YOU AM market commentary: May

Overall, May proved to be another strong month for most equity markets with the MSCI All Country World Index (a broad measure that tracks the share prices of companies across the globe) up +6.0%. Despite all the political, geopolitical and economic uncertainty, this pushed the gains for that equity index to +11.9% for the year-to-date.

Despite continued concerns about the persistence of inflation on the back of the ongoing Middle East crisis, all of the major central banks kept interest rates on hold in May and, as a result, fixed income (bond) markets also made modest gains with the Bloomberg Global Aggregate Index of global fixed interest securities up +0.6% in GBP hedged terms.

When the economic outlook is uncertain, investors often look for parts of the market that they believe can keep growing profits whatever happens to the wider economy, at least in the short term. Now, that money is flowing towards Artificial Intelligence (“AI”) companies and sectors around the world. Many of the larger companies benefitting from this AI frenzy are based in the US and Asia. Reflecting this, the S&P 500 Index of leading US companies was up +6.1% last month but the technology-dominated NASDAQ-100 Index was up +11.4% and is up over +20% for the year so far. Similarly, MSCI Emerging Markets (a measure of stocks in emerging market countries) was up +10.6% in May and is up +25.3% this year. With Korea and Taiwan, the primary homes of the firms supplying key components into the AI-sector, their equity markets were up an astonishing +36.4% and +17.5% respectively in May and are now up +117.5% and +60.1% year-to-date. Many have questioned whether this is a speculative bubble, but in most cases, these share price rises are being driven by rapid increases in underlying profits. The key question most are grappling with is how long this can continue.

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