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Last Week on Wall Street – May 31st, 2025

  S&P 500: +1.88%      DOW:  +1.60%       NASDAQ:  +2.01%      10-YR Yield: 4.39%

What Happened?

Markets wrapped up a strong May on a shaky note as renewed U.S.-China trade tensions unsettled investors. On Friday, the S&P 500 slipped 0.5% and the Nasdaq dropped 1%, giving back part of the week’s gains after President Trump accused China of violating their preliminary trade agreement. Earlier in the week, Treasury Secretary Bessent signaled that negotiations were “a bit stalled,” while reports emerged suggesting the administration may expand restrictions on China’s tech sector. A legal tug-of-war over tariffs added to the confusion, with a court initially halting many of the duties before an appeals court reinstated them temporarily.

Despite Friday’s pullback, May marked the S&P 500’s best monthly performance since November 2023, gaining 5.8%. The Nasdaq surged 9.5%, while the Dow lagged with a 3% monthly gain. The rally was supported by easing inflation, resilient earnings, and optimism over trade progress earlier in the month—particularly a U.S.-U.K. deal that raised hopes for broader agreements.

On the macro front, April’s PCE data, the Fed’s preferred inflation gauge, came in slightly cooler than expected at 2.1% year-over-year, while personal income surprised to the upside. However, core capital goods orders disappointed, signaling potential weakness in business investment. Consumer sentiment improved modestly in the second half of May as tariff deadlines were pushed out, though long-term inflation expectations remain elevated.

Looking ahead, markets remain on edge. Elevated valuations, slowing earnings expectations, and technical signs of weakening breadth and momentum suggest limited near-term upside. With the S&P 500 holding above its 200-day moving average, all eyes now turn to upcoming Fed commentary and June’s economic data for the next directional cues.

Tariff Ruling Is a Setback for Trump but Doesn’t End Trade War

  • A U.S. court invalidated Trump’s April 2 tariffs imposed on trade partners, creating uncertainty.
  • The administration will appeal the ruling, but experts say Trump has other ways to impose tariffs.
  • Experts say the ruling complicates trade negotiations, as countries may be less willing to make concessions.

The key takeaway – A federal court ruling has struck down President Donald Trump’s sweeping tariffs imposed under the International Emergency Economic Powers Act (IEEPA), stating that the administration overstepped its authority. The decision, issued by the U.S. Court of International Trade, concluded that the economic threats cited did not meet the “unusual and extraordinary” criteria required by IEEPA. This ruling affects the “Liberation Day” tariffs, which included a 10% levy on most imports and higher rates on certain countries and mandates their removal within 10 days.


The court’s decision has been welcomed by businesses and trade partners, who view it as a move towards restoring predictability in U.S. trade policy. However, the Trump administration has filed an appeal, and a federal appeals court has temporarily reinstated the tariffs while the case proceeds. If the ruling is upheld, it could limit the executive branch’s ability to unilaterally impose tariffs, potentially shifting more trade authority back to Congress.


For the economy, the ruling introduces a degree of uncertainty in the short term but may lead to more stable trade relations in the long run. Analysts suggest that the decision could reduce the use of tariffs as a negotiation tool, encouraging a return to more traditional trade practices. Nevertheless, the administration’s appeal indicates that the debate over executive trade powers is far from over, and the final outcome will have significant implications for future U.S. trade policy.

Inflation rate slows again and almost hits Fed’s 2% goal, but trade wars could spoil the party

  • PCE index rose 0.1% last month, with inflation staying flat.
  • 12-month inflation slowed to 2.1% from 2.3%
  • Back-to-back monthly readings were the softest  readings since prepandemic in 2020.

The key takeaway – The latest Personal Consumption Expenditures (PCE) report for April 2025 indicates that inflation is edging closer to the Federal Reserve’s 2% target. Headline PCE inflation rose by 2.1% year-over-year, down from 2.3% in March, while core PCE, which excludes food and energy, increased by 2.5%, the lowest since early 2021. Monthly increases for both measures were modest at 0.1%.

Despite this progress, concerns linger over the potential inflationary effects of recent tariffs introduced by President Trump. While the immediate impact on consumer prices has been limited, economists warn that the full effects may materialize in the coming months, particularly in sectors like durable goods, where a 0.5% price increase was noted.

A recent U.S. Court of International Trade ruling struck down many of President Trump’s tariffs, declaring they exceeded the authority granted under the International Emergency Economic Powers Act of 1977. Economists cautiously welcomed the decision, suggesting it could decrease inflation and recession risks if upheld. However, the ruling is on hold pending appeal, increasing short-term uncertainty for businesses already grappling with unpredictable trade policies.

Looking ahead, the Federal Reserve is likely to adopt a cautious approach, monitoring the evolving trade landscape and its potential impact on inflation. While the current data is encouraging, the interplay between trade policies and inflation dynamics will be critical in shaping future monetary policy decisions.

U.S. economy falls 0.2% in first quarter, an upgrade from initial estimate

  • The U.S. economy shrank at a 0.2% annual pace from January through March, the first drop in three years.
  • Growth was brought down by a surge in imports as companies in the United States hurried to bring in foreign goods before the president imposed massive import taxes.

The key takeaway – One of the most watched metrics in the economic playbook, Gross Domestic Product, just flashed red. This week, the Commerce Department revised first-quarter GDP growth into contraction territory, clocking in at -0.2% on an annualized basis. That marks the first quarterly decline in nearly three years, a jarring reversal after a string of resilient data prints.

The main culprit? Imports. Businesses front-loaded shipments of goods in anticipation of proposed tariffs, creating a surge in imports that widened the trade deficit and singlehandedly shaved nearly five percentage points off growth. Think of it as economic whiplash from policy posturing.

Yet beneath the headline contraction were glimmers of strength. Business investment soared, inventories were rebuilt, and residential construction posted its first increase in over two years. But consumers, who make up about 70% of the economy, hit the brakes, and federal spending saw its sharpest drop since 2021.

In short, the economy didn’t fall apart, but it did flinch. As trade tensions linger and “TACO” tariff laws loom, Q1’s stumble is a reminder that uncertainty can be just as disruptive as the policies themselves. The second quarter may be make-or-break for sentiment and stability.

From Around the Watercooler