Quilter Cheviot|Weekly Comment

Fluctuating markets close a generally promising month

Our weekly market overview from Quilter Cheviot

By Richard Carter, Head of Fixed Interest Research

The global stock market was in a state of fluctuation as May came to a close, with the MSCI All Country World Index (MSCI ACWI) experiencing a slight dip of -0.7%. Despite this, it maintained a strong growth of 4.1% in May and a notable 9.1% rise YTD.

In the US, the Memorial Day holiday shortened the trading week, but the markets remained generally steady. Large caps saw a minor decline of -0.5% but wrapped up the month with a solid 5.0% increase and an impressive 11.3% YTD. Value stocks demonstrated their robustness over growth shares, with the latter experiencing a -1.2% decrease, while value stocks saw a steady 0.2% increase. After a week of significant gains thanks to impressive results from NVIDIA, tech stocks took a step back, retreating by -1.1% influenced by Salesforce’s unexpected revenue report.

In Europe, the headline inflation rate rose for the first time in five months. The annual increase in consumer prices reached 2.6% in May – up from 2.4% in the previous months – and exceeding the consensus estimate of 2.5%. The eurozone’s unemployment rate also fell to a record low of 6.4%, reflecting a decrease in the number of unemployed people by 100,000. Despite a slight dip of -0.3%, Europe’s markets still achieved a 3.6% rise in May and a solid 10.0% YTD. The euro maintained its value against the US dollar, ending the week at USD 1.08 for EUR.

The UK’s indices experienced minimal losses, with both large and mid caps declining by -0.5% and -0.1% respectively. However, both indices enjoyed overall gains in May, with increases of 2% and 4.2% respectively. The British pound remained stable against the US dollar, closing the week at USD 1.27 for GBP.

Japan’s stock markets painted a picture of optimism, with large caps climbing by 1.1%, mirroring its May performance and achieving 18.4% YTD. Japan’s small caps also added a positive note, with a 1.6% increase, a 0.4% rise in May, and an 11.3% YTD.

US inflation persists despite core metric improvements

On Friday the Personal Consumption Expenditures (PCE) Price Index indicated that inflation pressures persisted in April, though core measures showed some signs of easing. The Federal Reserved preferred inflation gauge rose by 0.3% during the month, aligning with economic forecasts. This increase mirrored the previous month’s growth, suggesting a steady inflation rate.

However, the core PCE Price Index – which strips out the often volatile food and energy sectors – presented a slightly more optimistic picture with a 0.2% rise. This figure fell short of the anticipated 0.3% increase, hinting at a potential softening in underlying inflationary trends.

On an annual basis, the PCE Price Index climbed by 2.7% in April, consistent with the rate observed in March and matching economists’ predictions. Similarly, the core PCE also rose by 2.8% year over year, again meeting expectations and reflecting the same rate as the previous month.

While the modest improvement in core PCE offers a glimmer of hope, the overall stickiness of inflation rates suggests that the Federal Reserve may need to maintain a vigilant stance on monetary policy in the coming months.

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