Market Review

Monthly Market Review

Data as of May 31, 2019


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U.S. Stocks

Stocks Suffer Biggest Drop Since December

The major indexes fell sharply in May and surrendered a substantial portion of their strong gains earlier in the year. The small‑ and mid‑cap indexes performed worst and moved back into correction territory, or down more than 10% from the highs they established in late August 2018. Volatility as measured by the Cboe Volatility Index spiked to its highest level since January but remained well below its late‑December peak.

The small real estate segment was the only sector in the S&P 500 to record a gain for the period. Energy shares performed worst, falling more than 11% on a total return (including dividends) basis as oil prices tumbled late in the month. Materials and technology shares were also especially weak, with declines in Apple and several major chipmakers weighing on the latter. Health care shares held up relatively well, although the sector remained the worst performer for the year to date. The month was also notable for Uber’s initial public offering (IPO), which valued the ride‑sharing company at around USD 75 billion. The amount raised by the offering—approximately USD 8.1 billion—made it one of the 10 largest IPOs in history and the biggest since Chinese internet giant Alibaba Group’s debut in 2014.

Hopes Dashed For A Forthcoming China Trade Deal

Dashed hopes for an imminent resolution to the U.S.‑China trade dispute appeared to be the primary factor in the market’s drop. Stock futures fell sharply after President Donald Trump tweeted on Sunday, May 5, that the tariff rate on Chinese imports would go up to 25% at the end of the week. Despite some early hopes that this was just a negotiating tactic, the White House followed through and increased the tariff rate from 10% to 25% on USD 200 billion in Chinese goods Friday, May 10. The U.S. had previously imposed tariffs at the higher rate on USD 50 billion in Chinese products deemed strategically important.

The market’s initial reaction to the tariff hike was not as drastic as some had feared, with stocks rebounding Friday afternoon from their lows of the morning. The president did not extend the tariff to the remaining roughly USD 300 billion Chinese imports, as he had previously threatened, and Treasury Secretary Steven Mnuchin may have also calmed investors’ fears by stating that negotiators continued to make progress. A suggestion from a Federal Reserve official that weaker growth stemming from rising tariffs might persuade the central bank to cut interest rates may have also boosted sentiment.

Stocks experienced their second‑worst day of the year the following Monday, however, following China’s announcement over the weekend that it was imposing tariffs on an additional USD 60 billion in U.S. imports in retaliation. Companies with significant exposure to China were hit particularly hard, with Apple falling nearly 6% as investors worried both about iPhone sales in China and rising costs for components made in the country.

Total Returns




Dow Jones Industrial Average



S&P 500 Index



Nasdaq Composite Index



S&P MidCap 400 Index



Russell 2000 Index



Past performance is not a reliable indicator of future performance.
Note: Returns are for the periods ended May 31, 2019. The returns include dividends based on data supplied by third‑party provider RIMES and compiled by T. Rowe Price, except for the Nasdaq Composite Index, whose return is principal only.
Sources: Standard & Poor’s, LSE Group. See Additional Disclosures.

A Technological Cold War?

Fears that the two countries would fall into a technological “cold war” emerged late in the month. Stocks fell sharply again on May 20, following news that large U.S. technology companies were halting sales to Chinese telecommunications giant Huawei following a new set of export restrictions announced by the White House. On the last day of the month, China announced that it was putting together an “unreliable entities list” of both companies and individuals that would be restricted from doing business with Chinese firms. Bloomberg also reported late in the month that the Chinese government had prepared a plan to restrict the export of rare earth metals to the U.S. China produces roughly 80% of the world’s rare earths, which are used in a range of products, particularly advanced electronics.

Also worrisome was the hardening rhetoric used by both countries. A columnist for China’s The People’s Daily referred to the U.S. as the “biggest troublemaker in the international community,” and a Chinese researcher speculated that the trade war could last until 2035. Meanwhile, President Donald Trump reiterated that he was nowhere near ready to make a deal, and Vice President Mike Pence, in a joint press conference with Canadian Prime Minister Justin Trudeau, threatened that the U.S. “could more than double tariffs on China if needed.” CNBC also reported that the vice president was preparing a speech that harshly criticizes China’s human rights record.

U.S. trade policy took an unexpected turn and sent stocks another leg lower as the month ended. President Trump announced that the U.S. would soon impose a 5% tariff—set to eventually rise to 25%—on Mexican imports unless the country ended the flow of unauthorized migrants across its border with the U.S.

Businesses Feel The Pinch, But The Consumer Remains Optimistic

Several signs emerged in May that the U.S. economy was already feeling the impact of the trade tensions. Data on business investment and manufacturing activity were particularly weak, but growth in the much larger services sector also appeared to be slowing. IHS Markit’s composite survey of both U.S. manufacturing and service sector activity, released May 23, indicated the weakest growth in overall business activity in three years, with new orders growing at the slowest pace since the firm began collecting data in October 2009. On the positive side, payrolls expanded much more than expected in April, helping the unemployment rate reach a new five‑decade low. Consumers remained generally upbeat about their prospects, although the University of Michigan’s survey of consumer sentiment noted that “confidence significantly eroded in the last two weeks of May…due to unfavorable references to tariffs.”

Impasse Likely To Continue

T. Rowe Price legislative analysts are not optimistic that the U.S. and China will avoid another round of tariff escalation. Reports suggest that talks broke down in early May partly because of the administration’s demand that some tariffs remain in place until China demonstrates concrete progress in areas such as intellectual property theft, and U.S. negotiators appear likely to insist on some sort of enforcement mechanism. Moreover, the U.S. is requiring fundamental changes to the Chinese model of state‑sponsored capitalism, which China views as undue interference in its internal affairs. Unfortunately, both sides appear to believe they have the upper hand in the negotiations.

Additional Disclosures

FactSet. Copyright 2019 FactSet. All Rights Reserved.

J.P. Morgan. Information has been obtained from sources believed to be reliable, but J.P. Morgan does not warrant its completeness or accuracy. The index is used with permission. The Index may not be copied, used, or distributed without J.P. Morgan’s prior written approval. Copyright © 2019, J.P. Morgan Chase & Co. All rights reserved.

London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). © LSE Group 2019. FTSE Russell is a trading name of certain of the LSE Group companies. “Russell®” is a trade mark of the relevant LSE Group companies and is used by any other LSE Group company under license. All rights in the FTSE Russell indexes or data vest in the relevant LSE Group company which owns the index or the data. Neither LSE Group nor its licensors accept any liability for any errors or omissions in the indexes or data and no party may rely on any indexes or data contained in this communication. No further distribution of data from the LSE Group is permitted without the relevant LSE Group company’s express written consent. The LSE Group does not promote, sponsor or endorse the content of this communication.

The S&P 500 Index and S&P MidCap 400 Index are products of S&P Dow Jones Indices LLC, a division of S&P Global, or its affiliates (“SPDJI”) and have been licensed for use by T. Rowe Price. Standard & Poor’s® and S&P® are registered trademarks of Standard & Poor’s Financial Services LLC, a division of S&P Global (“S&P”); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”); T. Rowe Price is not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, their respective affiliates, and none of such parties make any representation regarding the advisability of investing in such product(s) nor do they have any liability for any errors, omissions, or interruptions of the S&P 500 Index and S&P MidCap 400 Index.


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Important Information

This material is provided for informational purposes only and is not intended to be investment advice or a recommendation to take any particular investment action.

The views contained herein are those of the authors as of May 2019 and are subject to change without notice; these views may differ from those of other T. Rowe Price associates.

This information is not intended to reflect a current or past recommendation, investment advice of any kind, or a solicitation of an offer to buy or sell any securities or investment services. The opinions and commentary provided do not take into account the investment objectives or financial situation of any particular investor or class of investor. Investors will need to consider their own circumstances before making an investment decision.

Information contained herein is based upon sources we consider to be reliable; we do not, however, guarantee its accuracy.

Past performance is not a reliable indicator of future performance. All investments are subject to market risk, including the possible loss of principal. All charts and tables are shown for illustrative purposes only.

T. Rowe Price Investment Services, Inc., distributor, and T. Rowe Price Associates, Inc., investment advisor.

© 2019 T. Rowe Price. All rights reserved. T. Rowe Price, INVEST WITH CONFIDENCE, and the bighorn sheep design are, collectively and/or apart, trademarks of T. Rowe Price Group, Inc.

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