Stocks and bonds across the globe struggled in May. US equities eked out a small gain of 0.4%, led by a handful of technology stocks. Key events during the month included a last-minute twoyear debt ceiling suspension, stronger than expected US economic data, and interest rate hikes from global central banks to curb sticky inflation. Developed international equities struggled, declining -4.1% as economic conditions worsen in Europe. Emerging market equities were mixed, though declining broadly by -1.7% as Chinese equities weighed the index down with a fall of -8.4% due to slowing economic activity.

Looking across US equity sectors, market leadership has narrowed. The seven largest US technology-related stocks, which represent nearly 30% of the S&P 500 index, have accounted for all of its roughly 10% year-to-date return. Digging into equity size and style, growth and large caps fared better while small and value struggled, aligning with the sector themes and the backdrop of declining inflation, improving economic growth, and investor enthusiasm for tech innovation news involving artificial intelligence.

Broad fixed-income markets were all in the negative for May. US bonds fell -1.1% as the Federal Reserve raised rates by 25bps, what many believe to be the final hike of the tightening cycle. But policymakers hinted that future hikes may still be on the table given the
economy and inflation’s resiliency. International bonds fared worse, declining -2.7% as the Eurozone continued to experience sticky inflation. Short-term US treasuries offered the sole positive return of 0.3% among bond sectors.

May was yet another punishing month for commodities, with the broad index falling -5.6%. Energy was the primary detractor, with precious metals in the negative as well. The US dollar strengthened in May, gaining 3.1% as inflation appears to be more of an uncertainty internationally, and investors look to the dollar as a safe haven. REITs globally retreated, with the worst declines coming from office spaces, malls, and manufactured homes.

The global 60/40 index fell -1.4% in May, with global equities outperforming global bonds. For the month, allocations to equities and gold helped relative to the global 60/40, while bonds, real estate, and commodities hurt. For the year, equities and gold continue to lead the way, while REITs and commodities remain in the negative.