Monthly Market News May 2023 - Trends in the markets

Alexandre Gauthy - Economist

The month of May was marked by strong performance of U.S. technology stocks linked to artificial intelligence (AI). The buzz around AI began following Nvidia's announcement, which significantly raised its sales expectations. Outside of AI-related sectors, performance was more mixed.

Our expert, Alexandre Gauthy, analyzes market trends in May 2023.

Equity markets: wide variations in performance

At the end of the month, Nvidia released its results, which were better than expected. The announcement, which created a buzz around artificial intelligence, was about the company's revenue outlook. These turned out to be significantly higher due to increased demand for its state-of-the-art semiconductors, which are essential for the further development of artificial intelligence. The company forecasts revenue of $11 billion for the second quarter, versus the consensus figure of $7.2 billion. Nvidia's share price rose 41% in euro terms this month.

The semiconductor sector gained 21% in euro terms over the month. Investor enthusiasm for the sector proved beneficial for the Nasdaq (+11%), which outperformed the S&P 500 (+4%). Other regions limped behind: European stocks lost 3% and Chinese stocks had to give up 5% over the month after disappointing economic data. In the United States, the energy sector fell 10% and the commodities sector 7%, while banks declined nearly 5%. More defensive sectors such as pharmaceuticals and consumer staples also ended the month lower.

Since the beginning of the year, the entire performance of the index has been attributable to only 7 stocks. In fact, another index equally weighted among S&P 500 companies has been negative since the beginning of the year. This once again demonstrates the limited nature of the recent rise, which has been recorded among companies active in artificial intelligence. In other news this month, much ink flowed about the federal debt crisis. Because of the risk of possible defaults starting June 5, the White House and GOP Chairman McCarthy on May 27 announced a principle agreement that would suspend the debt ceiling until January 2025 and leave non-military spending virtually unchanged for the next two fiscal years.

Finally, the earnings season for the first quarter has come to an end and results continue to exceed spring expectations. According to data from FactSet, overall EPS growth for S&P 500 companies was -2.1%, better than the -6.7% expected at the beginning of the release season.

Equity markets	May	3 months	Since 31/12	12 moths
MSCI EMU NR	-2.5%	-0.3%	11.1%	8.5%
MSCI EUROPE NR	-2.5%	-0.2%	8.5%	5.2%
MSCI USA NR	4.2%	4.9%	9.7%	2.8%
MSCI JAPAN NR	5.5%	5.7%	8.7%	5.0%
MSCI EM. MARKETS NR	1.8%	-0.4%	1.2%	-8.0%
MSCI AC WORLD NR	2.4%	2.9%	7.8%	1.3%
(Performances in EUR dd. 31/05/2023)				(bron: Bloomberg)

Bond markets: yields up in the United States

Interest rates on long U.S. bonds rose in May, while the same rates remained about the same in the euro zone. The decline in euro zone interest rates at the end of the period can be attributed to weak confidence indicators and inflation data. The performance of both corporate and government bonds was slightly positive during the month.

Government Bond Yield 10 yr	Current	May	3 months	Since 31/12
Belgium	2.97	-0.03	-0.26	-0.25
France	2.85	-0.04	-0.27	-0.27
Germany	2.28	-0.03	-0.37	-0.29
Italy	4.08	-0.10	-0.40	-0.63
Greece	3.78	-0.41	-0.67	-0.85
Spain	3.33	-0.03	-0.27	-0.33
United States	3.64	0.22	-0.28	-0.23
Japan	0.44	0.04	-0.07	0.01
Evolution until 31/05/2023				Source : Bloomberg

Central banks: heading for the end of interest rate hike cycles

The Fed raised its key rate by 25 basis points on May 3 as expected and changed its rhetoric, suggesting that the Fed is at or near the end of its rate hike campaign. However, Chairman Powell also emphasized that future action would depend on any data published between now and then. Although expectations for a further rate hike in June diminished after the meeting, minutes from the May FOMC meeting showed that divisions remain among Fed members.

The ECB also raised its key rates by 25 basis points and raised its deposit rate to 3.25%, the seventh consecutive increase in its cycle, accounting for a cumulative tightening of 375 basis points. It also announced that it would end bond reinvestment under its asset purchase program starting in July.

The Bank of England raised its interest rate by 25 basis points to 4.5%. It also indicated that it may take further action because of the risk of higher inflation. The surprise rise in core UK inflation last month prompted a revision of the interest rate outlook. The Norwegian central bank further raised its base rate by 25 basis points to 3.25% and announced a further increase in June if inflation remains at this level.

Central Bank Rates	Current	Latest adjustment	Date
Fed funds	5.00-5.25%	+0.25%	May 2023
ECB deposit rate	3.25%	+0.25%	May 2023
Situation on 31/05/2023			Source : Bloomberg

Currencies: dollar strengthened in May

Better economic data in the United States than in the euro zone and strong flows into U.S. technology stocks were undoubtedly behind the dollar's appreciation against the euro during the month. The British pound appreciated following the surprise rise in inflation, which led to a reassessment of the outlook for interest rate hikes. The Norwegian krone continued to depreciate, mainly due to the decline in oil prices during the month.

Currencies	Current	May	3 months	Since 31/12
USD	1.064	3.5%	-0.3%	0.6%
GBP	0.859	2.0%	2.0%	3.0%
JPY	148.64	1.0%	-3.2%	-5.9%
CHF	0.973	1.3%	2.2%	1.7%
Evolution versus EUR until 31/05/2023				Source : Bloomberg

Commodities: decline in prices of oil and industrial metals

Oil prices fell 11% (in dollar terms) last month due to uncertainty about demand in China. The price for a barrel of crude fell below $70, a level that already provoked an earlier reaction from OPEC+. The price of industrial metals also suffered from uncertainty about Chinese demand and closed the month in the red (-7%). In April, Chinese imports reached a 12-month low, while construction and manufacturing activity showed signs of slowing.

Commodities	Current	May	3 months	Since 31/12
Industrial Metals (GSCI)	407.23	-7.0%	-9.9%	-9.7%
Oil (Brent)	72.66	-8.6%	-13.4%	-15.4%
Gold	1965.23	-0.9%	7.9%	8.5%
Evolution in EUR until 31/05/2023				Source : Bloomberg