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From April showers to May flowers

Equities

5/31/2025

Monthly Edition

John Vojticek

Head of Liquid Real Assets, DWS

justin_miller_headshot

Justin Miller

Portfolio Specialist, Liquid Real Assets

Headshot image of Edward O'Donnell

Edward O'Donnell

Senior Product Specialist, Liquid Real Assets

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Market index returns

 

Month to date since April 30, 2025 as of May 31, 2025

Chart
Bar chart with 7 bars.
The chart has 1 X axis displaying categories.
The chart has 1 Y axis displaying values. Data ranges from -0.9 to 5.9.
End of interactive chart.

Index definitions: Global Real Estate = FTSE EPRA/NAREIT Developed Index; Global Infrastructure = Dow Jones Brookfield Global Infrastructure Index; Natural Resource Equities = S&P Global Natural Resources Index; Commodity Futures = Bloomberg Commodity Index; TIPS = Barclays US TIPS Index; Global Equities = MSCI World Index; Real Assets Index = 30% FTSE EPRA/NAREIT Developed Index, 30% Dow Jones Brookfield Global Infrastructure Index; 15% S&P Global Natural Resources Index; 15% Bloomberg Commodity Index, 10% Barclays TIPS Index. Source: Bloomberg, DWS. Past performance is not indicative of future results. It is not possible to invest directly in an index.

Market commentary:

Global equity markets cheered as tariff temperatures were lowered. The rebound cured April’s damage to bring many indices into positive territory year-to-date. Cooler heads prevailed as the previous tariff levels created an effective embargo and risked bringing global growth to its knees. The extent of the damage to the economy remains to be seen and will likely be felt in the upcoming months; for now, the market is willing to look through this near-term disruption. Corporate earnings held in well for the first quarter; however, many earnings outlooks and growth expectations for the rest of 2025 were reduced due to uncertainty. The President’s trade agenda was dealt setbacks by a pair of court rulings that blocked his tariff declarations. The Court of International Trade blocked the global tariffs enacted under the IEEPA powers (International Emergency Economic Powers Act). A second federal judge also declared some of the tariffs unlawful but was more narrowly focused on a family-owned business that brought the suit. The administration has appealed both decisions. Rest assured; the Trump administration has other avenues to execute its tariff policy if the appeals are not successful. Section 232, 301, and 122 powers can be used to enact tariffs but can take longer to implement and in the case of Section 122, it would limit the scope and only have a 150-day duration. The administration could also go through Congress to enact tariffs, but that approach would divert time and attention away from other legislative priorities such as the tax bill and judicial nominations. Regardless of the tariff flavor, investors should continue to include them in their risk management calculus.

Broader Global Equities outpaced the Real Asset Index as the Technology, Industrials, Communications, and Consumer Discretionary sectors outperformed, while the Health Care sector lagged with negative performance. Within the Real Asset sectors, Natural Resource Equities and Global Real Estate outperformed, while TIPS (Treasury Inflation-Protected Securities) and Commodity Futures trailed. Global Infrastructure lagged the Real Asset Index as well, despite posting positive performance. Global Real Estate Securities were led by Canada, Australia, the UK, and Europe ex-UK, while Japan and the U.S. were laggards. Natural Resource Equities were led by companies in the Agriculture sector, while those in the Metals & Mining and Energy segments underperformed. The Infrastructure sector was led by Latin American Airports, Americas Rail, and Europe Transport, while the Communications segments in the Americas and Europe underperformed. In Commodities, Livestock and Industrial Metals led, while the Agriculture segment fell short.

Among other indicators we track, credit spreads tightened across the credit spectrum with investment-grade (IG) spreads tightening 15 bps (basis points) and high-yield (HY) spreads tightening 66 bps. For the month, the dollar was slightly weaker, as measured by the DXY index. Oil prices rose 5.5% to $60.79 per barrel. Gold prices were roughly unchanged, landing slightly higher at $3,289.25 per ounce. The VIX, an index of expected S&P volatility, fell 6% to end the month at 18.6. Inflation breakevens rose as 5-year yields climbed 8 bps to 2.39% and the 10-year segment rose 9 bps to 2.33%. Nominal yields rose across the maturity spectrum, with the 2-year climbing the highest by almost 30 bps, while the rest of the curve rose around 25 bps.[1]

Why it matters: We continue to monitor economic data, as well as sentiment indicators, as they could eventually feed through to the hard data. We will see if sentiment data will catch back up to hard data instead of hard data falling to catch sentiment.

This week we will review the latest U.S. sentiment and orders information, as well as the latest global indicators.

  • U.S. Sentiment: Institute of Supply Management (ISM) data for May showed slight weakening for the Manufacturing Index. The reading fell to 48.5, down from 48.7 for the prior month. This followed the same direction as the S&P Global U.S. Manufacturing PMI which fell to 48.5, down from 48.7. The ISM Services Index was also weaker as it dipped to 49.9, down from 51.6 in the prior month. This contrasted with the S&P Global U.S. Services PMI which ticked up to 53.7, up from 52.3. The ISM tends to use broader definitions of services versus S&P and could be more biased to larger firms that are ISM members.[2]
  • U.S. Jobs & Orders: Nonfarm Payrolls rose 139k in May. This was higher than expected (126K), but lower than the previous revised reading of 147k. The unemployment rate held steady at 4.2%. The U.S. Census Bureau reported Durable Goods Orders for April were down 6.3% (final) month-over-month (MoM), which followed a multi-year high reading of 7.6% for March. The data for Durable Goods ex-Transportation was more positive as it rose 0.2% MoM for April, after falling0.2% in March. The Factory Orders data also showed declines, falling3.7% for April, versus 3.4% for March (revised), and posting -0.5% for ex-Transportation series, matching the prior month’s revised reading.[3]
  • News from Europe: Eurozone inflation surprised on the downside for May as the core rate fell sharply to 2.3%. Following a rise of 2.2% in April, the cost of living increased by just 1.9% in May, the smallest increase since September 2024. Coming off a high level in April - partly due to the Easter holiday – service prices increased by just 3.2% in May, which had the greatest impact on this month's decline.[4]  The European Central Bank (ECB) should be satisfied with this development. The ECB implemented another quarter-point cut this week; the seventh rate cut in a row. For 2025, the ECB expects growth of 0.9%, given a stronger than expected first quarter and a weaker outlook for the remainder of the year, given the effects of the U.S. tariffs. For 2026, the European Central Bank projects a slight uptick in growth to 1.1%. It also lowered its inflation outlook for 2025 to 2.0%, mainly due to lower assumptions for energy prices and a stronger euro.[5]

Real Assets, Real Insights:  This week we look at first quarter commercial real estate transactions, stricter energy product export rules for the U.S., and the wildfire threat to Canadian oil production.

  • Commercial Recap (Real Estate):  It was a relatively quiet week for real estate in the U.S. as many market participants were in New York City for the annual NARIET conference. GreenStreet’s first quarter recap of the commercial real estate (CRE) market highlighted an increase in deal activity, a measure of the sector’s health. Transaction volume was up 12% year-over-year, but down 43% from the prior quarter and below the 10-year average. However, it was the best first quarter since 2022, aided by falling real interest rates and stable CMBS (commercial mortgage-backed securities) spreads. Banks have mostly held lending standards steady, providing support to the funding market for CRE. From a sector perspective, apartments and offices led the way, while net lease and niche segments lagged with declines. The West Coast (Bay Area and Seattle) led from a regional perspective while the Sun Belt lagged. There was one instance of a publicly traded REIT purchasing a non-traded REIT, but there were no public mergers or privatizations.[6]
  • Closing the tap? (Infrastructure): The U.S. Bureau of Industry and Security tightened exports of fossil fuel products to China as such exports could “pose an unacceptable risk of use in or diversion to a ‘military end use.’ China’s military-civil fusion strategy was cited as a primary concern. Notices were sent to ethane and butane exporters that they will need a license to export products to China. It remains to be seen which other related products will fall under these restrictions, which are still being rolled out to participants.[7]
  • No fuel from the fire (Commodities): Portions of oil sands crude production were halted in Alberta as wildfires threatened operations. 350k barrels of daily production were interrupted, roughly 7% of the 4th largest producer’s output. This exacerbates a strained supply of heavy crude in the market: this amount was roughly equivalent to OPEC’s recent production cap hike. There were 26 wildfires running unchecked in Alberta, and others in Saskatchewan and Manitoba. The fires have been a consistent challenge for the country in the drier spring and summer seasons.[7]
1

Source: Bloomberg, as of May 31, 2025

2

Source: Institute of Supply Management and S&P Global, as of June 5, 2025

3

Source: U.S. Census Bureau, as of June 3, 2025

4

Source: Eurostate, as of June 3, 2025

5

Source: European Central Bank, as of June 5, 2025

6

Source: GreenStreet, as of June 2, 2025.

7

Source: Bloomberg, as of June 4, 2025.

Any mentions of specific properties or securities are for illustrative purposes only and should not be considered a recommendation.

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