Watch Sean Henaghan, our Chief Investment Officer, unpack what’s moving markets and how Aurora is positioning your investments for long-term resilience.
Calmer conditions support a rebound across risk assets
Markets staged a strong recovery in May, extending the rebound that began in April. Easing trade tensions, improving sentiment, and constructive policy developments helped fuel a rotation back into risk assets. While inflation and fiscal risks remain elevated, investor confidence was buoyed by signs that the worst-case growth outcomes may be avoided.
In the US, early signs of the economy slowing are emerging. While Q1 growth was supported by front-loaded activity, underlying demand – particularly consumer spending – softened meaningfully. The Fed left the federal funds rate unchanged, highlighting “extremely elevated” uncertainty. While growth is softening, persisting inflation pressures limit the scope for immediate easing. In Europe, sentiment indices are improving. In Asia, the focus is shifting inward. With export headwinds growing and inflation risk tilted to the downside, further monetary easing is expected to support domestic demand. China continues to target 5% growth, supported by fresh stimulus measures. In New Zealand, recent data shows some improvement, with year-on-year retail sales for Q1 (+0.8%) higher than expected and unemployment for Q1 (+5.1%) lower than expected. The Reserve Bank cut the OCR with 25 basis points and is likely to maintain a cautious approach until the global outlook becomes clearer.
Equity markets rallied broadly, with developed market shares rising 6.0% for the month. US equities led the gains, with the S&P 500 up 6.3% as growth stocks outperformed value. The earnings season supported sentiment, with 77% of S&P 500 companies beating earnings expectations and year-over-year earnings growth reaching 12.4%. European equities rose 4.9%, supported by progress in US-EU trade negotiations, upward earnings revisions, and optimism about future fiscal support. Emerging markets advanced in USD terms, helped by a weaker dollar.
Bond markets were quite volatile, reflecting competing macroeconomic forces. US government bonds fell following a downgrade of the US sovereign credit rating and weaker demand at Treasury auctions. Credit markets fared better, with spreads narrowing sharply as investors regained confidence and recession fears receded.
While recent developments have supported risk assets, markets remain sensitive to shifts in policy and economic data. Trade tensions have eased, but remain unresolved. Inflation is moderating, but still above target. Fiscal concerns are rising, and the global growth outlook is mixed.
We remain focused on preserving capital, managing risk, and capturing opportunities as they arise. Diversification, active management, and careful assessment of global developments continue to be key pillars of our investment approach.
DISCLAIMER
This information is provided in a general nature only and should not be construed as or relied on as financial advice. This is not a recommendation to invest in a particular financial product or class of financial products. You should seek financial advice specific to your circumstances from a Financial Adviser before making any investment decisions.
Past performance is not a reliable indicator of future performance. The value of your investment may go up and down.