Alex Harvey, CFA - Senior Portfolio Manager & Investment Strategist
If the old adage of ‘sell in May and go away’ is to hold in 2026, then it really needs to say ‘sell at the end of May’ because equities posted another bumper month of returns. Animal spirits are alive and kicking and IPO fervour is keeping risk assets on the front foot. We’ll take that. All this whilst the US and Iran continue their posturing around the Strait of Hormuz - seemingly closer to a deal (which then doesn’t get delivered) - and of course the conflict in Ukraine which is now over four years in with both sides taking huge casualties. It is estimated that more than 1,000 Russian soldiers are dying every day as the increasingly sophisticated Ukrainian drone attacks cripple both the Russian front and penetrate infrastructure deep into Russian territory. The world was also once again reminded that humanity’s greatest enemy (if not itself) might be something we can’t even see; a virus. Passengers aboard a Dutch cruise ship, the MV Hondius, sailing from Ushuaia in Argentina to Cape Verde, fell ill with hantavirus resulting in several fatalities. Around the same time an Ebola epidemic broke out the Democratic Republic of Congo. Whilst it has spread rapidly there and into some neighbouring countries, there appears to be limited wider international threat at this time.
Against this rather grim sounding backdrop one might expect a dose of caution to prevail in markets but far from it. Global equities added another 5% in May, under which the techier Nasdaq index gained 8.4% and growth equities 6.9%. Emerging market equities also rallied, gaining almost 10% of which the Korean Kospi index posted a 23% gain, with SK Hynix surging almost 70% over the month (and 230% YTD). There remains an insatiable appetite for all things chip related. When you throw this into the pot with the SpaceX IPO (at the time of writing it had just ‘popped’ 20% higher), and those of OpenAI and Anthropic in the near background, then you have a market that is on fire, open for business and receptive to risk. The only spoiler to all of this is likely to be policy related as creeping inflation and a resilient labour market in the US force the Fed’s hand higher. Even President Trump’s newly (and personally) appointed Fed Chair, Kevin Warsh, is unlikely to be able to steer the collective vote lower should the Hormuz related inflation exert more upside pressure on prices. ‘Project Freedom’ – Trump’s initiative to get maritime traffic on the move – had repeatedly fallen short of expectations, although a lasting deal is now due to be signed on 19th June and the Strait opened with immediate effect and the US naval blockade removed. The falling oil price – Brent crude was almost 20% lower in May – certainly helped buoy riskier assets during the month as expectations for a peace deal oscillated. In spite of the lower energy costs, bonds did not do well and mostly posted losses although the high yield market with it’s (clue’s in the name) higher yield did eke out a positive total return. Also lower were Chinese equities, still largely unloved and in the shade of their Taiwanese and Korean tech peers which continue to steal the Asian equity limelight. Gold had another relatively muted monthly performance in May, losing around 1%, but it has since shed over 10%. The reasons for that are unclear, but in a world seemingly flush with liquidity, some speculative profit taking should be expected and as investors line up for the aforementioned IPOs, they will need a source of funding. Gold could be forming part of that rotation, as also might be bitcoin, down 3.7% in May and approximately 50% down on its peak reached in October peak last year.
Once again we find ourselves in literally uncharted territory as the S&P500 ended the month on another new high. As we’ve said before, this is driven by a narrow cohort of stocks so there is a risk of heightened volatility if and when these correlated names pause for breath. Noting that the drivers of risk in emerging markets also exhibit these characteristics and correlations, we continue to advocate a broad and diverse exposure to global equity risk and the mantra to ‘diversify your diversifiers’ as treasuries carry their own idiosyncratic risks and cannot be depended upon in isolation to provide the portfolio ballast they might once have afforded in the past.
