Political events
Geopolitical tensions continued to weigh on market sentiments throughout May. Persistent conflicts in the Middle East and Ukraine contributed to increased market volatility, affecting both investor sentiment and commodity prices. Additionally, the introduction of new US tariffs on Chinese products, particularly in critical sectors such as semiconductors and electric vehicles, alongside heightened military activities around Taiwan, further exacerbated geopolitical stresses influencing market dynamics.
The situation on the markets
Central banks adopted a cautious approach in May. The Federal Reserve kept interest rates steady, indicating that any potential easing might be deferred but not entirely ruled out. Meanwhile, the European Central Bank took a more dovish stance, signaling preparations for possible rate cuts as early as June.
US GDP growth was revised downward to 1.3% annually, reflecting slower consumer spending and exports. Inflation data indicated a slight disinflation trend, with both core and headline CPI showing moderate increases.
In Europe, economic activity saw improvements, particularly in the services sector. The eurozone’s GDP grew by 0.3% quarter-over-quarter, benefiting of the relatively low equity valuations and positive surprises in corporate earnings.
Positive economic data from China helped boost market sentiment, despite ongoing issues with domestic demand and the real estate sector. In Japan, equity markets were affected by currency weaknesses, despite strong export performance.
The impact on the asset classes equities and bonds
May saw a robust recovery in global equities and a positive, though mixed, performance in bond markets. This resurgence was primarily driven by strong corporate earnings, particularly in the technology and utilities sectors.
Equities
The global stock market rebounded, with major indices experiencing significant gains. For instance, the S&P 500 rose by 5%, the Nasdaq climbed by 7%, and the Dow Jones Industrial Average increased by 2.6%. This rally was led by impressive performances in tech and utilities sectors, which gained 10% and 9%, respectively, fueled by advancements in AI and strong earnings reports.
Bonds
While bond markets showed positive overall performance, with global government bonds rising by 1.3% in USD hedged terms, they remained sensitive to economic data and central bank policies. Yields on US Treasuries fell slightly, reflecting cautious optimism and anticipation of future rate cuts.
What are the implications for the Everon portfolios?
The favourable developments on the markets also had an impact on the Everon portfolios. Performance in the equity segment was strongly positive in all strategies at up to +6.5%. We continued to keep the allocations in the various strategies constant with only moderate changes in the selection of individual stocks, with around 5 individual stock changes per region in the multifactor strategies.
