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Global equities rebounded from April’s underperformance in May, though inflation in most western economies remained above the 2% target set by many central banks.
Whilst this article focuses in the main on May 2024 market news, there are references to events and market performance from previous months.
US
Though inflation has cooled in the US in recent months, it remains elevated above the Federal Reserve’s target of 2%, and it’s unclear when the target might be achieved1. In April, the headline Consumer Prices Index rose 3.4% year-on-year, while core inflation, excluding volatile food and energy prices, rose by 3.6% year-on-year2.
Data released in May suggests that the economy grew more slowly than previously thought in Q1. Consumer spending, among other factors, was revised down, showing that Gross Domestic Product grew by 1.3% year-on-year in Q1, rather than the advance estimate of 1.6%3.
US equities performed well in May; the S&P 500 rose by 4.8%, the Dow Jones grew by 2.3%, and the Nasdaq Composite returned 6.88% – its best month since November4.
UK
Figures reported in May showed that inflation fell sharply from 3.2% year-on-year in March to 2.3% in April, bringing it closer to the Bank of England’s (BoE) target of 2%5. Despite the sharp drop, inflation remains higher than anticipated, as economists had predicted a drop to 2.1% for the month6.
Consequently, the BoE is unlikely to cut interest rates in June as previously expected; markets now anticipate the earliest possible interest rate cut to be made at the Monetary Policy Committee’s August meeting7.
The fall in inflation and improving economy led to a rally for UK equities in May. The FTSE 100 hit a record high on 15 May, achieving 8,471 points, amounting to an 8% month-on-month gain8.
However, by the end of the month there had been a slight drop. The FTSE All-Share closed May with a modest gain of 2.4%9.
Prime minister Rishi Sunak called a general election for 4 July during May. The announcement caused markets to react positively as it dispels some uncertainty for UK markets; on the day of the announcement, the pound rose and stock futures fell slightly10.
Europe
Economic activity was positive in the eurozone in May according to preliminary data. The provisional Purchasing Managers’ Index (PMI) indicated increased economic activity and business confidence, influenced in part by expansion in the services sector11. The manufacturing sector continued to contract, but at a slower pace than in previous months, giving further reason for optimism12.
Inflation in the eurozone is thought to have increased in May, with preliminary figures suggesting a rate of 2.6% year-on-year, up from 2.4% in April13. This has been attributed to price rises for services, food, alcohol and tobacco, non-energy industrial goods, and energy14.
The optimism surrounding the economic performance and inflation in the eurozone led to positive equity returns. The MSCI Europe ex-UK rose by 3.6% in May15.
Asia
China’s economic recovery continued to be fragile in May, as economic output rose, but only marginally. The official PMI was forecast to remain unchanged from April’s score of 50.4 – a score of 50 or above indicates expansion16.
The crisis in the property market continues to weigh heavily on the economy17.
Despite the uncertainty, Chinese equities achieved modest returns in June. The MSCI Asia ex-Japan rose by 1.6% for the month18.
In Japan, the yen fell to a 34-year low in April, leading the Ministry of Finance to declare the country’s first currency intervention since 202219. The government spent a reported 9.7885 trillion yen ($62.25 billion) on currency intervention between 26 April and 29 May20.
The currency weakness weighed on equities for Japan. After a run of impressive growth, the Japan TOPIX index returned just 1.2% in May21.
What this means for you
May has provided a helpful reminder that one month of lower returns doesn’t necessarily undo a run of outperformance. Japan’s TOPIX index rose by a disappointing 1.2% in May, yet for the year-to-date, the index is up by 18.4%22.
If you noticed these sorts of returns on your portfolio for the month, you might feel disappointed. But step back, and you’ll see that the longer period of returns remains impressive.
This is not to say that the TOPIX index provides an example of the returns you must aim for; rather, it provides a timely reminder that one month of underperformance is unlikely to derail your progress towards your long-term financial goals.
By building a diversified portfolio that aligns with your goals, circumstances, and attitude to risk, your wealth is more likely to be able to weather the short-term fluctuations that are expected on the stock market.
So, instead of becoming caught up in the day-to-day headlines, take a more long-term view of the potential that your portfolio has to help you achieve your goals.
Please note: This guide is for general information only and does not constitute advice. The information is aimed at retail clients only.
The content of this guide was accurate at the time of writing. While information is considered to be true and correct at the date of publication, changes in circumstances, regulation, and legislation after the time of publication may affect the accuracy of the guide.
Sources:
1. 16.05.2024 | Our investment and economic outlook, May 2024 | Vanguard
2. 16.05.2024 | Our investment and economic outlook, May 2024 | Vanguard
3. 30.05.2024 | Consumers curb US economic growth in first quarter, inflation cools | Reuters
4. 31.05.2024 | Dow closes more than 570 points higher to post best day in 2024, stocks wrap a winning May | Live updates CNBC
5. 22.05.2024 | Consumer price inflation, UK: April 2024 | Office for National Statistics
6. 22.05.2024 | Inflation falls to 2.3% in April - to lowest in nearly three years | Sky News
7. 22.05.2024 | Inflation falls to 2.3% in April - to lowest in nearly three years | Sky News
8. 15.05.2024 | FTSE 100 closes at record high yet again | Yahoo Finance
9. 03.06.2024 | Review of Markets over May 2024 | J. P. Morgan
10. 23.05.2024 | UK election date lifts fog over promising market recovery | Reuters
11. 23.05.2024 | Eurozone PMIs at 12-Month High | Morningstar
12. 23.05.2024 | Eurozone PMIs at 12-Month High | Morningstar
13. 31.05.2024 | Euro area annual inflation up to 2.6% | European Commission
14. 31.05.2024 | Euro area annual inflation up to 2.6% | European Commission
15. 03.06.2024 | Review of Markets over May 2024 | J. P. Morgan
16. 30.05.2024 | China's May factory activity likely expanded at steady pace, recovery still fragile: Reuters poll | Reuters
17. 30.05.2024 | China's May factory activity likely expanded at steady pace, recovery still fragile: Reuters poll | Reuters
18. 03.06.2024 | Review of Markets over May 2024 | J. P. Morgan
19. 31.05.2024 | Japan confirms first currency intervention since 2022 with $62 billion in spending | CNBC
20. 31.05.2024 | Japan confirms first currency intervention since 2022 with $62 billion in spending | CNBC
21. 03.06.2024 | Review of Markets over May 2024 | J. P. Morgan
22. 03.06.2024 | Review of Markets over May 2024 | J. P. Morgan
FP2024-263 Last reviewed June 2024