May proved to be a pivotal month for global markets, with dramatic policy shifts from President Trump once again taking centre stage. Markets rallied as the administration softened its tariff rhetoric, offering temporary relief and renewed optimism for a potential trade deal. Yet, beneath the surface of this equity rebound lie persistent concerns—most notably, rising fiscal deficits, elevated bond yields, and a weakening U.S. dollar.
In this month’s investment summary, our Chief Investment Officer, Jeff Brummette, explores how these crosscurrents are shaping asset prices, examine the evolving macroeconomic backdrop, and discuss the implications for portfolio positioning in the months ahead.
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May was an excellent month for global equities, as President Trump walked back on some of his harshest tariff plans. He reduced his planned tariffs for China from 145% down to 30% and delayed their implementation until July 9th, aiming to secure a “great trade deal”.
Similarly, Trump announced a 50% tariff on EU goods due to begin on June 1st, but then just two days later delayed the implementation until July 9th as well. These moves buoyed equity markets, with U.S. mega-cap tech names leading the way higher.
Equity Markets
Source: Bloomberg
Market pundits even coined a new acronym, TACO – short for the Trump Always Chickens Out trade. The theory being to disregard President Trump’s dramatic initial pronouncements and buy any panic driven sell-off.
While the tariff panics subsided, concerns over fiscal deficits around the world. continued to grow producing weakness in longer term bond prices.
Government Debt-to-GDP Ratios
Source: IMF, Berenberg
U.S. 30-year Treasury yields are edging back towards the 5% mark, while the 10-year yield remains steady. In Japan, the 30-year yield soared to their highest yield in over 20 years. This development is particularly concerning given Japan’s status as the world’s largest creditor. A sustained rise in yields could signal reduced capital exports or, even more troubling, the possibility of Japan repatriating funds, potentially disrupting global capital flows.
U.S. Treasury Yields
Source: Bloomberg Finance L.P.
Japanese 30-Year Government Bond Yields
Source: Bloomberg Finance L.P.
Fixed income performance was generally negative for the month.
Fixed Income Markets
Source: Bloomberg
Bitcoin continued its strong correlation with equites, as it rallied right along with the NASDAQ Index throughout the month.
Alternative Investments Markets
Source: Bloomberg
Bitcoin and NASDAQ
Source: Bloomberg Finance L.P.
Currency Exchange Rates
Source: Bloomberg
Year-to-date the euro and the yen have gained over 9% versus the dollar. We expect to see further declines in the dollar as the U.S. is once again running enormous twin deficits. The trade deficit is over $1 trillion per year, and the fiscal deficit is nearly 7% of GDP. It will be difficult to reduce the U.S. trade deficit without a downward adjustment in the U.S. dollar.
President Trump had four main goals when he took office in January:
1) Lower taxes
2) Secure the US border
3) Reduce government regulation
4) Bring back manufacturing jobs to the U.S. and ensure fairer trade for the U.S.
He has only succeeded in closing the border, an action which could potentially have adverse effects on the labour market by limiting the availability of new workers for hire. Meanwhile, Elon Musk and the Department of Government Efficiency achieved little beyond the dismissal of some government employees and fostering a perception of governmental disfunction. Musk is no longer involved and is currently embroiled in a public spat with President Trump.
Trump’s tariff plans have been chaotic, causing turmoil in financial markets whilst also facing challenges in U.S. courts. To date, the UK is the only country to have agreed a trade deal with the U.S. The irony of this deal is that the U.S. runs a trade surplus in goods with the UK.
While progress has been made on tax reforms, it has not sparked significant optimism about boosting economic growth. The U.S. House of Representatives passed the One Big Beautiful Bill Act (OBBBA), a bill that meets President Trump’s goal of renewing his first term tax cuts that were due to expire at the end of this year. This bill added a few additional sweeteners aimed at his base, namely no tax on tips and no tax on social security benefits. These two tax cuts were capped at specific income levels and will expire in 2028 to limit the expansion of the deficit. These kind of budget gimmicks do not fool the bond markets.
The over 1,000-page bill has now moved to the U.S. Senate, where revisions are expected but unlikely to alter the overall trajectory of ever larger fiscal deficits. In its current form, the bill will add over $3 trillion to the U.S. national debt over the next ten years. This is certainly contributing to upward pressure on the level of long-term government yields in the U.S. We believe this is also contributing to the continued slide in the U.S. dollar.
CBO Estimates House Bill Adds Significantly to Deficits
Source: Congressional Budget Office and CRFB estimates (CRFB.org)
Even at reduced levels, Trump’s tariff policies will act as a tax hike on U.S. businesses and consumers, likely driving inflation higher and leaving the U.S. Federal Reserve in an awkward position.
Given this environment, it is difficult to justify an overweight stance in expensively valued U.S. assets. We continue to favour Europe, China, and the UK where valuations are less demanding, although we acknowledge the cloudy economic outlook in these regions. We are also uncomfortable with long duration bonds globally, limiting our exposure to maturities under ten years.
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Hear more from the Oakglen experts
Our investment team continue to provide interesting and informative content to help keep you in the loop on recent global news and market trends. See below for some key highlights from around the world which some of the investment management team have recently covered:
Read more:
- Trump’s Tariff Tantrum
Jeff Brummette, Chief Investment Officer
- Trump 2.0 The First 100 Days – The Art of the Retreat?
Jeff Brummette, Chief Investment Officer
- May 2025 Investment Summary
Jeff Brummette, Chief Investment Officer
You can read other articles from the team on our News & Insights page.
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