Market update: May 2022

May was another challenging month for the markets due to the ongoing war in Ukraine and rising 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 likelihood of a recession, they were not going to make any aggressive changes regarding interest rates. As a result, long-term yields stabilized in May, which is good news for the markets. However, rising energy and food prices remain a challenge.

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

‍Stabilization of interest rates and equity markets open the way to recovery in the coming months

Shares in developed countries had an eventful start to the month. This was partly due to concerns about possible interest rate rises and the war in Ukraine. Despite these factors, there was positive movement at the end of the month after China opened up following a series of COVID lockdowns. The Federal Reserve, which announced it would not make any drastic changes to interest rates, also contributed to the more optimistic market sentiment.

The S&P 500 closed the month flat and energy stocks outperformed technology stocks. This was due to the 15% increase in the price of crude 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, rising mortgage rates have reduced home sales and demand for luxury goods, which should help to contain inflation in the period ahead.

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

Yields on 10-year government bonds showed signs of stabilization after rising sharply recently. The president of the European Central Bank spoke of a possible rise in short-term interest rates in the near future to catch up with increased interest rates of other economies. This led to a rise in European bond yields and closed the gap with U.S. interest rates. It also led to the Euro appreciating ~1% against the US dollar.

The negative performance of the developed and emerging equity fund and the high-yield bond fund was largely due to these fluctuations in the value of various currencies.

Het geldmarktrendement in Europa blijft laag (<-0,5%), maar zal in de komende kwartalen mogelijk iets stijgen.

What does June have in store for us?

- Any peaceful resolution concerns the war in Ukraine will be crucial to reducing volatility in the markets.

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

- Economic data (such as the jobs market and inflation) will be keenly watched. Also, 10-year yields below 3% in the US will be crucial for market recovery.

- The Federal Reserve is expected to raise short-term interest rates by another 0.5% in June. This has already been factored into short-term bond prices.

‍What does this mean for my plans?

Don't let the troubled market disrupt your long-term goals. A well-diversified portfolio is the key to long-term success. A broad portfolio like the one Vive is putting together will most likely show an upward trend over the long term, even if there are lesser periods in between. Consistent investing is also crucial during periods like this so that you take advantage of the falling market.