On the back of data showing some countries have exited recessions at the end of the first quarter of 2024 and inflation falling, several market indexes reached record highs in May. Read on to find out what else may have affected the markets and your investment portfolio.

​UK

Dominating headlines towards the end of May was prime minister Rishi Sunak calling a general election. Sunak made the seemingly snap decision following positive inflation news despite polls suggesting the Conservative government is trailing the Labour Party.

The general election will take place on Thursday 4 July. The uncertainty over the next few weeks could lead to markets being bumpy as they react to the latest information and assumptions. Remember, ups and downs are a part of investing and it’s important to focus on your long-term goals during periods of volatility. 

The latest figures from the Office for National Statistics (ONS) show the UK is nearing the Bank of England’s (BoE) 2% inflation target. In the 12 months to April 2024, inflation was 2.3%. 

Sunak said the data was proof the Conservative’s plan was working and “brighter days are ahead”. In response, the Labour Party accused the government of celebrating a “tone-deaf victory lap”. 

The BoE voted to hold its base interest rate at 5.25%. Borrowers keen for rates to start falling could receive some good news this year though. BoE governor Andrew Bailey said a cut will likely come in the coming quarters if inflation continues to fall, and he hinted the Bank could make cuts faster than the market expects. 

Data on the economy was positive too. After the UK fell into a technical recession – defined as two consecutive quarters of negative growth – at the end of 2023, ONS figures confirm the UK economy grew in the first quarter of 2024. GDP increased by 0.4% in March 2024, following growth of 0.3% and 0.2% in January and February respectively.

Yet, the Organisation for Economic Co-operation and Development warned the UK would have the weakest growth across G7 countries in 2025. The organisation predicts GDP will rise by just 1% next year. 

The latest readings from the S&P Global’s Purchasing Managers’ Index (PMI) support the ONS GDP data. PMI data provides an indicator of business conditions, such as output and new orders.

In April 2024, the service sector posted its fastest business activity growth in almost a year. The sector makes up around three-quarters of the UK economy, so strong growth will have helped pull the UK out of the recession quickly.

There was good news in the construction sector as well, with the PMI information showing growth reached a 14-month high. However, the data indicates the manufacturing sector contracted in April. One of the challenges facing manufacturing firms was purchasing costs rising for four consecutive months. 

May was an excellent month for the FTSE 100 – an index of the 100 largest companies on the London Stock Exchange. It reached record highs several times throughout the month as markets reacted to speculation that interest rates would fall. 

On 15 May, the index jumped by around 0.5% to reach 8,474 points. The top riser was credit data firm Experian after it reported growth at the top end of their expectations for the last financial year, which led to shares rising by more than 8%.

Europe

The wider continent fared similarly to the UK. 

Eurostat confirmed that the eurozone is out of a recession. The economy shrank by 0.1% in the last two quarters of 2023 but posted growth of 0.3% in the first quarter of 2024. Major economies, including Germany, France, Spain, and Italy, grew in the first three months of the year. 

However, the European Commission warned external factors could place economic growth at risk. These risks include ongoing Ukraine-Russia and Israel-Gaza conflicts. 

In the eurozone, inflation was stable at 2.4% in the year to April 2024. While the European Central Bank has also yet to cut interest rates, it’s expected that it may do so as early as June if inflation falls. 

European markets were also influenced by expectations that an interest rate cut could be imminent. Sliding oil prices led to modest gains on 8 May when France’s CAC was up 0.6% and Germany’s DAX increased by 0.1%. 

​US

Figures from the US show inflation fell to 3.4% in the year to April 2024. It led to Wall Street reaching a record high on 15 May as both the S&P 500 and the tech-focused Nasdaq index rose.

Data could suggest that US business confidence is falling after fewer jobs were added to the US economy than expected in April. Businesses added around 175,000 jobs compared to the 243,000 economists had predicted. Unemployment also increased slightly from 3.8% to 3.9%, which had a knock-on effect on the power of the dollar. 

The Dow Jones index, which contains 30 major US companies, hit a milestone this month. The index reached 40,000 points for the first time on 16 May. The biggest riser was retailer Walmart, which was up 6%. 

Entertainment giant Disney also hit a landmark in May – its streaming platform Disney+ turned a profit for the first time since it launched four years ago. Despite the news, Disney’s shares dropped by more than 5% in pre-market trading on 7 May as results have still fallen short of expectations. 

Asia

On 9 May, encouraging trade data from China, which showed both exports and imports have returned to growth, boosted markets around the world. 

However, China could face headwinds. After speculation over the last few months that the US would introduce trade tariffs, US president Joe Biden announced new tariffs would come into force on 1 August 2024. 

There will be a 100% tariff on Chinese-made electric vehicles. Tariffs will also increase for other items, including lithium batteries, critical minerals, solar cells, and semiconductors.

The US said the tariff would help stop subsidised Chinese goods in the US market from stifling the growth of the American green technology sector. China responded by saying the move undermined fair trade and it’s US consumers who would bear the brunt of the additional costs

Please note:

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. 

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

Approver Quilter Financial Services Limited & Quilter Mortgage Planning Limited.  30/05/2024