U.S. and global markets ended the week on a cautious note on May 23, 2025, as investors weighed the impact of recent tariff reductions, mixed economic data, and ongoing uncertainty in global trade policy. While the recent U.S.-China agreement to substantially reduce tariffs has relieved financial markets, underlying economic signals suggest growth momentum remains subdued and risks persist.
Market Performance and Sentiment
• Major U.S. indices traded in a narrow range, with the S&P 500 and Dow Jones Industrial Average little changed after a week of volatility. The Nasdaq Composite saw modest gains, supported by continued strength in artificial intelligence and technology stocks.
• Global equities have rebounded since the U.S.-China tariff agreement in early May, which led to a rally in equity indices, crude oil prices, and the U.S. dollar. This agreement, which substantially reduced tariffs, has provided a significant boost to the global economy. However, S&P Global cautions that while tariff and trade-related risks have diminished, they have not disappeared, and the unpredictability of U.S. trade policy continues to weigh on business confidence.
• S&P Global’s Purchasing Managers Index (PMI) data for April signaled a weakening of global growth momentum, with the global composite output index falling to 50.8—its third decline in four months. This points to below-potential global GDP growth despite a temporary boost from front-loaded trade activity as businesses rushed to import goods ahead of expected tariff hikes.
Economic Data and Outlook
• The U.S. economy contracted at an annualized rate of 0.3% in the first quarter of 2025, mainly due to a surge in imports as companies stockpiled goods before tariffs took effect. While personal consumption and investment spending remained solid, much of the strength was attributed to temporary factors, raising concerns about a possible correction later in the year.
• Inflation trends remain mixed. Services disinflation is becoming more pronounced in advanced economies, with the G5 services inflation rate dropping to 3.5%, its lowest since early 2022. However, core goods inflation continues to rise gradually, reflecting ongoing supply chain pressures and sector-specific tariffs not addressed in the recent U.S.-China agreement.
• The global real GDP growth forecast for 2025 remains at 2.2%, according to S&P Global, with a slight upward revision for China due to stronger-than-expected early-year performance and policy stimulus. Most other major economies are expected to see stable but subdued growth.
Trade and Policy Developments
• The reductions in U.S. and Chinese tariffs were agreed to more quickly and went further than many had anticipated, providing some upside risk to baseline growth forecasts. However, the effective U.S. tariff rate remains well above pre-election levels, and sector-specific tariffs are still under investigation.
• The front-loading of trade activity, a strategy where businesses accelerate their import orders to avoid higher tariffs, ahead of tariff changes has distorted economic data. This strategy has temporarily boosted growth rates but likely set the stage for a slowdown as inventories are drawn down and businesses return to normal import patterns.
• The unpredictability of U.S. trade policy, particularly in relation to China, and the potential for renewed tariff escalation remain key risks to the global outlook. The current administration's stance on trade, characterized by frequent changes and unexpected announcements, has created uncertainty in the market, making it difficult for businesses to plan and invest.
Disclosure
This article is for informational purposes only and does not constitute investment advice, an offer to sell, or a solicitation to buy any securities. All information is based on publicly available sources as of May 23, 2025. The author holds no positions in the securities mentioned. Readers should consult financial professionals before making investment decisions.
Sources
- https://www.spglobal.com/market-intelligence/en/news-insights/research/global-economic-outlook-may-2025
- https://www.investopedia.com/dow-jones-today-05012025-11725528
- https://www.dwassetmgmt.com/blog/the-pulse-global-economic-and-market-news-for-thursday-may-1-2025
- https://www.confluenceinvestment.com/daily-comment-may-1-2025/
- https://tradingeconomics.com/calendar
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