Equities and fixed income delivered positive returns in May, supported by ongoing optimism around the global economic outlook. Expectations of falling interest rates favoured growth sectors and small cap stocks regained some momentum. Markets are still anticipating interest rate cuts this summer albeit with some divergence in the timing between the US, UK and Europe. After peaking in April, oil prices retreated during May. However, broader commodity indices still delivered positive returns with global demand remaining solid amid ongoing conflicts in both the Middle East and Ukraine.

The continued strength of the labour market and lingering inflation has led to the expectation that US interest rates will remain higher for longer at 5.25% to 5.5% currently. There are some risks to the outlook including concerns around the US’s debt position, politics and the presidential election. Meanwhile, central banks in the Eurozone and Canada cut interest rates in early June.

US equities achieved strong gains across several sectors in May including information technology, utilities and communication services sectors. Performance was supported by robust corporate earnings and hopes that US interest rate cuts are still on the way later this year. Energy was the main laggard amid weaker oil prices. The US economy remains in good shape however there have been signs of moderation with inflation remaining sticky, particularly in services sectors, at levels above the Federal Reserve Bank’s 2% target.

In Europe, economic activity is improving led by the services sectors and corporate profits have surprised to the upside. Eurozone stocks moved higher with the property and utilities sectors among the top performing sectors. Lower oil prices weighed on the energy sector while within consumer discretionary there was some weakness among luxury goods and automotive stocks. Slowing inflation over the last few months has enabled the European Central Bank to be the first among major developed market central banks to cut interest rates. Future reductions would depend on inflation pressures easing further however.

UK equities rose during May and the FTSE 100 reached a new high with financials and industrials being the top contributors. Small and mid-sized equities performed very strongly supported by bid activity and hopes of a possible turning point for the domestically focused areas of the UK market.  UK headline inflation declined in April but services inflation remains high.

Emerging market equities generated positive returns although lagging developed markets during May. China saw improved performance on optimism about authorities’ support for the housing sector and the President’s reform rhetoric. Chinese data is generally surprising to the upside, however there are risks surrounding the sustainability of the equity market rally as challenges in the real estate sector remain unresolved along with continued weakness in domestic demand resulting in reliance on strong export growth. Lower energy prices weighed on some of the Middle Eastern markets while Taiwan and to a lesser extent, India, were ahead of the broader emerging markets equity index, supported by the tech sector.

Japanese stocks were one of the weakest performing equity regions in May in local currency terms, with Japanese yen weakness weighing on consumer sentiment.

While recent US data showed signs of a rebalancing in economic momentum, corporate fundamentals remain in good health and interest rates are still likely to move lower across developed market regions albeit with some divergence in timing. This should be supportive of equities, with potentially greater scope in regions beyond the US where there is growth momentum and attractive valuations. Divergent monetary policy and uncertainty around the path of interest rates is likely to remain a source of volatility for government bond markets, however the reset in yields over the past two years means that bonds now provide both reasonable income and diversification.


Market Performance 2024 Year to Date
FTSE All-Share +8.68%
FTSE World ex-UK +9.32%
FTSE Actuaries UK Conventional Gilts All Stocks -3.69%
FTSE Actuaries UK Index-Linked All Stocks -4.01%


Total returns in GBP to 31/05/2024


Key Rates  
Bank of England Base Rate 5.25%
Inflation (Retail Price Index/Consumer Price Index)* 3.30%/2.30%


*April 2024

Source of data: FE Analytics, www.bankofengland.co.uk, www.ons.gov.uk

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.