Market volatility continued in May as there was no clear catalyst for a change in sentiment. The unresolved war in Ukraine, tighter monetary policy and COVID restrictions in China remain the key risks. Global equities and bonds ended the month broadly flat although rising bond yields have resulted in significant losses year to date. Value stocks were the best performing asset class over the month, while growth stocks continued to struggle due to the impact of higher interest rates on the valuations of high-profile companies with profit warnings issued by Microsoft (technology) and Snap (social media).

Commodities continued to perform well with oil and wheat prices rising. Real estate came under pressure as the US and UK housing markets started to slow. The UK FTSE 100 Index remained in positive territory year to date as the large weighting to the energy and natural resources sector continued to benefit the market.

Labour markets continued to tighten with unemployment in the UK and Eurozone reaching record lows supported by an acceleration in wage growth. Business and consumer confidence in the UK has weakened, reflecting the risks to the economic outlook. The Bank of England raised the base rate from 0.75% to 1.00% in May and with headline inflation (CPI) at 9.0% year on year, another 0.25% hike is likely in June. Along with negative real wage growth, rising energy bills will place further pressure on consumers, however the Chancellor’s package of measures to help with this will provide significant support to lower income households.

The war in Ukraine continued in May and the impact of supply shocks is evident with inflation at 8.1% year on year in the Eurozone. Despite this, European consumer confidence improved slightly and business surveys were resilient. Based on the current outlook, the European Central Bank is likely to raise interest rates in July and be in a position to exit negative interest rate territory by the end of the third quarter.

In the US, unemployment reached historical lows of 3.6%. Although inflation remains elevated, it fell marginally to 8.3% year on year. The Federal Reserve Bank (Fed) increased interest rates by 0.50% in May which was in line with expectations. The market is now pricing another two hikes of 0.50% each in June and July however the risks to growth increased during May and the Fed gave mixed signals on the outlook for interest rate hikes beyond July which caused further uncertainty for markets.

China continued to struggle with the Omicron variant and major cities spent most of the month in lockdown, including Beijing which faced tighter restrictions. Officials have announced a gradual general reopening to take place during June. The worsening economic situation caused banks to cut back on their loan issuance, resulting in slower credit growth. As a result, the People’s Bank of China reduced the key mortgage reference rate by 0.15% to support house prices and put pressure on banks to increase loan issuance. As one of the world’s largest manufacturing hubs, China’s zero-COVID policy has impacted economic growth and global supply, however Chinese exports data were better than expected over the latest twelve month period.

Central banks are facing a growth-inflation trade-off. Raising interest rates by too much may trigger a recession, while not tightening rates enough could cause inflation to increase further. The risks to growth remain higher in the UK and Europe than in the US.

Markets have been buffeted by geopolitical tensions, inflationary pressures and higher interest rates this year. Volatility may continue due to the high level of uncertainty surrounding these factors and particularly as markets focus on whether economies can sustain higher interest rates without contracting.

As the cost of capital has increased profit margins for all business may remain under pressure for some time, however pricing power is likely to be a key driver of relative equity performance going forward. Sectors that historically do well during economic slowdowns, consumer staples, utilities and healthcare for example may be resilient compared to consumer-reliant sectors like consumer discretionary and communication services.


Market Performance 2022 Year to Date
FTSE All-Share +1.50%
FTSE World ex-UK -6.19%
FTSE Actuaries UK Conventional Gilts All Stocks -12.47%
FTSE Actuaries UK Index-Linked All Stocks -18.38%


Total returns in GBP to 31/05/2022



Key Rates
Bank of England Base Rate 1.00%
Inflation (Retail Price Index/Consumer Price Index)* 11.10%/9.00%


* April 2022

Source of data: FE Analytics,,

The content contained in this article represents the opinions of MacIntosh & James Partners Ltd. The commentary in no way constitutes a solicitation of investment advice and should not be relied upon in making investment decisions. Past performance is not a reliable indicator of future results. The value of your investments can fall as well as rise and are not guaranteed.