circumstances. The information is aimed at retail clients only.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.