The Nasdaq led the way with a 9.6% return last month.
U.S. stocks enjoyed their best month in more than a year in May, as all of the major indexes posted robust gains last month.
The Nasdaq Composite got the biggest lift in May, rising 9.6% to end the month at 19,114. It is the biggest monthly gain for the Nasdaq since November 2023 when it increased 10.8%.
The strong performance in May helped the Nasdaq erase nearly all of its losses in 2025, as it’s down just 1.5% YTD. At its nadir on April 8, the Nasdaq was down 21% YTD.
The S&P 500 also had May flowers, rising 6.1% for the month to 5,912. The S&P 500 is now just about flat for the year.
The Dow Jones Industrial Average gained a solid 3.9% in May, surging to 42,270. The Dow is down about 1.4% YTD. Finally, the Russell 2000 small cap index increased 5.2% in May to 2,066. It still lags the others, down roughly 8% YTD.
Several factors boosted stocks in May, most notably, an easing in trade tensions between the U.S. and China, as the two nations called a 90-day pause to tariffs.
But the month also featured strong corporate earnings, as 78% of companies on the S&P 500 beat estimates, according to FactSet. That is better than the five-year average. Further, the S&P 500 companies had an average 12.9% earnings growth rate in May, per FactSet.
Economic indicators are improving
In addition, economic indicators were improving in May, as inflation continued to decline, consumer confidence increased, and jobs held steady.
In its outlook for the rest of the year, Vanguard Group now expects GDP growth of roughly 1.5% this year, which is twice their previous estimate.
“Although we anticipate the unemployment rate increasing from current levels, we no longer see it rising as high as 5%,” Vanguard experts stated. “We expect the pace of inflation to increase too, though not to the levels we had envisioned pre-truce. We anticipate that goods prices will spike into the U.S. summer as tariff-induced price increases take effect.”
Vanguard also anticipates two 25 basis point rate cuts by the Federal Reserve in the second half of the year.
Also in May, with trade tensions temporarily easing, some analysts raised their targets for the S&P 500 with Goldman Sachs boosting it from 5,900 to 6,100 and Yardeni Research raising it from 6,000 to 6,500.
S&P 500 is currently right around 5,900, so these new targets would suggest a return of 3.4% to 10% at year’s end.
