Charles-Henry Monchau

Chief Investment Officer

Chart #1 — 

Economic data in May
was softer than expected


Markets closed November in a positive mood thanks to tentative signs of economic moderation in the US and falling inflation across developed markets. Data releases broadly supported the view that central banks have reached the peak of their tightening cycles, aiding both equities and fixed income.
Global bond and stock markets added over $11 trillion in capitalization in November. That is the second biggest monthly gain in history (November 2020 added $12.5 trillion). 
US Growth stocks (+11.2%) outperformed US small caps (+9.4%) and US value (+7.5%) while developed equity markets (+9.4%) outperformed emerging markets equities (+8.0%). In emerging markets, MSCI China’s 2% gain in November supported the MSCI Emerging Markets Index, which grew 8% over the month and is now up 6% year-to-date.
The MSCI Europe ex-UK Index gained 7% over the month, with the financial sector in particular benefitting from stronger interest margins and profits.
Japan continued to be the year’s top performer, up 5% in November and 29% year-to-date. 
From a US sector perspective, The energy sector was the only one to end the month in the red while Technology and Real Estate were the big winners.


Source: Bloomberg, Blokland


Chart #2  — 

Varied policy expectations across central banks

The Federal Reserve is still concerned about its progress in steering inflation towards the 2% target. The concern was, however, muted when the April Consumer Price Index (CPI) increased by a softer-than-expected 0.3% and 3.4% YOY. FOMC minutes revealed that Chairman Powell’s and other FED officials maintained a cautious stance, indicating no immediate rate cuts were expected, but further increases are unlikely. 
In the Eurozone, the ECB is more optimistic about disinflation and signals signaled potential rate cuts in June despite the acceleration of European inflation rates in May to 2.6% for headline inflation and 2.9% for core inflation.


Source: Rate hike odds in the U.S, Nasdaq, Bloomberg

Chart #3  — 

The equity market is defying “sell in May and go away”

The US equity market saw robust performance driven by strong corporate earnings and investor optimism. All major benchmarks finished higher in May, with the Nasdaq (+ 6.9%), Dow (+ 2.3%), and S&P 500 (+ 4.8%) reaching new all-time highs. The tech sector overall saw a robust gain of 10%, although software stocks underperformed. Utilities added 9%, driven by AI trade and strong earnings. Energy declined by 0.4% due to falling oil prices, while Consumer Discretionary gained 0.3%.

Growth outperformed Value mainly due to expectations of falling interest rates, with the Russell 1000 Growth Index up 6% and the Russell 1000 Value Index up 3.6%. Small caps regained momentum, delivering returns of 4.6%, in line with the performance of large cap peers.

In Europe, markets benefited from economic recovery. European equities excluding the UK yielded 3.6% in May, while UK equities were up by 2.4%. Japan's equity market lagged other regions, returning only 1.2% in May, primarily due to the negative impact of a weak yen on consumer sentiment.


Source: Stock market returns, JP Morgan

Chart #4 — 

Market breadth divergence

Year-to-date, the S&P 500’s gains have largely been driven by five mega tech stocks: the tech combo (Nvidia, Apple, Microsoft, Amazon and Alphabet) have returned 27% since the beginning of the year. Despite the index’s overall positive performance, fewer than half of its members are trading above their 50-day moving average. And while 78% of S&P 500 companies beat Q1 2024 EPS estimates, the earnings growth rate for the S&P 500 excluding the “Magnificent 7” stocks, is -1.80%, raising the issue of market breadth divergence.


Source: Goldman Sachs, Factset, HolgerZ

Chart #5 — 

Nvidia lives up to the hype



As of the end of May, Nvidia shares exceeded $1,000 for the first-time, following fiscal first-quarter results that surpassed expectations with revenue of $26.04 billion. The company reported a remarkable 262% increase in sales. Nvidia contributed to a quarter of the S&P 500’s gains this year and added a market cap equivalent to LVMH just last week. Nvidia's market value now surpasses that of the entire German, Australian, and Korean stock markets combined. This monumental growth has prompted Nvidia to announce a 10-for-1 stock split, effective June, 10.


Source: Nvidia, Statista

Chart  #6 — 

GameStop trading mania is back

In 2021, speculators on Reddit and other social media platforms inflated the prices of stocks heavily shorted by institutional investors. This caused a short squeeze, where short sellers were forced to buy back shares to cover their losses, driving prices even higher.

Recently, a post by social media influencer Keith Gill, known as "Roaring Kitty," led to GameStop's shares surging by more than 70% in a single day, standing at $26.5 at the time of our writing. This resurgence has also rekindled interest in other meme stocks like AMC Entertainment ($AMC), Reddit ($RDDT), Spirit Airlines ($SAVE), and Lucid Motors ($LCID), which have reached new all-time highs in May. How high can this go?


Source: Keith Gill’s holdings on GameStop, Reddit

Chart #7 — 

A decent month for Fixed Income

Treasuries were mostly firmer across the curve in May. U.S. Treasuries saw yields fall, with the 2-year and 10-year yields decreasing by 17 and 19 basis points, respectively. Investment-grade credit was stronger, global IG total return recovered 1.9% in May, following a negative performance in April (-2.3%). Japan's 10-year bond yield reached 1% for the first time in over a decade. Emerging market debt posted positive returns of 1.8%. This positive trend was supported by several emerging market central banks initiating their easing cycles.


Source: Fixed income sector returns, J.P. Morgan

Chart #8 — 

Commodities, the silent bull market



In May, oil prices retreated after peaking in April, with oil futures retreating by 6%. Nevertheless, broader commodity indices achieved positive returns of 1.8%, driven by solid global demand and ongoing conflicts in the Middle East and Ukraine. Silver returned 12%, while gold, copper, and nickel reached new all-time highs.


Source: Ronnie Stoeferle, MUFG

Chart #9 — 

China is accumulating gold




As trade tensions with the U.S. intensify, the People’s Bank of China (PBoC) is reducing its holdings of U.S. bonds and increasing its gold reserves to diversify away from American assets. In the first quarter of this year, China’s U.S. Treasuries and agency bonds holdings dropped by nearly $40 billion and $10 billion, respectively. Meanwhile, the share of gold in China’s official reserves climbed to 4.9% in April, the highest level since 2015, reflecting a strategic shift in the nation's asset management.


Source: Crescat Capital, Bloomberg

Chart #10 — 

The SEC approves 8 Ethereum ETFs

In a surprising move, the U.S. Securities and Exchange Commission (SEC) approved eight applications for spot Ethereum ETFs, including from BlackRock and Fidelity. This decision allows Ethereum trading on Wall Street, although ETF issuers still need have their S-1 registration statements approved, a process that can take several weeks. This approval marks a significant step for cryptocurrency investments. It is expected to boost market participation and liquidity to the second largest cryptocurrency.


Source: Bloomberg


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