The month in summary:
Global shares fell in May, in US dollar terms. However, there was a marked difference between sectors, as enthusiasm over artificial intelligence boosted technology stocks.
In economic news, survey data indicated further weakness in manufacturing sectors, with services still proving robust.
Worries over the US debt ceiling made headlines, although a deal was reached shortly after month-end. Government bond yields climbed (meaning prices fell).
Please note any past performance mentioned is not a guide to future performance and may not be repeated. The sectors, securities, regions and countries shown are for illustrative purposes only and are not to be considered a recommendation to buy or sell.
US
US equities struggled to make headway overall in May, in a month of highly varied sector returns.
While economic data remained broadly supportive, the looming prospect of a government default made investors jittery.
The Federal Reserve enacted another rate rise of 25 basis points, as expected.
The US labour market remains tight. The headline unemployment rate fell to 3.4 per cent from 3.5 per cent in March.
Inflation (as measured by CPI) rose 0.4 per cent month on month in April following a 0.1 per cent uptick in March. Excluding the volatile food and energy categories, core CPI saw a repeat 0.4 per cent increase, also as expected.
Industrial activity – according to initial composite purchasing managers’ index (PMI) data – improved slightly in May.
The PMI indices are based on survey data from companies in the manufacturing and services sectors. A reading below 50 indicates contraction, while above 50 signals expansion.
As such, while the Fed’s rate hike was anticipated, there was a slight but significant adjustment to messaging. The central bank expressed uncertainty in its May meeting about future policy tightening and the need to retain flexibility.
Discussions around the debt ceiling were the focal point for much of the month. With Democrats and Republicans having found a compromise, a deal was agreed on the final weekend of the month to raise the country’s borrowing limit, which needs to pass through Congress.
Energy and materials stocks were among the weakest performers in May, with concerns over the demand outlook weighing.
The performance contrasted starkly with the stocks in the technology sector, which made strong gains. Fervour around AI and the potential for a boom in related technology drove chipmakers, in particular, higher.
Eurozone
Eurozone shares were weaker in May after a generally positive year so far. The MSCI EMU index returned -2.5 per cent. All sectors fell aside from information technology, which was boosted by semiconductor stocks.
This was in the wake of higher-than-expected sales projections from some US chipmaker peers, which helped demonstrate the growth potential stemming from AI.
Revised figures showed that the German economy did not in fact escape recession over the winter. After GDP for Q4 2022 fell 0.5 per cent quarter on quarter, there was another decline of 0.3 per cent quarter on quarter in Q1 2023.
