Avantax Market Update - May 2025
Posted by Jeffrey Budzinski on May 07, 2025
The May 2025 Market Update features Ivan Grul, co-chief investment officer with Avantax, providing a market update for May. He begins with a recap of returns for April, noting the ups and downs for investors due to the announcement of sweeping tariffs which initially sent markets into a tailspin. However, many of the proposed tariffs were swiftly paused, leading to a rebound in the S&P 500, which finished the month lower by just 0.7%. Small cap stocks also recovered most of their losses, finishing lower by 2.3%. International developed markets outperformed US stocks, posting positive returns of 4.7%, while emerging market stocks saw positive returns with the MSCIM index gaining 1.3%.
Ivan then discusses the fixed income markets, where falling interest rates have led to positive returns for taxable investors. The yield on the 10-year Treasury note finished the month around 4.23%, and the taxable bond index is higher by about 3.2%. Municipal bonds, however, have lagged their taxable counterparts, falling about 1% in total return through April.
He highlights the relative attractiveness of municipal bonds to taxable bonds using municipal to treasury ratios, indicating that municipal bonds are more attractive. He views the underperformance of municipal bonds as driven by factors such as supply and seasonality rather than fundamentals, suggesting this is an attractive entry point for municipal bonds.
Ivan also mentions the falling value of the US dollar, which has been a primary driver behind the recent outperformance of international markets relative to the US. The dollar index hit a three-year low in April, and the value of the dollar has fallen by about 8% this year, providing a direct boost to US investors in foreign stocks and bonds.
Shifting to the economy, he notes the uncertainty over the global economy due to tariff announcements and ongoing negotiations. The first estimate of real GDP growth for the first quarter came in at a negative 0.3%, primarily due to a surge in imports caused by corporations trying to import as much inventory as possible to front-run potential tariffs. However, if the impact of imports is removed, growth would have been positive.
The labor market remains solid, and recent measures of inflation continue to move in the right direction, with the core PCE price index higher by 2.6% on an annual basis as of March. Earnings are also a bright spot, with first quarter earnings on pace to expand by 11% year-over-year, well above analyst expectations. Revenue growth and margins remain robust, and guidance is generally better than expected.
Looking ahead, Ivan is encouraged by recent developments on both the policy and economic front during the second half of April. Despite the volatility experienced within the stock and bond markets, the market selloff and subsequent recovery remained orderly. He will continue to monitor developments on the policy front and notes that while a recession is not viewed as imminent, valuations remain above historical averages, and the bar remains high for companies to continue delivering on lofty earnings expectations in an environment ripe with uncertainty.
Watch May 2025 Avantax Market Update on YouTube.
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Jeff has been in the financial services industry for over 20 years. He is a Certified Fund Specialist® from the Institute of Business and Finance and has passed his SIE, Series 6, 7, and 63 exams as well as holding Life, Accident, and Health insurance licenses. He is experienced in qualified plan design as well as custom income strategies and cash flow. Jeff also has significant experience with insurance planning as a strategy to protect wealth and future generations. Jeff has studied modern portfolio theory, which is vital to efficient portfolio modeling, allowing for mean-variable analysis with a mathematical framework that is consistent with individual risk factors.