BIG, BEAUTIFUL AND BROKEN
Signia Invest Insights | May 2025
Market Review and Outlook
- May was a strong month for most financial assets, as better economic data and lower US-China tariffs led investors to price out the likelihood of a global downturn. Specifically, the US and China agreed to cut tariffs on their respective imports by 115%, but only for 90 days, with US tariffs on Chinese imports falling from 145% to 30% and China’s reciprocal tariffs on the US easing from 125% to 10%. Indeed, the S&P 500 posted its biggest monthly gain in 18 months and best May since 1990, with a 6.2% move during the month, whilst credit spreads also tightened meaningfully. So generally speaking, that unwound many of the moves seen in the turmoil after Liberation Day. Nevertheless, US Treasuries had a much tougher time amidst growing fears about America’s fiscal situation following a one-notch credit rating downgrade by Moody’s from Aaa to Aa1 (S&P and Fitch had already stripped the US of its top AAA rating), and there was also plenty of focus on one contributing factor currently in the headlines… the “One Big Beautiful Bill Act”, currently working its way through Congress.
- The Republican controlled House of Representatives passed a version of Trump’s tax and spending bill, which would add $2.4 trillion to US budget deficits over the next decade, according to a new estimate from the nonpartisan Congressional Budget Office. The end result could boost the US national debt to within striking distance of $40 trillion by extending the 2017 tax cuts from Trump’s first term and introduces new tax and spending measures. However, the CBO also showed the combined effects of tariffs and tax cuts will in fact be a $400 billion surplus over 10 years. Specifically, the CBO analysis shows Trump’s tariffs will generate $2.8 trillion over 10 years, after factoring in growth and substitution effects. The bill is now being debated in the Senate where a vote is currently expected on July 4.
- A big and beautiful bill is certainly not a view shared by Trump’s former ally in government, Elon Musk, after differences between the two exploded into an all-out public feud, bringing to an end a big and beautiful bromance that had blossomed since the US election cycle last year. Tensions had been simmering since the submission of the bill, which wiped out the fiscal savings Musk had worked on in his DOGE project, and sought deep cuts to Nasa’s budget, going against Musk’s ambitions. The reaction was nothing short of astonishing… Musk called for Trump’s impeachment and insinuated he was withholding the release of files related to disgraced New York financier Jeffrey Epstein because of his own presence in them. Trump, in turn, proposed cutting off the billionaire’s government contracts. Musk’s olive branch came after Tesla’s shares tanked 14% and his personal wealth dropped by $34 billion, excluding any damage to the value of his private enterprises such as SpaceX. Hours after saying he would end the use of SpaceX’s Dragon spacecraft, including trips to the International Space Station for the US government, Musk reversed course and signaled there could be a cooling-off period between Trump and the world’s richest man. “This is a shame this back and forth. You are both better than this. Cool off and take a step back for a couple days,” an X user who had just 200 followers on the platform wrote in reply to Musk’s post about Dragon. “Good advice,” Musk responded. “Ok, we won’t decommission Dragon.”
- Chinese markets also benefitted from declining volatility and gained 5.3% for the offshore Hong Kong Hang Seng index (16.1% year-to-date) but only a paltry 1.8% for the onshore CSI 300 index (still down -2.4% year-to-date), which is the biggest outperformance year-to-date since 2008. Offshore HSI outperformance has been driven by the rise of DeepSeek, the Chinese AI start-up rivalling its US counterparts that has encouraged investor appetite for Hong Kong listed technology stocks, as well as record high levels of capital flows from the mainland into Hong Kong. Performance of European stock markets was strong but more moderate than some other global indices after a strong start to the year, with the Stoxx 600 index gaining 4.0% in May leaving it up 8.1% for 2025. Meanwhile, the Europe Stoxx 600 index gained 4.0% and is up 8.1% for 2025. The German DAX is the standout winner, up 6.7% in May and more than 20% year-to-date, having hit all-time highs recently. The valuation discount of German stocks in combination with momentum on the back somewhat higher capital flows into Europe have benefitted the country.
View this month’s full insights:
Explore the comprehensive analysis of this month’s market review, including detailed performance figures. Click here to delve into the full insights
Important Information
The information set out in this document has been provided for information purposes only and should not be construed as any type of solicitation, offer, or recommendation to acquire or dispose of any investment, engage in any transaction or make use of the services of Signia Invest. Information about prior performance, while a useful tool in evaluating Signia Invest’s investment activities is not indicative of future results and there can be no assurance that Signia Invest will generate results comparable to those previously achieved.
Any targeted returns set out in this document are provided as an indicator as to how your investments will be managed by Signia Invest and are not intended to be viewed as a representation of likely performance returns. There can be no assurance that targeted returns will be realised. An estimate of the potential return from an investment is not a guarantee as to the quality of the investment or a representation as to the adequacy of the methodology for estimating returns.
The information and opinions enclosed are subject to change without notice and should not be construed as research. No responsibility is accepted to any person for the consequences of any person placing reliance on the content of this document for any purpose.
No action has been taken to permit the distribution of this document in any jurisdiction where any such action is required. Such distribution may be restricted in certain jurisdictions and, accordingly, this document does not constitute, and may not be used for the purposes of, an offer or solicitation to any person in any jurisdiction were such offer or solicitation is unlawful.
Signia Invest is a trading name of Arbion Limited. The Signia Invest brand identity and its constituent elements are the property of Arbion Limited. All rights are reserved. Arbion Limited is authorised and regulated by the Financial Conduct Authority (FCA). Our registration details are set out in the FCA Register: Firm Reference No 513138 www.fca.gov.uk/register. Arbion Limited is a private limited company incorporated in England and Wales under company number 07044573 with its registered office located at One Connaught Place, London, W2 2ET.
