U.S. stocks tumbled in May as trade negotiations between the U.S. and China publicly deteriorated, and tensions between the two largest economies in the world heated up once again. This news was a sharp reversal from positive news in April that had spurred confidence that a deal would be imminent. In addition, talk of U.S. tariffs on Mexico was reintroduced towards the end of May. As a result, investors flocked to the safe haven of government bonds driving prices up and yields down. The yield on the 10-year U.S. Treasury note had its largest monthly decline since September 2015 and sank below the 3-month T-Bill, causing what is called an inverted yield curve. This phenomenon is generally regarded as a signal of expected economic contraction. However, preliminary readings of underlying inflation growth in May ticked higher to 2%. This contradiction may be a sign the yield curve inversion is being caused by uncommon circumstances.

 

Global trade concerns hit international markets negatively as well, in particular emerging markets. With investors losing their appetites for risk, assets flowed out of the generally riskier regions and the MSCI Emerging Markets Index fell 7.3%.