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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
May was a more positive month for risk assets with the first post-‘Liberation Day’ hard data (measurable and objective metrics rather than sentiment) proving more resilient than many, including us, had thought. At the same time, we started to hear about the prospect of trade deals between the US and other countries that further reduced pressure on markets – none more so than the 90-day truce between the US and China.
Against this backdrop, portfolio returns ranged from 0.9% for Responsible Blend 3 to 4.6% for Responsible Blend 10. Our equity holdings delivered strong returns, but in the latter half of the month concerns started to mount about the sustainability of the US debt market given the high levels of the deficit and the prospect of Trump’s ‘Big Beautiful Bill’. Ultimately, this impacted values in the bond market and held back returns in the lower-risk portfolios.
Investment outlook
Markets saw a significant rally at end of May as trade tensions eased, recouping nearly all of April and early May’s sell off. That said, confidence has been shaken, and we believe the medium- to long-term impact of Trump’s announcements are yet to be felt.
A waiting game
There was some progress in tariff negotiations over the month, with China and the US agreeing a temporary suspension on most tariffs for 90 days. That said, later in the month, legal challenges to Trump’s tariffs dominated headlines. There is now a risk that countries will have less incentive to negotiate, adding to the uncertainty within which companies must operate.
Unpredictability affecting confidence
This uncertainty makes it difficult for companies to commit to capital expenditure and is likely to affect consumer confidence. We will be keeping a close eye on both the hard and soft data in coming weeks and months, particularly inflation and corporate earnings.
Positioned appropriately
We continue to believe that flexibility and a willingness to adapt will be key to delivering returns in this environment. Alongside this, a diversified portfolio that is not overly reliant on a particular sector or asset class to deliver returns or manage risk will be vitally important. We believe the current construction of the portfolios meets these criteria, but we will not be complacent about any individual position.
Stuart Clark
Portfolio Manager
Helen Bradshaw
Portfolio Manager
Bethan Dixon
Portfolio ManagerSolutions
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