Reviewing the Month of May

Key macro/market trends to watch:

Equity markets strong in May: led by S&P 500, Nikkei 225, FTSE 100 a laggard
Banks remain weak, in contrast
Euro rebounds strongly against USD, GBP in May, GBP pressured by Brexit uncertainty (once again)
Commodities: Brent crude oil edging higher, Silver starts finally to outshine Gold
Government bonds stall in May, both US Treasuries and gilts mark time
US investment-grade corporate bonds strong in May
Bitcoin has a strong May, edging closer to $10,000 once again
Leading sector themes in May: Video games, Cybersecurity, Biotech, Russia, Gold/Silver Miners, cycling retailers!
Risks: Rising US-China tensions, with the Hong Kong security situation a clear negative catalyst.

Equities: A strong May, but FTSE is the runt

May was surprisingly a strong month for global equity markets, suggesting that thus far, “Sell in May and go away” does not yet apply… Of course, there are plenty of months left before November for this seasonal strategy to work.

The leaders in May have very much been US and Japanese stocks, with the S&P 500 below (candle chart) and the tech-heavy Nasdaq 100 (red line) posting an impressive monthly move, to end up well above its end-February pre-COVID level.

Chart 1: S&P 500 posts a very strong month, led by Tech (again)

The Nikkei 225 in Japan has also been recovering well, no doubt helped by the industrial pickup in China, combined with the benefit from low oil prices (Japan is a huge net importer of oil). It now lies within 10% of its early 2020 highs.

Chart 2: Nikkei bounces back well in May

But then we turn to the FTSE, which frankly is a disappointment when set against the S&P 500 or Nikkei. While these two stock indices are within 10% of their pre-COVID highs, the poor old FTSE languishes far behind. Just look at the difference in the monthly candle charts between the FTSE below, and the Nikkei and S&P 500 above!

Chart 3: More of a tepid bounce for the FTSE 100 in May

Laggards dragging the FTSE back continue to be the Banks (HSBC in focus due to Hong Kong), Oil & Gas and Telecoms, in the form of BT in particular.…

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William K

31st May '20

Thanks Edmund. I always look forward to your weekly macro report. Whilst I note that US high grade corporate bonds are returning a yield of around 3.6%, we are heading into negative interest territory globally. In general, this would make the overall return of government bonds increasingly unattractive. My take on this is that the equity markets will continue to rise strongly as investors have nowhere else to put their money for a better return - except possibly precious metals. If this assumption is correct, we should see a bull market until the end of 2020 at least. Does this make sense to you?

With regard to the GBP/USD, the pound is steadily weakening and is unlikely to rally until Brexit is sorted out. It makes sense to me to invest in US equities, not only because their share prices are doing better than the UK stocks, but also because there might be an additional return of 5-10% as the pound weakens. Does this seem reasonable?

Edmund Shing

1st Jun '20

Hi wilkonz, yes that seems reasonable apart from one thing - I notice that the Citi panic/euphoria indicators in the US is now solidly in "euphoria" territory, which does concern me. Nasdaq as been extremely strong of late, fueled by momentum investors.

Jack Brumby

Great post Edmund, thanks.

Gold, videogames and cybersecurity are all areas I want to check out so it's interesting you've flagged them here.

Thanks Edmund. Yes, £EQQQ which tracks the Nasdaq is doing well (I hold) - I guess we must be heading into bubble territory but I going with the trend whilst it lasts.

My Market Musings: 31 May 2020 - Reviewing the month of May

Reviewing the Month of May

Equities: A strong May, but FTSE is the runt

Chart 1: S&P 500 posts a very strong month, led by Tech (again)

Chart 2: Nikkei bounces back well in May

Chart 3: More of a tepid bounce for the FTSE 100 in May

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Edmund Shing

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