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.
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.
What’s more, on 23 May, Trump threatened further tariffs, which led to markets falling.
In a bid to encourage technology giant Apple to make its iPhone in the US, Trump suggested the company could face a 25% tariff. Apple’s shares fell by around 3% before markets opened after the comments were made.
Trump also said EU imports would face a 50% tariff from the start of June. He added he wasn’t looking to make a deal with the bloc, but instead wanted EU businesses to build plants in the US. The news led to falls across European markets, including the DAX (-1.6%), FTSE 100 (-0.24%) and Italy’s FTSE MIB (-2%).
However, just a few days later, Trump agreed to delay EU tariffs and suggested meetings would be arranged to discuss a trade deal.
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, making it the fastest-growing G7 economy. Yet, 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.
While many businesses are worried about the potential effects of trade tariffs, aerospace and defence firm Rolls-Royce said it could offset the impact. CEO Tufan Erginbilgic said the company expected to deliver an underlying operating profit of between £2.7 billion and £2.9 billion in 2025 on 1 May, which led to share prices increasing by 2.7%.
The firm benefited from a further boost of 4% on 8 May when the UK-US trade deal was announced.
However, other firms aren’t expected to fare as well.
Drinks company Diageo, which produces around 40% of all Scotch whisky, predicts it will lose around $150 million (£111 million) due to tariffs.
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 0.4%. In the first quarter of 2025, Ireland boasts the fastest-rising GDP (3.2%), while contractions were measured in Slovenia, Portugal, and Hungary.
Unsurprisingly, the European Commission also cut its growth forecast for the eurozone in 2025 from 1.3% to 0.9%. It said this was “largely due to the increased tariffs and the heightened uncertainty caused by recent abrupt changes in US trade policy”.
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. However, there was a strong increase in Ireland, and Spain and Italy also expanded.
There is potentially good news on the horizon. Germany’s factory orders jumped by 3.6% in March as companies tried to get ahead of tariffs.
US
Trump’s tariffs, which aim to reduce the trade deficit, have initially, at least, had the opposite effect.
As businesses tried to stock up before new tariffs were imposed on goods from abroad, the US trade deficit reached a record high in April. The deficit increased by $17.3 billion (£12.8 billion) to $140.5 billion (£104 billion).
GDP data also suggests Trump’s policies are having a negative effect on the economy. In the first three months of 2025, GDP fell by 0.3%; this is in stark contrast to the 2.4% rate of growth recorded in the final quarter of 2024. It marks the first time the US economy has shrunk in three years.
The University of Michigan’s index of consumer sentiment indicates households are worried about their finances. Americans are concerned about potentially weakening incomes, with the index falling 26% year-on-year.
Tariffs are expected to affect a range of businesses, including the car manufacturing sector.
The three big US car manufacturers – General Motors, Ford, and Stellantis – all have some manufacturing facilities in Mexico or Canada that serve the US market and are likely to be affected by trade tariffs.
General Motors expects tariffs to cost the company as much as $5 billion (£3.7 billion) this year. Similarly, Ford has said tariffs will cost around $1.5 billion (£1.1 billion) in profits this financial year and has suspended its guidance while it seeks to understand the full impact of consumer reaction and competitive response.
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.
