May global commentary: Global equity markets record gains for a fourth-consecutive month

03 June 2021


by Peter Little, Fund Management

Global equity markets ended last month with double-digit YTD gains (MSCI World +11.6% YTD), after experiencing a fourth-consecutive monthly rise in May (MSCI World +1.5% MoM). Large US corporates wrapped up reporting 1Q21 earnings in May, with aggregate earnings up over 50% relative to 1Q20. Relative to 1Q19’s pre-pandemic earnings, 1Q21 earnings were c. 22% higher. However, despite the solid earnings season, US companies trailed other regions, with European stocks outperforming (Eurostoxx 50 +2.5% MoM). In a trend that has been dominant for the past few quarters, equity markets were led by cyclical, value stocks in May. By mid-month, the Russell 1000 Value Index was 6% ahead of the Russell 1000 Growth Index, taking its relative outperformance since mid-February (when increasing inflation concerns started driving interest rates higher) to c. 20%. This relative outperformance partially reversed in the latter half of May, leaving value stocks c. 3% ahead for the month.

In this environment it was unsurprising that the S&P 500 Energy, Materials and Financial indices were the best performing for the month (+5.8%, +5.2%, and +4.8% MoM, respectively) and YTD (+39%, +21%, and +29% YTD, respectively). At the other end of the spectrum, the tech-heavy consumer discretionary, communications, and IT sectors, which were significant pandemic beneficiaries, were the worst-performing S&P 500 sectors for the month (-3.8%, -0.1%, and -0.9% MoM, respectively). The poor performances from these tech companies contributed to the Nasdaq 100 Index (-1.2% MoM) breaking a streak of six-consecutive monthly gains with Amazon, Apple, and Netflix (-7%, -5%, and -1% MoM, respectively) amongst the noteworthy underperformers.

Chinese large-cap tech companies also struggled in May, particularly those listed in the US, with Alibaba, Pinduoduo, and (-7.4%, -6.8%, and -4.4% MoM, respectively) amongst the noteworthy underperformers. Despite a poor month for large Chinese tech companies, emerging market (EM) stocks fared well (MSCI EM +2.3% MoM), outperforming developed market (DM) stocks for the first time since January. Russian and Brazilian stocks were amongst the best performing (both up c. 10% MoM), assisted by currency strength as the Brazilian real (+4.2% MoM) and the Russian ruble (+2.6% MoM) both fared well against a generally weaker US dollar.

COVID-19 vaccination programmes gathered steam in May, particularly in DMs, with more than 50% of the US population having received at least one vaccination by the end of May. As cases continued to fall in DMs, attention switched to the economic impact of economies reopening. April US inflation data did nothing to ease concerns about a potentially overheating US economy, with US core inflation reaching 3% YoY for the first time since 1996 (well ahead of expectations for a 2.3% YoY print). April US employment data missed expectations as unemployment numbers crept higher (6.1% vs 6.0% in March) as the US added 270,000 jobs during the month (well below expectations for an additional 1mn new jobs). Despite the inflation shock, US rates remained fairly subdued with the US central bank (Fed) message that it would not tighten monetary policy in response to what it believed to be transitory inflation keeping a lid on US rates for now.



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