The Pulse on the Economy and Capital Markets: May 2025

To Summarize: Stock market performance in May has been strong, recouping losses from the April pullback. While inflation is trending lower, it’s not enough to trigger cuts from the Federal Reserve. Consumers continue to spend on essentials and services but are more cautious as sentiments turn financially pessimistic. Small business hiring plans are weakening with the added weight of consumer unease.

The big takeaway – Inflation is heading in the right direction, but consumers have grown pessimistic as tariffs hit the economy.

In the Markets: The markets had a strong rebound in May recouping losses since the “Liberation Day” tariffs announcement. U.S. and International equity markets are higher this month while the tech-focused Nasdaq and Russell 2000 are still lingering in the red for the year. Valuation multiples have risen quickly, especially in tech, but are still trading below levels from early April.

Inflation is Trending Back Down: With less concern that tariffs will lead to a recession, investors now believe the Federal Reserve will slow rate cuts and reduce them just twice this year. While inflation is trending down, it’s not happening fast enough to justify a swift policy pivot. The key drivers for the decline in inflation have been Core Services, including shelter and transportation, most notably, car insurance.

Are Consumers Financially Pessimistic? Despite inflation slowly declining, consumer sentiment has hit a 50-year low, especially since the “Liberation Day” tariffs announcement. Small businesses have begun to reconsider their growth plans to combat tariffs by pulling back on hiring, which is likely a key driver for consumer pessimism. However, the shift in sentiment has not stopped consumers from spending, instead they are becoming more thoughtful in their purchases.  

Top Headlines: We’re reading about the first baby healed by a personalized gene editing treatment; how adolescents are using AI and new technologies; banks that built their fortunes on skyscrapers are impacted by commercial real estate challenges; Walmart shoppers to experience price hikes as tariffs start to hit.  

Related resources:

• Life Sciences: Baby is healed with world’s first personalized gene editing treatment
• AI:
  • How one teenager uses AI – adolescent practice with new technologies can provide a form of divination for adults
  • Mitigating Tariff Impacts with Bonded Warehouses and Foreign Trade Zones (FTZs)
• Commercial Real Estate: America’s commercial real estate pain tests banks that built its fortunes on skyscrapers
• Retail: Walmart shoppers to face price hikes as Trump tariffs hit

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