S&P 500 Sees Best May Since 1990 on Tariff Hopes, Cooling Inflation

The U.S. stock market wrapped up a turbulent but exceptionally strong May, with the S&P 500 delivering its best monthly performance in over three decades. Despite trade war jitters and persistent regulatory uncertainty, major indices rebounded sharply, buoyed by investor optimism over potential tariff relief and cooling inflation metrics that bolstered hopes for a more dovish Federal Reserve.

S&P 500 Surges 6% in May; Nasdaq Jumps Nearly 10%

The S&P 500 (^GSPC) finished May with a 6% gain, marking its strongest May since 1990 and its best monthly performance since November 2023. The rally was led by tech stocks, which helped propel the Nasdaq (^IXIC) nearly 10% higher. The Dow Jones Industrial Average (^DJI) gained 4% for the month, supported by strength in industrials and financials.

On Friday, markets were mixed. The Nasdaq closed down 0.3% after recovering from a more than 1.6% drop earlier in the session. The Dow inched up 0.1% to 42,270.07, while the S&P 500 hovered near the flat line at 5,911.69, down just 0.01%.

Highlights:

• S&P 500 rose 6% in May, best May performance since 1990.

• Nasdaq rallied nearly 10% for the month, driven by tech sector strength.

• Dow gained 4% in May; all three major indices ended the month higher.

Inflation Eases, Supporting Fed Pause Expectations

Contributing to the rally was April’s reading of the Personal Consumption Expenditures (PCE) index, the Federal Reserve’s preferred inflation gauge. The core PCE rose in line with expectations on both a monthly and annual basis, suggesting that inflationary pressures may be easing. This strengthened investor bets that the Fed might delay further rate hikes or even shift to rate cuts later in the year.

Highlights:

• April core PCE index rose as expected, signaling cooling inflation.

• Fed policy expectations shift toward a potential pause or cut.

• Easing price pressures support investor sentiment and stock valuations.

Trade War Jitters Return as Trump Signals New China Tariffs

Despite strong monthly gains, investor nerves were tested by renewed U.S.-China trade tensions. On Friday, Bloomberg reported that the Trump administration is planning to tighten tech restrictions on Chinese firms by expanding oversight to subsidiaries of already-sanctioned companies. The move would require U.S. licenses for transactions involving majority-owned affiliates of firms on the Entity List.

President Trump also accused China of having “totally violated” its recent trade agreement with the U.S., less than three weeks after a tentative tariff truce was reached between Treasury Secretary Scott Bessent and Chinese Vice Premier He Lifeng in Switzerland.

Highlights:

• Trump administration plans tighter curbs on Chinese tech firms.

• Trump accuses China of violating trade pact, reigniting tensions.

• U.S.-China trade talks reportedly “stalled”; high-level call awaited.

Legal Drama Surrounds Tariff Policy as Markets Watch Closely

The re-escalation of trade tensions followed a temporary legal setback for Trump’s global tariff framework. A U.S. appeals court on Thursday paused a lower trade court’s ruling that blocked his administration’s tariff plan, giving the White House until Monday to mount a legal defense. Meanwhile, White House officials are considering alternate legal routes to implement a new round of global tariffs.

Highlights:

• U.S. appeals court paused trade court’s block on global tariffs.

• Trump administration has until Monday to respond.

• Legal uncertainty adds complexity to the tariff outlook.

Nvidia Hit Hard by China Restrictions

Nvidia (NVDA), a key player in the tech rally, saw its stock fall 3.5% Friday amid the renewed trade war rhetoric. The chipmaker has already warned that the U.S. export ban on its mid-range Hopper GPUs to China will cost it $8 billion in sales for the fiscal second quarter. Analysts noted that U.S.-China trade tensions remain the biggest overhang on Nvidia’s valuation and growth trajectory.

Highlights:

• Nvidia fell 3.5% amid escalating U.S.-China trade tensions.

• Company expects $8B revenue hit from GPU export bans to China.

• Analysts say China policy remains largest risk to Nvidia’s shares.

Tech Sector Leads May Rally Despite Geopolitical Headwinds

Technology stocks were the standout performers in May, with investors largely overlooking geopolitical uncertainties in favor of strong earnings and AI-driven growth optimism. The Nasdaq’s 10% surge was its best monthly gain in over a year, led by megacap names including Apple, Microsoft, and Meta Platforms.

However, as trade tensions with China intensify, tech valuations could come under renewed pressure in the coming weeks, especially for firms with significant Chinese exposure or regulatory risk.

Highlights:

• Nasdaq posted best month in over a year with nearly 10% gain.

• Big tech stocks drove index higher amid AI growth optimism.

• China-related risks could pressure valuations moving forward.