Despite bouts of market volatility in the final stretch of May, most major global markets ended the month with robust performance. Market sentiment improved as expectations of rate cuts grew, fuelled by favourable economic data prints. Global equity markets delivered the strongest monthly performance thus far in 2024 (MSCI World Index +4.5% MoM), while their emerging market counterparts edged higher by +0.6%.
A few mega-cap US tech stocks significantly influenced equity market performance. Nvidia's share price rose by 27% month-over-month (MoM) and has more than doubled in 2024, up 121% year-to-date (YTD), after a 240% increase in 2023. This surge contributed one-fifth to the MSCI World's performance in May. Apple (+13% MoM) and Microsoft (+7% MoM) together accounted for another fifth of May's global equity index performance.
Global bonds (Bloomberg Global Aggregate) also delivered a solid performance of +1.3%, as markets continued to anticipate summer rate cuts, despite variations in timing between the U.S. and Europe.
Energy shares were the only S&P 500 sector to decline in May (-0.4% MoM), impacted by a 7.1% drop in Brent crude oil prices. This decrease was due to rising US inventories, diminished concerns over the ongoing Middle East conflict, and worries about China's continued lacklustre economic performance.
In May, South Africa experienced a series of significant economic and political events which saw South African equities enjoying a third consecutive positive month, with the FTSE/JSE Capped SWIX Index rising by 0.9% MoM. This gain occurred despite a post-election dip that reduced the index's monthly performance by 2.4% in the final days of May.
The South African Reserve Bank also kept the repurchase rate at 8.25% in May (as expected), with Governor Lesetja Kganyago noting lower inflation forecasts and stable GDP growth projections at 1.2% for 2024, supported by reduced load shedding.
US MARKETS
In the U.S., April’s inflation print tempered concerns regarding a resurgence in inflationary pressures, with CPI inflation easing to 3.4% y/y, marking the lowest level since April 2021. Although the U.S. economy continues to show resilience, data released in May signalled signs of slowing down .Retail sales were unexpectedly flat in April, suggesting that local demand was cooling, while weaker than expected new home constructions and moderate capital spending further underscored this trend.
The minutes of the May Federal Open Market Committee (FOMC) meeting highlighted concerns regarding the absence of advancements in disinflation, dimming hopes for an imminent rate cut. However, Jerome Powell did counterbalance these worries during the month, by pushing back against the possibility of further rate hikes. Fed officials opted to maintain the target federal funds rate at 5.25% to 5.5% during their May meeting.
On the market front, the Dow Jones gained +2.3%, marking its strongest monthly performance since December 2023. The S&P 500 surged +4.80%, supported by better-than-expected first quarter earnings results across several sectors, while the Nasdaq gained +6.88%, offsetting its April losses.
Elsewhere, there were some signs of moderation in the US economy. Non-farm payrolls data showed that 175,000 jobs were added in April, below consensus expectations.
EUROZONE/ UK MARKETS
In Europe, inflation rose to 2.6% in May, rising for the first time in five months. However, the higher-than-expected print did not sway market bets of a widely expected cut to interest rates at the ECB’s June 6 meeting. PMI data released throughout the month confirmed that economic activity in the bloc is rising. The services sector remains the pillar of strength, with signs of recovery also emerging in manufacturing. First-quarter GDP was confirmed at 0.3% q/q (up from -0.1% in 4Q23) and corporate profits exceeded expectations. The improving economy, combined with relatively low valuations, has become of interest to global investors. The Euro Stoxx 50 gained +1.27% on the month and is up +10.22% YTD.
UK equities rose over the period and the FTSE 100 achieved fresh all-time highs. In line with recent trends, financials and industrials were the top contributors. Small and mid-sized equities performed very strongly amid a flurry of new bids and on hopes of a possible turning point for the domestically focused areas of the UK market.
Having suffered a mild recession over the second half of 2023, it was confirmed the UK economy rebounded strongly in the first quarter of 2024, recording GDP growth of 0.6%. The positive surprise on the growth front was tempered by news of a lower-than-expected decline in annual consumer price index inflation in April to 2.3%. This pushed out the timing for the first expected rate cut by the Bank of England.
EMERGING MARKETS
Emerging market (EM) equities rose in US dollar terms although they lagged developed market peers. Softer US macroeconomic data helped ease concerns about the timing of US interest rate hikes while better performance from China also supported EM returns. Lower energy prices weighed on some of the Middle Eastern markets.
Japan spent a record ¥9.8tn ($62bn) from late April to May to boost the yen, but the currency has resumed its slide towards 34-year lows even as expectations build for interest rate rises. The situation confronting the Bank of Japan is notably different from that of its Western counterparts. While raising interest rates seems necessary to bolster a fragile currency, excessive tightening could jeopardise the return to reflation.
Egypt was the top-performing market in the month, followed by Czech Republic. Colombia was up as the central bank reduced interest rates to 11.75% while Turkey posted its first monthly gains in some time, aided by currency strength and strong earnings results from one of its larger index constituents.
LOCAL MARKETS
The election on 29 May 2024 was a watershed moment for the country as it was the first time in democratic history that the ANC lost its majority in government – going from 57.6% in 2019 to 40.2% in 2024.
South African equities closed the month broadly firmer with the All-Share Index managing to end the month in the green (+0.83% m/m) despite heightened volatility. Stocks whose earnings are predominantly linked to the SA economy sold off near month end, as the risk of the ANC losing its majority and going into a coalition government with far-left populist parties (EFF & MK) grew.
Other major news in May saw President Cyril Ramaphosa sign the controversial National Health Insurance (NHI) Bill into law. The NHI has been shrouded in uncertainty since its announcement, particularly around how it will be funded.
In other positive news, a sharp reduction in loadshedding helped factory activity (PPI) expand to 54 in April, after contracting to 49.2 in the prior month. Meanwhile, retail trade also rebounded strongly, surging 2.3% y/y in March following a 0.7% decrease in the previous month.
The local currency dipped -0.24 % m/m and closed the month at R18.75/US$.Credits: Strategic IQ, Bloomberg, Schroeders, Ninety One
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