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Our market summary
Global markets rebounded in May, buoyed by easing trade tensions and improving investor sentiment. A 90-day reduction of tariffs between the US and China, along with progress in US-EU trade talks, helped reduce fears of a global recession. Global equities were up by 4.8%, led by growth stocks (up 7.7%), which outperformed value (up 2.2%). However, fixed income markets were volatile, reacting to concerns over fiscal sustainability and inflation. While equity markets rallied, sovereign bond yields rose, reflecting investor unease about government debt levels. Overall, risk assets recovered from April’s lows, supported by better-than-expected earnings and a more constructive macroeconomic backdrop.
US
The US was the strongest developed equities market returning 5.4% with the Magnificent Seven again performing well, up 12.4%. The easing of tariff fears and robust Q1 earnings were the primary drivers. Technology led the way, but the rally also extended to cyclical sectors such as industrials and consumer discretionary. Meanwhile, healthcare lagged due to proposed drug pricing reforms.
Europe
European equities advanced, returning 3.9%, supported by progress in US-EU trade talks, expectations of fiscal support, and upwards earnings revisions. The industrials, information technology, and financials sectors led the way, and, like the US, healthcare underperformed. A tariff threat from the US briefly rattled markets, but an extension of the negotiation deadline helped the market recover.
UK
UK equities rose 4.1% in May, the weakest return among developed markets. The industrials and basic materials sectors led the way, while consumer staples and healthcare underperformed with pharmaceutical firms coming under pressure from proposed US drug pricing reforms. Elsewhere, the framework agreement with the US on tariffs and the new UK-EU deal to deepen post-Brexit ties offered support, but rising bond yields weighed on dividend-paying sectors like utilities.
Emerging markets
Emerging markets posted gains of 3.3 % although this lagged their developed peers. Taiwan and Korea outperformed, supported by renewed optimism about artificial intelligence and strong earnings. Meanwhile, South Africa and Mexico also did well, whilst China, India, and Brazil underperformed. Despite easing trade tensions, China continues to face headwinds from weak domestic demand.
Fixed income
Fixed income markets were volatile amid concerns over inflation, slowing growth, and fiscal sustainability. US Treasuries were down 1.1% as yields rose following Moody’s downgrade of the US’s credit rating. Meanwhile, global bonds posted a loss of 0.4% and UK gilts were also down 1.4% despite the Bank of England cutting interest rates by 0.25%, as inflation surprised on the upside.
Performance review
The Cirilium Blend Portfolios delivered positive returns in May, ranging from 0.5% for the Conservative Portfolio and steadily increasing to 4.8% for the Adventurous Portfolio.
Equities were the main performance driver as the market rebound continued following Trump’s 90-day pause of tariffs. The US stood out having been slower to recover during April, with the Sands Capital US Select Growth Fund as the top performer.
Our fixed-income exposure was a drag on performance, particularly government bonds, as investors continued to fret about unsustainable government debt levels. Meanwhile, the performance of our alternatives holdings was more muted but modestly positive.
Portfolio activity
In May, we made changes to our European equity manager line up, adding the Liontrust Pan-European Dynamic Fund. This is a ‘core’ strategy that focuses on companies with attractive cashflows. We funded it by selling out of the Invesco European Equity Income Fund and reducing our allocation to other European and UK equity managers to keep the regional weights of the portfolios the same.
We also began switching out of the Quilter Investors US Equity Growth Fund (managed by JP Morgan) into the JPMorgan US Growth Equity Active ETF. The same team manage the exchanged-traded fund (ETF) but the ETF has a slightly larger cap tilt that we think is beneficial.
Investment outlook
At the end of the first quarter of 2025, the US economy was still in decent shape. Consumer and business confidence was weakening, but there was good reason to be sceptical of these surveys. Meanwhile, economic activity and labour market data was solid. So, while a slowdown was coming, we did not expect anything more serious. In Europe, the promise of more government spending had notably improved the long run economic outlook. Closer to home, the UK enjoyed a small bounce in growth, but wage gains without productivity growth meant upside risks to inflation were still a concern.
How it started
Before the Presidential election, US equities rallied on expectations of deregulation and tax cuts. While tariffs were always part of Trump’s policy agenda, our working assumption was that the reality would be less extreme than the rhetoric, given tariffs would lead to lower global growth and higher US inflation. However, the 20% tariff placed on imports from China and the on-off tariff back and forth with Canada and Mexico was already challenging this theory.
How it’s going
‘Liberation Day’ on 2 April was worse than almost anyone foresaw. Trump quickly backtracked once US Treasury yields jumped, leaving doubts regarding the competency of US policy making. Although the reluctance of investors to hold US assets has partly abated, days when both the dollar and US Treasuries weaken remain common. We certainly do not think this is the end for the US, but we would not be surprised to see a gradual asset allocation shift over the next several years in favour of other global peers.
What does it all mean?
We expect a global growth slowdown, but a recession is far from certain. Survey data remains quite weak, but is showing tentative signs of bottoming. Meanwhile growth and labour market data is still holding up, except for a quirky US GDP growth number in the first quarter. Equity markets are close to their previous highs following the April selloff, which makes us reticent to add more risk to the portfolios, but we also note the effect (both positive and negative) that a single ‘tweet’ can have. With elevated uncertainty, diversification is the name of the game and options strategies can be particularly beneficial.
Ian Jensen-Humphreys
Portfolio Manager
Sacha Chorley
Portfolio Manager
CJ Cowan
Portfolio ManagerSolutions
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