Staying in May

The old market adage about “selling in May and going away” turned out to be the antithesis of sage advice. Stock markets globally performed strongly last month, with investors encouraged by what appeared to be a de-escalation of trade frictions. The White House rolled out its first deal with the UK, European tariffs were paused, while tensions also cooled a little between the US and China, with both agreeing to bring tariffs down from nosebleed levels.

The US earnings season was solid, even as outlook statements were cautious in many instances, given macro uncertainties.  Data on the US economy continued to paint a somewhat resilient picture, providing some comfort, despite trade matters remaining far from resolved. A new dimension was also added to the mix late in the month with the Supreme Court possibly having to decide whether to invalidate Trump’s tariff policy altogether. Despite a host of uncertainties, investors looked at the brighter side – the S&P500 rallied 6.3% for its best May since 1990 and best month since November 2023.

Kiwi and Australian markets also delivered robust performances during the month, with gains of 4.3% and 4.2% respectively. The RBNZ and RBA both delivered rate cuts during the month, and with inflation in both central banks’ target range, officials set the scene for further easing against the backdrop of domestic economic challenges and international macro-economic uncertainties.

The worst-case scenario painted by Donald Trump on Liberation Day has clearly diminished, and regardless of the motivation/drivers, there have been multiple “refinements” of tariff policies since then. Pauses, increases and then reductions in proposed tariffs have been commonplace. All told Trump has made material “adjustments” more than 20 times. Investors (and the Fed) are not surprisingly becoming accustomed to taking his words with a pinch of salt, and a bit of salsa. The acronym TACO (“Trump Always Chickens Out”) has caught on, even if it hasn’t sat well with the President himself.