In May, financial markets performed positively, resuming the upward trajectory observed at the beginning of the year and reaching new all-time highs after the April pause. This recovery can be attributed to better-than-expected first quarter financial results, signs of easing inflation, a more stable geopolitical environment and solid economic growth. These factors have fueled optimism about the possibility of a soft landing for the global economy. As a result, equities rose and investors raised expectations of an imminent rate cut by major central banks.
The month began with a positive outlook as investors are confident that the European Central Bank (ECB) will cut rates at its next meeting in June. Producer price index (PPI) inflation in the euro area in March came in line with expectations at -0.1%. ECB Chief Economist Philip Lane said the April data reinforced confidence in the rapid return of inflation to its target. In addition, the slowdown in geopolitical tensions contributed to lower oil prices, reducing concerns about the persistence of inflation.
A significant event occurred with the Swedish Riksbank’s decision, after the Swiss National Bank, to become the second central bank to cut rates in this cycle. Although expected, this was the first rate cut since 2016. The Riksbank also announced plans to make two more cuts in the second half of 2024, raising expectations that other central banks may follow suit.
In the United States, the Federal Reserve kept the cost of money unchanged at its May meeting as recent indicators showed that economic activity continues to expand. The labor market remains robust and the unemployment rate is low. Although inflation has slowed, it still remains high, so a rate cut is not expected until the November meeting at the earliest.
After April’s modest correction, equity markets continued to gain ground. The S&P 500 posted a new high with a +5% month-over-month increase, while the Nasdaq was up +7.20% thanks to a rally in U.S. technology stocks. European markets also performed positively, with the EURO Stoxx 50 index up 1.30%, the DAX up 3.15%, the FTSE MIB up 3% and the SMI up 5.5%. Bond markets, on the other hand, lost ground in May, adjusting to a scaling back of expectations of rate cuts in the United States.