Investment Commentary May 2024

Global equity performance was in positive territory for May, with indices in the US and European markets reaching new highs, though stickier inflation data towards the end of the month led to a small correction from intra-month highs. Fixed income returns remained positive despite some volatility in yields as markets re-evaluated the future path of interest rates. The geopolitical environment remained volatile as hostilities in the Middle East and European theatres continued.

Both the S&P 500 and NASDAQ Composite indices climbed to new highs during the month, rising 5.0% and 7.0% respectively as technology companies led domestic equity gains. The AI theme continued to remain strong with semiconductor company Nvidia rising a further 27% throughout the month which once again saw it beat earnings estimates as it neared a $3Tn valuation. The Federal Reserve left interest rates unchanged as expected, stating that it will likely take longer than anticipated to gain confidence the economy is on a path towards lower inflation. The PCE Core Deflator, the Central Bank’s preferred measure of inflation, remained unchanged at 2.7% from the previous month.

In the UK and Europe, equities rose though the lower weighting of technology sector exposure saw them underperform large cap US markets, the FTSE 100 and Euro Stoxx 50 rising 2.0% and 2.4% respectively, again with both indices reaching new highs during May. In other markets, equity performance was more mixed, in Japan the Nikkei 225 was relatively unchanged rising 0.21% following a recent correction from recent highs while in the rest of Asia equities rose 1.6%.

In terms of equity style returns, growth outperformed value as global technology companies extended gains, the MCSI World Growth and MSCI World Value indices returning 5.7% and 3.3% respectively.

It was a better month for sovereign debt as investors looked ahead to policy easing later in the year. In the UK Gilt yields fell, the short end of the curve seeing better gains as the 2 year note yield fell from 4.51% to 4.41%, the curve becoming slightly less inverted. Sterling credit spreads narrowed as UK indices reached new highs.

In currencies, the broad US Dollar Index fell 1.5% as a number of central banks became more hawkish on policy while the Federal Reserve is expected to reduce interest rates by up to 50 basis points this year. Against Sterling the Dollar fell 2.0% to $1.2742 while the Euro fell 0.3% to €1.1744.

Commodities were a little more mixed than the previous month. In precious metals Silver saw strong gains of 15.6% with Gold rising 1.8% while industrial metals such as copper saw modest gains, rising 0.8%. After 4 months of consecutive gains Brent crude oil fell 7.1% to $81.6.

All figures quoted are local currency returns (and USD returns for commodities).