May saw equity markets bounce back after a weaker April, with key market indices in the US and Europe climbing to new record highs. Despite remaining elevated, US inflation moved lower to 3.4% during April, while weaker economic and labour market data – notably the softest non-farm payrolls in six months – gave markets some confidence that interest-rate cuts in the US remain on the cards, albeit for much later in 2024. The expectation of later cuts has done little to dampen positive equity market sentiment, with the ‘Magnificent Seven’ stocks resuming market leadership after another strong earnings season, returning 7.2% on an equal-weighted basis this month. However, fortunes continue to diverge within this group of stocks, with Nivida (+24.6%) maintaining its lead and Tesla (-4.5%) again lagging. Elsewhere, Europe and the UK enjoyed upgrades to growth and earnings expectations, reflecting stronger economic data and a more favourable inflation backdrop.

Across regions, equities in Europe (+3.3%) and the US (+3.1%) delivered outperformance versus the global benchmark, while the UK (+1.9%), China (+0.5%) and Japan (-0.5%) underperformed. European equities have lagged since mid-2023, but improving economic prospects and corporate earnings (particularly within financials, where around 74% of companies beat earnings expectations last quarter) drove strong share-price gains in May. For our European strategy, overweight positions in UBS (+17.4%) and Bank of Ireland (+10.9%) were the most significant contributors to relative returns. European shares continue to have appealing valuations, particularly versus US counterparts, and the prospect of imminent interest-rate cuts from the European Central Bank has proved supportive. US returns also remained resilient during May, benefiting from a greater tilt towards high-growth technology companies that continue to lead the market. However, concentration risk remains a concern in the US and increased volatility is likely if earnings momentum turns, given elevated valuations. Meanwhile, Japanese equities lagged on moderating earnings upgrades and slowing inflows from foreign investors.

Qualcomm (+21.5%) – a global leader in the development of semiconductors and wireless chips, which is held at an overweight relative to the benchmark – was the most significant contributor to relative returns during May. The company, which is known for being the world’s largest supplier of chips for smartphones, reported 13% year-on-year earnings growth, surpassing analyst expectations as improving margins and significant growth within its automobile segment (up 35% year-onyear) drove the shares higher. Qualcomm’s shares have risen by more than 40% over the year to date, with the company remaining well positioned to benefit from the integration of artificial-intelligence (AI) capabilities into smartphones. In contrast, our underweight position in Apple (+11.2%) was the most significant detractor from returns. Apple’s shares are broadly flat over the year to date following growing scrutiny from competition authorities, intensifying competition from local rivals in China, and potentially slower deployment of AI capabilities than peers. Despite these challenges, Apple’s quarterly results released this month beat (modest) expectations, and an additional programme to buy back $110bn of stock – the largest in the company’s history – sent its stock higher.

We ended the month at a discount of 9.6%. Net gearing continued to be conservative at 5.5% (with debt at fair value) for month-end.