Market Volatility Marks End of Month Amid Renewed US-China Tensions

Late-month stock market fluctuations underscored how quickly investor sentiment shifts on geopolitical developments. A public statement from former US President Donald Trump, blaming China for allegedly breaching trade agreements and signaling a potential meeting with Chinese leader Xi Jinping, catalyzed sharp intraday swings. Initially, the S&P 500 index $^SPX dropped as much as 1.2%, before moderating losses and closing flat.

S&P 500’s Exceptional Monthly Performance

Despite a volatile session, May concluded as the S&P 500’s strongest since 1990, advancing by over 6%. Such growth, amid tense international rhetoric, points to ongoing resilience in major US equities—driven by robust earnings, sector rotation, and ongoing optimism around economic recovery.

Short-Term Bonds Outperform as Treasuries Retreat

Fixed income markets presented a nuanced picture. Short-maturity bonds exhibited relative strength at week’s end, likely reflecting investor demand for safer, liquid instruments amid uncertainty. In contrast, US Treasury securities (USTs) recorded their first monthly decline of 2025, highlighting subtle shifts in interest rate expectations and inflation outlook.

Currency Landscape Remains Subdued

The US dollar (USD) remained largely stable during the volatile trading session. Still, the greenback continued its five-month losing streak—the longest since 2020. Persistent dollar softening may signal changing capital flows and diminished demand for safe-haven assets in the current global landscape.

Noteworthy Market Dynamics in Late May

1. S&P 500 closed flat after intraday volatility fueled by renewed US-China trade uncertainty;

2. The index achieved a gain of over 6% in May, marking its best monthly return in more than three decades;

3. Short-duration fixed income instruments led performance, while Treasuries experienced their first pullback this year;

4. The US dollar posted a fifth consecutive monthly loss, underscoring ongoing shifts in currency market sentiment.

Strategic Perspective

Cross-asset behavior at the month’s end revealed mixed reactions to political headlines and economic signals. While equities proved resilient, fixed income and FX movements point to an evolving macro landscape characterized by caution and selective positioning. Continued monitoring of policy developments and international negotiations remains crucial for assessing risk and opportunity across financial markets.