Global financial markets were volatile in May, with equities across regions and sectors posting mixed returns while bonds and commodities declined. Markets were impacted by concerns around global economic growth, US debt ceiling negotiations and elevated inflation which appears particularly persistent in the UK compared to the US and a lesser extent Europe. Interest rates were raised by 0.25% in May by UK, Europe and US central banks, bringing the UK’s base rate to 4.50%, Europe’s benchmark rate to 3.25% and the US target range to 5.25% – 5.50%.

During May, growth stocks including the US technology sector significantly outperformed value-oriented sectors such as energy stocks, as strong corporate earnings and growing investor expectations about the future potential of AI (artificial intelligence) boosted the technology sector. Commodity markets experienced weakness. Along with a lower oil price, the decline in the price of industrial metals reflects the subdued global demand for goods and reduced commodity intensive activity in China. From an economic perspective, data has indicated further weakness in manufacturing sectors, with services remaining robust.

The US Federal Reserve Bank expressed uncertainty in its May meeting about future monetary policy tightening and the need to retain flexibility given concerns over the impact on economic growth. Large technology companies have accounted for nearly all of the returns achieved by the S&P 500 Index this year as optimism around AI drove the sector higher. Healthcare stocks remained resilient while energy and materials stocks were among the weakest performers in May. Negotiations around the US debt ceiling created noise around financial markets in May, causing a spike in US government bond yields and a decline in bond prices. A deal was reached to suspend the debt ceiling until January 2025. Whilst this avoids a default on US debt which would have severe consequences on the world’s largest economy, it does not address the underlying problem of the growing national debt.

Eurozone equities were generally weaker in May after a strong run since October last year, with the exception of the information technology sector. There has been a general slowdown in economic momentum, including the tightening of credit standards and a weakness in credit demand with the German economy experiencing a recession during the winter, however there were encouraging signs of easing inflationary pressures for May in regions such as Germany and France, boosting hopes that Eurozone interest rate rises may soon end.

UK equities declined in May as large diversified energy and basic materials stocks which make up a significant element of the index were among the worst performers due to weakness in commodity prices, while financials including banks held up relatively well during the month. The UK’s April inflation report was not well received by investors with headline CPI significantly above expectations and importantly, core inflation, which strips out volatile items including energy and food to give underlying trends, accelerated to its highest rate since March 1992. As a result, UK bond yields moved higher and gilts were one of the worst performers among global government bonds. With inflationary pressures in the UK proving to be more persistent than expected, further tightening in monetary policy is likely and markets are now expecting UK interest rates to peak at 5.5%.

The Japanese stock market was the best performing equity region in May, outperforming other developed markets as real GDP rose, driven by strong private consumption and foreign investment. As a large developed Asian market, Japan should benefit from China’s economic recovery along with improvements in its corporate governance. Inflation has however started to accelerate and investors are optimistic that Japan is on the way out of the deflationary stagnation period. After the end of its zero-Covid policy and a strong first quarter, there has been a slowdown in activity in China and the property market continued to decline. Chinese equities underperformed South Korea and Taiwan which were driven by gains in the technology sector including semiconductor companies. Indian equities achieved modest gains in May as encouraging economic data boosted sentiment.

The trends seen in May reversed at the start of June with energy being one of the strongest sectors. Commodity prices rose following the announcement by Saudi Arabia to cut crude oil production in an attempt to boost prices. The strength of the US labour market may encourage the Federal Reserve to continue hiking interest rates, however it also suggests an underlying resilience of the US economy. With core inflation remaining stubbornly high notably in the UK, along with the prospect of sustained strong wage growth, central banks may tighten monetary policy further, meaning that interest rates may peak higher than initially expected.


Market Performance 2023 Year to Date
FTSE All-Share +1.60%
FTSE World ex-UK +5.68%
FTSE Actuaries UK Conventional Gilts All Stocks -3.09%
FTSE Actuaries UK Index-Linked All Stocks -5.55%


 Total returns in GBP to 31/05/2023


Key Rates  
Bank of England Base Rate 4.50%
Inflation (Retail Price Index/Consumer Price Index)* 11.40%/8.70%


 *April 2023

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.