Insights
Market review for May 2025
Taking stock, one TACO at a time
This month:
Rally for the S&P 500
DOGE in the dog house?
The future of green energy
Stocks walking the green talk
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May proved to be another month of market volatility and geopolitical disputes, including a short-lived conflict between India and Pakistan.
Despite the flurry of dramatic news headlines, (many of which surrounded America’s president), it wasn’t all bad news for investors. Perhaps counterintuitively, May was a good month for stocks. Inflation pressures around the world continue to ease, albeit at an uneven rate depending on which economy you look at. As a result, the consensus view remains that official global interest rates have further to fall in 2025, especially if economic growth slows from here.
Against that backdrop, the Reserve Bank of NZ cut the Official Cash Rate last month to 3.25% - the lowest it’s been since October 2022. New Zealand’s post-recession recovery is fragile but lower borrowing costs, and the expected uptick in employment, bode well for home buyers, businesses, job seekers; actually, anyone spending or making money in New Zealand right now.
Taking stock, one TACO at a time
By month-end, the S&P 500, which is the index tracking performance of the top 500 US-listed companies, had surged over 18% versus the lowest dip in April (without consideration of foreign exchange). This rebound in equity markets was fueled by a perception that trade tensions had peaked.
Having agreed a trade deal with the UK on 8th of May, the White House then granted separate tariff reprieves for the Eurozone and China. There were judicial challenges to Trump’s ability to enact tariffs.
With olive branches suddenly being offered to trade partners, the phrase ‘TACO’ - Trump Always Chickens Out - quickly spread, and investor sentiment rose. However, the yo-yo nature of tariff decision-making remained evident on the 30th of May, when Trump declared that tariffs on steel and aluminium would double to 50%.
The ongoing uncertainty kept investor demand high for gold, which in turn kept the price above the $USD3,000 mark (per troy ounce). Although its appeal did slightly wane over the course of the month, it remained a popular portfolio diversifier in some quarters.
From an environmental perspective, any sustained appetite for gold is bad news for areas like the Amazon where satellite data from Greenpeace shows an increase in deforestation and indigenous territories affected by illegal mining over the past two years.
Closer to home, locals in Wanaka a fighting a proposed open-cast gold mine by Santana Minerals Limited due to the environmental impacts it will have on the region.
US: In the DOGE house?
As the world’s most powerful and influential economy, America and its assets enjoy a vaunted reputation amongst investors. US government debt and the US dollar are perceived as ‘safe havens’ for portfolios and funds. However, several events in May pointed to a shift in investor mood.
Alarm bells have started to ring regarding already-high levels of debt, coupled with the prospect of the US debt mountain ballooning - to the tune of trillions of dollars - if Trump gets approval for his tax-cutting ‘Big Beautiful Bill’. The controversial cost-saving efforts of the Department of Government Efficiency (aka DOGE) have mixed efficacy reviews depending on the political bias of the news outlet you frequent.
By the end of May, the US dollar had depreciated 8% versus a basket of other currencies since January. America’s credit rating was also downgraded one notch by ratings agency Moody’s.
For all the recent drama, America remains the world’s global growth engine and still merits some form of exposure in diversified funds and portfolios. However, investor confidence is no longer a given, at least in the short term. Unpredictable leadership, sweeping executive orders, and mounting debt risks are eroding the stability that once made the U.S. a favourable investment destination.
The environment for doing better
Amid the financial market and political events of last month, a number of environmental developments caught our eye.
At a pre-COP 30 event in Copenhagen, the UN’s climate chief, Simon Stiell, commented that the world was at risk of warming by 3C. The Paris Accord famously set an ideal temperature cap of 1.5C, with anything above likely to inflict severe environmental and social damage. Stiell emphasized the urgency of decisive, collective leadership and called for a shift from promises to real delivery. His remarks were an important reminder of the sustainability challenges that Pathfinder is committed to helping tackle.
It is not lost on us that the hype surrounding AI runs parallel with a number of environmental concerns. The infrastructure needed for this emerging technology is notoriously energy intensive. Meanwhile, the risk of widespread job displacement has significant societal implications, although there are positive scenarios here too (for example, the prospect that wealthier societies find a way to work less and consume less). Importantly, doubts also persist over the reliability and governance linked to AI outputs.
As responsible investors, our objective lies in identifying which pockets of the AI story offer ethically sound, environmentally sustainable, and rewarding opportunities. Our assessments don’t stop once we decide to invest. We don't simply buy and hold a stock, even after adding to our portfolio we will conduct reviews to ensure compliance with our ethical investment policy
With that in mind, here are some examples of companies we currently hold in our funds, which have recently reiterated their sustainability goals, which we believe are achievable:
Microsoft has just launched its 2025 Sustainability Report, in which it commits to becoming ‘carbon negative’, ‘water positive’ and ‘zero waste’ by 2030.
Applied Materials remains on track for its 2030 goals, which includes achieving 100% renewable energy sourcing.
Equinix has engaged two thirds of its suppliers as part of a full asset lifecycle analysis to find ways to reduce the carbon embedded in its kit.
At a country level, there is hope that the US, one of the world’s biggest emitters, won’t completely abandon green energy. Despite the rhetoric, we aren’t convinced that Trump will repeal the Inflation Reduction Act, known as IRA - an historic, multi-billion-dollar investment in climate action from the Biden era. The decision to repeal or not lies with Congress. Given around 70% of the IRA dollars benefit Republican states, we continue to believe they will keep supporting dollars flowing to their states for green energy initiatives.
Some final thoughts
The world can be a busy, confusing, and hostile place. We recognise that volatility and uncertainty can feel uncomfortable. But when it comes to investing, risk is the downpayment for the chance of getting something good .
As the May data shows, anyone who panicked and sold out during the market dips in April, will have missed out on a substantial recovery. It’s an isolated example but our message remains the same - being invested, and staying invested, is the path to long-term value creation. That value is heightened in our opinion, if your investments also aim to avoid making things worse while aiming to make things better.
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Pathfinder Asset Management Limited is the issuer of the Pathfinder KiwiSaver Plan and Pathfinder Investment Funds. A Product Disclosure Statement for the offer is available at pathfinder.kiwi. Learn more about how we invest ethically by reading our Ethical Investment Policy & Exceptions Register on our website.
by Michael Kenealy
Portfolio Manager
Michael joined us in 2023 after being a Portfolio Manager at Mint Asset Management and prior to that at Salt Funds Management. He also spent three years as an Investment Analyst in Peru working for a Philanthropic fund and has worked for Goldman Sachs and JBWere after graduating with 1st Class Honours from Auckland University (BCom Hons Finance and Economic). Michael is a CFA Charterholder.
