Market update: May 2022

May was once again a challenging month for the markets due to the ongoing war in Ukraine and increasing inflation. There were also signs of recovery. For example, China is opening up after a series of COVID lockdowns. This allowed the markets to breathe a little more. This resulted in the S&P 500 closing the month flat. The Federal Reserve also indicated that, in order to reduce the chance of a recession, they would not implement aggressive changes regarding interest rates. This stabilised long-term yields in May, which is good news for the markets. Rising energy and food prices, however, continue to pose a challenge.

Best performing fund in May 2022: UBS (Lux) Money Market Sustainable Fund -0.08%

‍The stabilisation of interest rates and stock markets opens the way to recovery in the coming months

Developed market stocks had a turbulent start to the month. This was partly due to concerns about possible interest rate increases and the war in Ukraine. Despite these factors, there was a positive movement at the end of the month after China opened up following a number of COVID lockdowns. The Federal Reserve, which announced it would not implement drastic interest rate changes, also contributed to the more optimistic market sentiment.

The S&P 500 closed the month flat and energy stocks outperformed technology stocks. That was due to the 15% price increase of raw materials. The EU ban on crude oil from Russia and China also contributed to the rise in these energy prices. As a result of these factors, inflation in the eurozone broke a new record of no less than 8.1%. On the other hand, the number of house sales has decreased due to rising mortgage rates and demand for luxury goods has also declined, which should help control inflation in the coming period.

Emerging market stocks stabilised during the month, but ultimately the performance was affected by the currency depreciation of these markets compared to the EUR. The Chinese yuan and the Indian rupee both fell by approximately 2% compared to the EUR.

Yields on 10-year government bonds showed signs of stabilisation after a sharp rise recently. The President of the European Central Bank spoke about a possible increase in short-term interest rates in the near future to catch up with the increased rates of other economies. That led to a rise in European bond yields and closed the gap with US interest rates. This also led to the Euro increasing in value by ~1% against the US dollar.

The negative performance of the developed and emerging equity fund and the high-yield bond fund were largely due to these currency fluctuations.

Money market yields in Europe remain low (<-0.5%), but may increase slightly in the coming quarters.

What does June have in store for us?

- Any peaceful solution regarding the war in Ukraine will be crucial to reduce market volatility.

- Rising energy prices remain a major source of risk in the markets. Possible measures to control these prices will be looked at.

- Economic data (such as the jobs market and inflation) will be closely monitored. Also, 10-year yields of less than 3% in the US will be crucial for market recovery.

- The Federal Reserve is expected to raise the short-term interest rate again by 0.5% in June. This has already been incorporated into the prices of short-term bonds.

‍What does this mean for my plans?

Do not let the turbulent market disrupt your long-term goals. A well-diversified portfolio is the key to success in the long term. A broad portfolio such as the one Vive puts together will most likely show an upward trend in the long term, even with periods of underperformance in between. Consistent investing is also crucial in periods like this, so you can profit from the declining market.

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