Hello everyone,

Indeed, April showers did bring May flowers…and then some! The S&P500 was up 4.2% for the month of May and the TSX up an impressive 5.0%. This wasn't isolated to only North America. The FTSE100 and Nikkei 222 also recorded notable gains, reflecting improving market sentiment and economic conditions. The month of May was characterized by a series of positive events and trends that drove investor confidence and contributed to the overall bullish outlook in financial markets.

Several key factors played a crucial role in driving the gain in global financial markets. Macro-economic indicators, like possible reprieve in contracting GDP numbers and unexpected corporate earnings that maintained their 2025 guidance, provided a solid foundation for market performance.  That all said, some companies like Ford, MATTEL and UPS pulled their earning guidance for 2025 (https://www.businessinsider.com/list-companies-cutting-guidance-earnings-forecasts-amid-tariffs-economic-uncertainty-2025-4). Therefore, for some, uncertainty still plays a role in their forecasting. Then again, when does it not?

Let me revisit the first point in the said above. A reprieve in contracting GDP could possibly mean that quarters 2,3 and 4 could be positive. Why? Well, let me tell you! In the U.S., imports surged in the first quarter – caused mainly by tariffs and strategic stockpiling of goods. The premise here is that higher imports are a drag on GDP and the number reported is net exports (what a nation manufactures and sells abroad). Essentially, the higher net exports (exports minus imports), the better it is for GDP growth. Economists expect U.S. GDP to rebound as imports abate for the remainder of the year, thus driving GDP higher (https://vocal.media/journal/us-economy-2025-what-the-q1-negative-gdp-means-for-the-future).

This brings me to my next point. Other factors that gave May a nudge were improved geopolitical developments, including easing trade tensions and hopeful geopolitical stability in key regions. Moreover, the Consumer Confidence Index, as reported by the Conference Board, surged to 98 in May from 85.7 in April. Economists previously anticipated a reading of 88. This increase came after President Donald Trump reduced tariffs on Chinese goods from 145% to 30% as part of a 90-day pause.

Confidence in investments also improved, fueled by the stock market's recovery - with 44% of respondents expecting stock prices to rise in the next year, up from 37.6% in April (https://www.barrons.com/livecoverage/stock-market-news-today-052725/card/consumer-confidence-rebounds-in-may-Cbc4s1Q53oQfamXZKeaJ).

And the news just keeps getting better. The inflation rate in the U.S. fell from 2.40% in March to 2.30% in April. This marks the lowest 12-month increase in the all-items index since February 2021. In Canada, the inflation rate fell from 2.3% to 1.70%, March to April, according to Statistic Canada (https://www150.statcan.gc.ca/n1/daily-quotidien/250520/dq250520a-eng.htm). Although higher prices continue to worry consumers, relief was noted due to lower gas prices and the easing inflation.

I will also add that investor confidence typically heightens when credit spreads tighten due to the correlation between the two factors (https://www.forbes.com/councils/forbesfinancecouncil/2024/11/25/while-credit-spreads-suggest-confidence-investors-cant-get-complacent/). When credit spreads narrow, it indicates reduced perceived risk in the market, leading to increased investor optimism and confidence in the economic environment (https://due.com/credit-spreads-signal-economic-strength-while-highlighting-investment-challenges/). Credit spreads refer to the difference in yields between various types of fixed-income securities, typically comparing corporate bonds to government bonds with similar maturities (https://www.investopedia.com/terms/c/creditspread.asp). They are a measure of the additional compensation that investors demand for bearing the credit risk associated with corporate bonds as compared to the relatively risk-free nature of government bonds (https://accountinginsights.org/what-are-credit-spreads-and-how-do-they-impact-bonds-and-options/). The widening or narrowing of credit spreads can signal changing perceptions of credit risk in the market, with wider spreads indicating increased perceived risk and narrower spreads suggesting improved creditworthiness (https://www.sofi.com/learn/content/what-is-credit-spread/), hence improved investor confidence.

Will this upward trend continue in June? Maybe.  June historically speaking, the S&P500 has been up 12 times and down 9 in the last two decades, with an average loss of 0.8%. But, to be honest, forecasting the direction of the stock market has always been a challenging endeavor, influenced by an intricate interplay of economic, political, and global factors. Moreover, attempting to predict market movements during the presidency of Donald Trump introduces an additional layer of complexity and uncertainty that further complicates this already formidable task. It almost seems futile, lol.

One of the primary reasons behind the difficulty in forecasting the stock market under President Trump's tenure stems from the unprecedented levels of volatility and unpredictability that have characterized his administration. President Trump's unorthodox leadership style, characterized by impulsive policy announcements and a penchant for using social media to communicate his views on a wide range of issues, has injected a level of uncertainty that traditional market models struggle to accommodate. Phew, that was a mouth full!

Furthermore, the traditional indicators and economic data points that analysts use to forecast market direction have at times been overshadowed by the impact of headline-grabbing pronouncements and policy shifts from President Trump's administration. However, this is the environment in which we find ourselves, and there's no getting out of it.

While it's important to stay informed about the financial markets and making informed decisions, maintaining a focus on your goals allows you to prioritize what truly matters in your financial journey and remain steadfast in your pursuit of long-term financial success.

To close this out: let us do the heavy lifting, and you enjoy the new found warmth of summer! Until next month……