Developed market (DM) equities climbed back into positive territory for the year (MSCI World Index +5.2% YTD) with the best monthly return in eighteen months in May (+6% MoM). Mega-cap tech stocks were at the forefront of May’s rally (Bloomberg Magnificent 7 Index +13% MoM) as the month kicked off with strong earnings announcements from Microsoft (+17% MoM; with earnings boosted by strength in cloud computing and AI) and Meta (+18% MoM; with AI tools helping to support ad revenue growth). The only disappointment amongst the mega-cap tech grouping was Apple (-5% MoM), which saw a court ruling put parts of its App Store revenue at risk. The 1Q25 earnings announcements for S&P 500 companies wrapped up last month with aggregate earnings 9% ahead of analyst expectations, the biggest earnings beat in three years. Markets received a further boost with the mid-month announcement that China and the US would materially lower tariffs on their bilateral trade for three months to allow time for more negotiations.
Emerging markets (EM) stocks underperformed their DM peers in the month (MSCI EM +4% MoM), though they remain comfortably ahead on a YTD basis (+9% YTD vs +5% YTD for MSCI World), with the EM stock index having delivered positive returns in each month in 2025 thus far. Chinese equities were the strongest EM performers in May (Hang Seng China Enterprises Index +4.7% MoM). The US dollar weakness in May also contributed to the strength of the MSCI EM Index returns.
The US Dollar Index (-0.1% MoM) suffered its fifth consecutive monthly drawdown to leave it 8% weaker YTD as speculation around foreign selling of US assets in response to tariffs grew. Global yields also drifted higher in May, with the US 10Y government borrowing rate climbing 0.25% to 4.4% p.a. Upward pressure on yields was attributed to numerous factors, including speculation around foreign selling of US assets.
Moody’s became the last of the three major rating agencies to strip the US of its AAA rating, with the downgrade in May coming more than a decade after S&P was the first major rating agency to make that move in 2011. The prospect of tariff-induced inflation, combined with a stronger-than-anticipated US jobs report, is leading investors to scale back expectations for the number of interest rate cuts the US Federal Reserve (Fed) will make this year.
After climbing c. 70% over the past two years, the price of gold took a breather in May, while the price of Brent crude oil also stabilised (+1% MoM), though it remains 14% weaker YTD.
