Market update: May 2022

May was another 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 has also indicated that, in order to reduce the chance of a recession, they will not implement 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%

The stabilization of interest rates and stock markets paves the way for recovery in the coming months.

Equities in developed countries had a turbulent start to the month. This was partly due to concerns about possible interest rate hikes and the war in Ukraine. Despite these factors, there was a positive movement at the end of the month after China opened up after a number of COVID lockdowns. The Federal Reserve, which announced that 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. This was due to the 15% price increase in raw materials. The EU ban on crude oil from Russia and China contributed to the increase 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 home sales has decreased due to rising mortgage rates, and demand for luxury goods has also decreased, which should help control inflation in the coming period.

Stocks in emerging markets stabilized during the month, but ultimately the performance was influenced by the currency depreciation of these markets compared to the EUR. The Chinese yuan and the Indian rupee both fell by about 2% compared to the EUR.

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

The negative performance of the developed and emerging market equity fund and the high-yield bond fund was largely due to these value fluctuations 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 regarding the war in Ukraine will be crucial in 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 considered.

- Economic data (such as the job market and inflation) will be closely monitored. Also, the 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 by 0.5% again in June. This is already priced into short-term bonds.

What does this mean for my plans?

Don't let the turbulent market disrupt your long-term goals. A well-diversified portfolio is the key to long-term success. A broad portfolio like the one Vive puts together is very likely to show an upward trend in the long term, even if there are lesser periods in between. Consistent investing is also crucial in periods like these, so that you benefit from the falling market.