Investment Commentary - May 2025

May was a strong month for many financial assets, extending their recovery as tariff tensions eased. This, combined with a robust economic backdrop, was enough for risk assets to re-find earlier highs. As the month came to a close, it was clear that investors were looking through the political ‘noise’ and focussing on robust economic data, further fiscal support and a strong conclusion to the first quarter earnings season.

As such, developed market equities returned +6% in May, in a broad-based advance. Of the major markets, the US led the way, with the S&P 500 and Nasdaq returning +6.3% and +9.6% respectively. Europe and Japan weren’t far behind, with gains of +5.1% for the EuroStoxx 50 and 5.3% for the Nikkei. Despite the uncertainty created by trade tensions, emerging markets were buoyed by a weaker dollar, with the MSCI Emerging Markets Index up +4.3%. Without a significant technology sector weighting, the FTSE 100 was something of a laggard, but still managed a respectable return of +3.8% over the period. Emphasising this theme, global growth stocks returned +8.7% in May, significantly outperforming global value stocks (+3.2%). Global small cap stocks performed well, with a return of +5.9%.

In contrast to equities, the robust backdrop and stronger risk appetite created a tougher environment for bonds, with interest rate cut expectations pared back once more. Yields at the longer end of the curve came under pressure as further questions were raised about the sustainability of US Government borrowing, brought to the fore by a US sovereign downgrade from Moody’s and a costly bill making its way through congress to extend prior tax cuts. There were a number of poorly received US Treasury auctions towards the end of the period, with the lesser-traded 30-year bond repeatedly trading above 5%. On aggregate, US Treasuries returned -1.1% for May, although they are still one of the better performing sovereign bond markets year-to-date. Elsewhere, Gilts performed even worse than US Treasuries, with a return of -1.4% during the period, as fiscal concerns about the UK’s precarious fiscal position persisted. Eurozone government bonds performed relatively well, however, managing a small positive return of +0.1%. This was driven by outperformance in the likes of Spanish and Italian debt, with these countries having managed to further improve their fiscal position. With risk appetite increasing, credit spreads tightened and thus corporate bonds outperformed sovereigns, especially high yields bonds, which were the best performers within credit.

Commodities generally had a solid month, with the broad CRB Index returning +1.4%. After a stellar start to the year, gold had a pause for breath, with a flat return in May. Agricultural commodities had a relatively tough period, with the Bloomberg Agricultural Spot Index down -3.6%. Oil and industrial metals staged a modest recovery. After a plunge in April, WTI and Brent Crude were up +4.4% and +1.1% respectively. Copper managed a gain of +2.6%.

For currencies, the US Dollar remained under pressure, with the Dollar Index falling -0.1% against its basket of currencies. It was not the weakest G10 currency, however, with the Japanese Yen giving back some of its recent gains. A -0.7% decline against the Dollar brought a run of four consecutive monthly gains to an end, making it the worst performing G10 currency. Sterling managed to gain +1% against the US Dollar and +0.8% against the Euro during the period.

All figures quoted are local currency returns (and USD returns for commodities).