MW Stock market's haul in May comes as tariff turmoil and job angst lurk on the horizon

By Joy Wiltermuth

S&P 500 seizes huge May gains - and lands back on the doorstep of record territory

The stock market will enter June in the vicinity of record territory, right around where the year started, but with households now more wary about tariffs, the economy and their jobs.

The S&P 500 index SPX scored huge gains in May, which was its biggest monthly haul since November 2023. It closed out a whirlwind month less than 4% off its record close in February, while sailing through hazards that in more normal times could have sunk a fortune.

The U.S. and U.K. kicked things off with a May 8 trade agreement that included 10% tariffs on many imports of U.K. goods. The U.S. and China next met in Geneva in mid-May, where on May 12 tit-for-tat tariffs were paused. Stocks roared higher.

President Trump on May 23 then lobbed a quick 50% tariff threat on goods from the European Union. Stocks came down a notch, investors responded by buying the dip, on a hunch those tariffs wouldn't emerge - and they too were quickly paused.

Stocks rounded out the month on higher ground even through a federal court ruling on May 28 invalidated most of Trumps tariffs. That ruling in less than 24 hours was paused to allow the administration's appeal to play out. Finally, the month ended with Trump blasting China on May 30, claiming aspects of the partial tariff pause were being violated, while the White House also doubling tariffs on all steel imports to 50%.

"We've had quite a decent run over the last couple of weeks," Anthony Saglimbene, Ameriprise's chief market strategist, told MarketWatch. Stock valuations may look "a little stretched" relative to history, but he said investors no longer appear to fear the worst-case scenario on tariffs.

What's priced into stocks is U.S. tariffs on imports will settle around 10% for much of the world, and 30% for China, he said. "If that level is maintained - and we don't see it get worse than that - the markets have correctly rebounded, because companies can manage that environment," he said. "The impacts of inflation will be less draconian, and growth can remain positive."

"But you just don't know if that's going to be the real rules of the road," Saglimbene said.

Yo-yo moment

An inflation reading for April arrived on Friday that showed the annual cost of living moved closer to prepandemic levels. But that was cold comfort to Wall Street, given the highly uncertain tariff backdrop.

"It's also old news at this point," said Kevin Gordon, senior investment strategist at Charles Schwab & Co., Friday. "We know that for most of April and May, the average effective tariff rate didn't rise that much. By mid-to-late summer, that starts showing up."

"We expect kind of a grind from here," Gordon said of stocks.

Yet the data also reflecting a pull-forward of "consumer spending ahead of the tariff increases," which "will continue to dampen household spending in the coming months, especially as they face higher prices and a softening labor market," said Kathy Bostjancic, chief economist at Nationwide, in emailed comments.

Concerns about how companies might manage tariff costs will keep investors glued to Friday's monthly jobs report for May. Bostjancic said the sharply higher 4.9% personal savings rate in April was a cautious sign on spending, given that it was only 3.9% in November.

"Everyone is waiting to see how this settles out," said Brent Schutte, chief investment officer, Northwestern Mutual Wealth Management Company, in a phone call. He sees something akin to a "yo-yo" economy playing out over a few months, Schutte said, given the zig-zag on tariffs and extreme front-loading of inventory by companies and consumers hoping to avoid the worst of them.

A similar theme could also play out in stocks. "We don't know a lot more than we knew two months ago," Schutte said.

Read next: Americans are 'revenge saving' after years of splurging: 'Savings are a great way to have some certainty'

Watch bonds, the dollar

Tariff and economic clarity isn't expected until the Trump administration makes more concrete headway with several trade partners, hopefully over the summer.

An area to watch for signs of appetite for U.S. assets, including stocks, will be the dollar DXY, which was down 8.3% on the year as of Friday against a basket of rival currencies, according to FactSet.

"To really have the "buy America" trade come back, you would have to see the dollar stabilize," Gordon at Schwab said, adding that if the dollar keeps sliding and bond yields continue moving higher, it could signal a scenario of more capital flight out of the U.S.

Stocks have been suggesting any rough patches will smooth out. With first-quarter earnings nearly complete, FactSet's senior analyst John Butters pegged the S&P 500's next 12-month price-to-earnings ratio at 21.3, above the 18.4 average of the past 10 years.

Schutte at Northwestern said investors should be cautious with stocks valuations back to levels widely viewed as lofty. On the other hand, small-caps RUT could finally get a lasting boost, he said, if tariffs end up being on the lower end. It also would help if the inflation picture clears up, so the Federal Reserve can resume lowering rates.

Maulik Bhansali, a senior portfolio manager at Allspring Global Investments, said that despite fears about the appeal of U.S. assets abroad, the moment feels like a "goldilocks" market in bonds. Any new issuance of investment-grade U.S. corporate bonds was being quickly snapped up by investors, he said.

"If you have yields in the 5-plus-precent area for most of the bond market, that's a pretty decent amount of cushion in there, to help feel you're getting well compensation for the risks out there," he told MarketWatch.

With an eye to the jobs report, Bhansali said the biggest risk might be a report that's too positive on the labor front, one that could add to inflation worries and narrow the odds on any Fed rate cuts this year - or even put a narrow chance of a price a hike on the map.

"The reason that would be so painful is because no one is positioned for it," Bhansali said, adding that this year has been all about bond investors expecting a steepening yield curve, where longer-duration yields BX:TMUBMUSD10Y rise more than short-end BX:TMUBMUSD02Y rates.

"That would create a lot of volatility."

On deck, Wall Street will be hearing this week from a bunch of Federal Reserve officials, starting on Sunday, while monitoring other jobs data, manufacturing updates and the Fed's Beige Book, all before Friday's monthly employment report.

The blue-chip Dow DJIA rose 3.9% in May, its best month since January, while the S&P 500 jumped 6.2% and the Nasdaq Composite Index COMP surged 9.6%, booking their best months since Nov. 2023, according to Dow Jones Market Data.

Read: U.S.-China trade talks: Why rare-earth minerals are a sticking point in getting back on track

-Joy Wiltermuth

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June 01, 2025 12:00 ET (16:00 GMT)

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