Market Summary
The markets rebounded off of the April lows last month which can be mostly attributed to the Trump Administration’s softening on tariffs between the US and China. The broad-based S&P 500 retraced 6.15% higher, the tech-heavy Nasdaq 100 rose 9.04%, and the small cap Russell 2000 managed to rebound 5.20% for the month of May. (1)
China Tariffs
On May 12, after a full weekend of trade negotiations, President Trump unveiled a 90-day truce in the escalating trade war. As part of the agreement, the U.S. reduced its maximum tariff rate on Chinese goods from 145% to 30%, which includes a baseline 10% duty plus a 20% tariff tied to fentanyl-related imports. Beijing reciprocated by cutting its own tariffs on American imports from 125% to 10% during this period. (2)
Retailers and manufacturers expressed relief as the tariff rollback makes importing consumer electronics, apparel, and components more financially viable as the previous rate of 145% was viewed by most as completely unsustainable for economic stability for both countries. Even with this reduction, prices will remain elevated compared to pre-trade-war levels and have not yet been fully priced into our economy. (2)
Additionally, this tariff rollback is temporary for 90 days and may not prevent future escalations. President Trump stated tariffs could rise again if no substantive trade deal is reached with no guarantee they wouldn’t revert to the 145% peak. Further negotiations are currently being conducted between the two countries during meetings in London. (3)
Other Tariff News
On May 23, frustrated by slow negotiation progress, President Trump threatened a 50% tariff on all European Union imports effective June 1, claiming the EU had been “very difficult to deal with”. After a phone call with European Commission President Ursula von der Leyen on May 25, Trump announced a delay of the 50% tariff to July 9, stating von der Leyen requested more time for “serious negotiation”. (3,4)
Later in the month on May 30, at a U.S. Steel plant in Pennsylvania, Trump announced the doubling of tariffs—from 25% to 50%—on nearly all imported steel and aluminum, citing national security and the need to protect domestic steelworkers. The new tariff rates took effect on June 4 with the only exception being the UK maintaining the 25% rate through at least July 9 under a preliminary trade deal. The President calls the 50% tariffs a “jolt” to domestic industry, saying they go “further secure” U.S. steel and aluminum production and defend against subsidized, low-cost imports.
Elsewhere around the world, individual countries continue to negotiate their own trade deals with the Trump Administration as we approach the 90-day reciprocal tariff pause deadline in July.
Looking Forward…
After the much-needed rebound from the lows last month, we have reached overbought conditions in the markets. As noted last month, we do expect volatility to continue to both the up and downsides with large market swings into this summer as tariff negotiations continue. We will also begin to see the effects of these tariffs in the hard data with rising consumer prices within the coming months. How the consumer deals with these price increases will be heavily watched for signs of weakness after the wave of inflationary pressures over the past several years. In addition, the Trump Administration will continue to push for the passing of the new tax bill through the congressional process.
Monthly Financial Tip:
Consider pushing forward purchases of consumer goods which will likely be subject to price increases from tariffs. These include clothing, electronics, and automobile parts.
Citations:
1. Charles Schwab, May 30, 2025
2. CBS News, May 13, 2025
3. CNBC, May 23, 2025
4. CBS News, May 25, 2025
Disclaimers:
This post has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. Bob Lawson is not engaged in rendering legal or accounting services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
