Market insight May 2024

In our market insight May 2024 review, we see positive returns from both growth and defensive assets. Assurances about the economic outlook helped developed market equites, whilst the hope of interest rate decreases this summer helped global bonds. However, there continues to be a divergence on the expected timings of these decreases between the US and Europe.

The economic picture

Starting with the economic picture, in the US, economic data released in May helped reduce concerns of some overheating in the economy and there were signs of a rebalancing in the economic momentum. However, the minutes of the last meeting of the Federal Open Market Committee reinforced fears about the lack of further progress on disinflation, with any hopes of a near term rate cut now weakening.

In the Eurozone, May headline and core inflation increased to 2.6% and 2.9% year-on-year, respectively. Despite this surprise on the upside, slowing inflation over the last few months has allowed the ECB to signal a higher degree of certainty that rates should be cut in June.

UK headline inflation decreased in April to 2.3%, but services inflation continues to be higher than hoped at 5.9%. This makes the possibility of a June rate cut from the Bank of England unlikely.

Growth Assets

Turning to growth assets, after falling at the start of Q2, US equities rebounded with positive returns in May. These were driven by better-than-expected first quarter earnings results across a number of sectors. The improving economic picture and the possibility of near-term interest rate cuts helped European and UK equities.

After a strong 2023, Japanese stocks were one of the weakest performers in May as the low valuation of the currency weighed on consumer sentiment. As a result, rate hikes appear essential to support the yen, but too much tightening might bring the possibility of reflation risks.

After peaking in April, oil prices fell back during the month. However, commodities overall still delivered positive returns as global demand remained solid, with ongoing conflicts in both the Middle East and Ukraine.

Factor performance and defensive assets

Turning to factor performance, quality and momentum were the best performers over the month. Expectations of falling interest rates also favoured growth sectors which outperformed value sectors over May.

Defensive assets continue to be influenced by divergent monetary policy and uncertainty around the pathway of interest rates. This reflected in both US and UK 10-year yields over the month. Investment grade bonds, however, continue to be supported by positive corporate results.

Market insight May 2024 summary

In summary, the timing of interest cuts is driving growth and defensive asset sentiment currently, but growth assets are being supported by solid fundamentals. However, for now, the focus is moving away from the US as the market driver in the short term as there appears to be greater valuation catch-ups in other regions at the moment.

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This article is distributed for educational purposes and should not be considered investment advice or an offer of any security for sale. This article contains the opinions of the author but not necessarily the Firm and does not represent a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable but is not guaranteed.

Past performance is not indicative of future results and the value of investments can fall as well as rise. No representation is made that the stated results will be replicated.

Ian Hooper

Ian Hooper

Chief Investment Officer

Ian joined Progeny Asset Management as a founding director in 2016 and provides strategic oversight to the business.

Learn more about Ian Hooper