– Equities rebound strongly after volatile April, led by gains from the U.S.
– Fixed income performance is mixed; government bonds underperform
– U.S. tariff policy remains the preeminent source of market uncertainty
Through May, global equity markets rebounded strongly, gaining 5.5%, in EUR, buoyed by easing trade tensions and improving consumer sentiment. Developed market stocks outperformed their emerging market counterparts, led by gains from U.S. markets, where the region’s broad S&P 500 index (in green, below) gained 6.0%.
U.S. trade negotiations continued between the White House and other key global governments, with progress made between the U.S and the E.U., while a mid-month trade truce between the U.S. and China helped fuel gains across risk assets. Although trade tariffs remain the focal point of President Trump’s economic agenda, early sightings of his budget reconciliation bill point to new tax and regulatory changes that will help boost the U.S. domestic business landscape – a development that proved positive for small cap stocks.
Despite ongoing disruption to the trade backdrop, U.S. corporates posted a robust set of quarter one earnings, with 77% of companies reporting positive earnings surprises. Technology darling, Nvidia, was one such company, beating both earnings and revenue expectations – helping the technology focused Nasdaq Index (in pink, below) post a month end gain of 9.8%.
Source: Bloomberg
Elsewhere, both European and U.K. equities posted gains, with upward earnings revisions helping underpin confidence in the European equity market. Within the U.K., GDP data surprised to the upside, while announcements of trade deals with India and the U.S. further added to optimism. However, persistent inflation in the region continues to put pressure on U.K. bond yields, in turn, weighing on the relative attractiveness of the region’s dividend paying stocks.
Across emerging market, equities benefitted from a cooling in trade tensions between China and the U.S., while a weakening dollar helped fuel gains. The broad emerging markets index gained 5.0%, in EUR, with Taiwan and Korea outperforming at a country level.
Commodity markets struggled, with gold (in black, above) especially weak through the period, falling 0.9%, as investors capitalised on falling recessionary fears by shifting capital way from defensive assets.
The impact of currency movements was mixed through May, as the U.S. dollar pared back some of its year-to-date losses versus a number of major currencies, including the Euro, a move that benefitted Euro holders of U.S. assets. Elsewhere, the Japanese yen had was one of the strongest currencies, posting a relative gain of 1.2% against the Euro.
Source: Bloomberg
Across bond markets, the picture was more challenging, as concerns over fiscal deficits in both the U.S. and U.K. pushed up long-dated yields, weighing heavily on government bond prices. Improving trade tensions helped buoy returns from credit markets, with corporate bonds outperforming their government counterparts. The global high yield index (in blue, below) was a notable standout to the upside, benefitting from a brighter growth outlook and eking out a gain of 1.5%. However, the broad weakness in government bonds led the global aggregate index to close the month down 0.6%.
Source: Bloomberg
U.S. treasuries suffered a credit rating downgrade from Moody’s, a move that underscores the wider market’s growing concern over the trajectory of the region’s fiscal policy and the widening budget deficit. Longer-dated bond yields, particularly the 30-year tenor, moved significantly higher over the month, reflecting a nervousness in bond investors over global growth and inflation outlooks. The US 30-year Treasury yield hovered near 5%, similar to levels seen in U.K. gilt, highlighting the caution required in fixed income allocations.
Source: Bloomberg
Overall, U.S. tariff policy continues to be the predominant driver of global financial market sentiment and returns, as investors grapple with the potential negative knock-on effects to growth, inflation and interest rates. The 90-day pause for most tariffs between the U.S. and China is estimated to have brought the overall effective US tariff rate down to 15%, from the previous 21-22% level. However, the outlook remains extremely uncertain. Furthermore, a month end court ruling and subsequent White House appeal over the legality of certain tariffs is raising additional unknowns.
Source: Oxford Economics/ Census Bureau
As financial markets remain highly sensitive to developments in US trade policy, economic data, and geopolitical machinations, our focus remains on ensuring portfolio level diversification across geographies, asset classes, sectors, and investment styles. By maintaining a balanced approach, focusing on quality, and remaining tactically flexible, investors can position portfolios to weather potential volatility while capturing opportunities as they emerge.
At Fairstone, we specialise in providing tailored investment planning advice to help clients achieve their financial goals. Our experienced advisors offer personalised strategies designed to optimise growth, manage risks, and ensure diversification across a wide range of assets. By working with Fairstone, you can have confidence that your investment decisions are guided by expertise, adaptability, and a commitment to your long-term success.
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This publication was prepared by Imogen Hambly CFA, Portfolio Manager for Fairstone Private Wealth Ltd. (United Kingdom). Fairstone Private Wealth Ltd. is authorised and regulated by the Financial Conduct Authority (FRN: 457558)
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Information as of the date of publication 30/05/2025
