Global markets eked out the smallest of gains in May (MSCI World +0.1% MoM) thanks to a rally in the last few days of the month. Most major developed market (DM) stock indices managed to end the month higher (Eurostoxx 50 +1.3% MoM, Nikkei 225 +1.6% MoM) including the US’ S&P 500 (+0.2% MoM), despite another poor month for US tech stocks as the tech-heavy Nasdaq 100 Index ended May lower (-1.5% MoM) pushing it further into bear market territory (-22% YTD). This included drawdowns from the Nasdaq’s six largest constituents – Apple, Microsoft, Amazon, Tesla, Meta, and Alphabet (-5%, -2%, -3%, -13%, -3% and -1% MoM, respectively). As US companies wrapped up 1Q22 earnings announcements in May, retailers Walmart (-16% MoM) and Target (-29% MoM) delivered the biggest shocks as they trimmed profit forecasts on rising cost pressures and signs that customers were favouring grocery and essential purchases over the higher-margin discretionary purchases. Later in May, department store, Macy’s (-2% MoM) and discount retailers Dollar General (-7% MoM) and Dollar Tree (-1% MoM) gave a slightly better picture of consumer health with strong results.
Emerging markets (EMs) fared slightly better than their DM peers for the second consecutive month (MSCI EM +0.5% MoM) with China and Brazil leading the way (Shanghai Composite +4.8% MoM, Brazilian Bovespa +3.2% MoM). The Chinese economy continued to suffer under severe lockdowns imposed under the zero-COVID policy, but signs that restrictions were easing late in the month, along with strong rhetoric from the government that it would be delivering various economic support measures to help the economy catch up, helped boost Chinese stock prices. The Brazilian stock market benefitted from large exposure to energy counters, which rallied along with Brent crude oil (+12% MoM). The price of oil took another leg higher as the European Union (EU) pushed to block purchases of Russian oil. The higher oil price pushed S&P 500 energy stocks up 15.8% in May, leaving the sector 58% higher YTD.
The US Federal Reserve (Fed) delivered a much anticipated 0.5% interest rate hike at its meeting in early May (the first hike of that quantum since May 2000) and signalled the strong likelihood of another 0.5% hike at its next meeting. However, investors were somewhat relieved when Fed Chair Jerome Powell indicated that the Fed members were not actively considering hikes of 0.75% per meeting. The US 10-year government bond yield drifted above 3% for the few days following the Fed meeting before retreating into month-end as risk aversion and the prospect of the Fed hikes driving the US economy into a recession weighed on the benchmark yield, which ended the month slightly lower at 2.8%. The challenges the Fed faces were highlighted during the month as US inflation came in above expectations (US headline CPI +8.3% YoY vs consensus economist expectations of 8.1% YoY), though with the silver lining that the April data were below the March level (+8.5% YoY) delivering hope that inflation may be past its peak.
In a sign that the turmoil in global markets was spreading to other asset prices, cryptocurrencies experienced a wobble in May as stablecoin TerraUSD collapsed, wiping out c. US$18bn of value in that crypto asset and catalysing losses of more than US$300bn across other crypto assets. This included a 17% MoM drop in the price of bitcoin, which fell below US$30,000 during May, having peaked at c. US$68,000 in November.
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