May’s investment market commentary

May proved to be a volatile month for markets, but after a tough first four months global equity and bond markets at least managed to end the period broadly flat. Recent concerns over global growth helped to slightly temper the extremely high interest rate expectations and provide support to markets, as did Federal Reserve Chairman Jerome Powell’s comments discounting the possibility of big (0.75%) rate hikes. Nonetheless, the market’s list of worries remained largely unchanged during the month: high inflation, tightening monetary policy, slowing growth, Russia’s invasion of Ukraine, and COVID-related lockdowns in China (albeit some of these restrictions were relaxed towards the end of the period).  Overall, it would seem for sentiment to change markets we will need to see an improvement in several of these areas, especially inflation given its importance to the monetary policy outlook. 

Global equity markets (-0.2%) were unchanged on the month. A large weighting to the energy sector continued to benefit UK equities (+1.3%), as it has done so far this year. In terms of style, growth stocks (-2.0%) yet again underperformed the more value / cyclically (+2.0%) orientated equities, on the back of valuation concerns and a number of disappointing quarterly earnings results. Sector performance was much less clear cut, while energy (+12.2%) was yet again easily the best performing area this was followed by utilities (+2.8%) and financials (+2.2%). At the other end of the spectrum, real estate (-3.8%), consumer staples (-3.4%) and consumer discretionary (-2.9%) sectors fell the most, reflecting in part lower demand and increasing pressure on margins of consumer facing companies.

Within fixed income markets, concerns over growth and a better understanding of the speed of US Federal Reserve interest rate rises, generated gains in the US bond markets during the month. Looking at the detail, global government bond prices fell (-0.5%) despite the rally in US bonds, as UK and European bond yields rose sharply due to inflation concerns. Global investment grade credit (+0.2%) generated a positive return over the month as spreads tightened marginally, at the riskier end of the credit spectrum the opposite was true with global high yield (-0.3%) posting a small decline.

In terms of real assets, property markets underperformed equities over the month with the global REITs index down -4.3% over the period. Commodities (+1.5%) rose for yet another month (+32.7% year to date), led primarily by crude oil (+11.5%) as a result of continued supply concerns due to the war between Russia and Ukraine. Industrial metals (-6.5%) fell further on the back of global demand concerns, while gold (-3.6%) was also weak despite a weaker US dollar during the month.

This month’s values quoted as at 31/05/2022. The above values are sourced from Bloomberg and are quoted in the relevant currency.