KEY EVENTS
During April and the early part of May, markets continued to move in an environment dominated by two opposing forces: on one hand, the strong resilience of corporate earnings, and on the other, geopolitical tensions in the Middle East and the return of concerns related to tariffs and interest rates.
Wall Street demonstrated a surprising ability to absorb negative news, going on to reach new highs thanks to an earnings season that came in well above expectations, with profit growth proving stronger, more broad-based, and more resilient than anticipated. In parallel, the artificial intelligence theme continued to support the technology sector, but the rally was not confined to the usual names: it extended to a broader ecosystem, encompassing semiconductors, infrastructure, memory, computing power, and data centers — signaling a widening of the cycle beyond the initial handful of leading players and a gradual diffusion of positive earnings contributions throughout the supply chain.
On the geopolitical front, the situation in Iran remained the primary source of uncertainty. After weeks of stalemate and tensions in the Strait of Hormuz, markets began to price in the idea that the conflict might not translate into a lasting energy shock, partly because the oil market reacted in a less straightforward manner than expected.
The ongoing denials and confirmations surrounding US-Iran negotiations fueled significant narrative volatility, but without triggering genuine panic in equity markets, while the decline in oil prices at the end of May helped reinforce the notion that the market is looking beyond the most acute phase of the crisis.
Against this backdrop, the dialogue between the United States and China also took on a central role, with the Beijing summit producing signals of trade détente and a face-saving agreement on Hormuz, while leaving the more sensitive issues unresolved — particularly Taiwan and the strategic balance in the Gulf region.
The message that emerged is one of a market capable of coexisting with a high level of political noise, provided the most extreme developments remain contained. Another significant development was the return of pressure on interest rates and bond yields.
The rise in energy prices weighed on US inflation data, narrowing the Fed’s room for maneuver and reinforcing the view that the rates issue remains central for markets in the weeks and months ahead.
At the same time, the major central banks maintained a cautious tone that is increasingly tilted toward monetary tightening, with the ECB and the Bank of England signaling a possible restrictive shift in the months to come.
In summary, the month was shaped by a combination of solid earnings, geopolitical tensions, and growing market sensitivity to the cost of money, with investors rewarding sectors most structurally exposed to earnings growth while penalizing assets more sensitive to yield movements and interest rate risk — all within a context in which the direction of monetary policy has once again become a decisive factor in the performance of financial assets.
PROSPECTS
The outlook remains constructive, but with the appropriate degree of caution.
The Fed’s recent change in direction represents an important development, and markets will in all likelihood look to test its durability in the months ahead, particularly on the inflation and interest rate front.
Any surprises in the monetary trajectory could therefore give rise to periods of volatility, especially in assets most sensitive to the cost of money.
Japan also warrants close attention, particularly with regard to the level of scrutiny on the yen and the potential spillover effects of any interventions in the global bond market. It is worth remembering that Japan still holds a very significant share of US debt, and any movement on the currency or yield can have broader repercussions than anticipated.
On the geopolitical side, close monitoring remains warranted on two fronts: the evolution of the conflict between the United States and Iran, with the hope that no further deterioration occurs, and the Russia-Ukraine conflict, which continues to represent a source of instability.
Against this backdrop, we continue to seek out actively managed products across the various asset classes, with a risk/return profile consistent with the objectives of our portfolios.