The Month in a Minute
📰 Overall: May was a good month across markets, assets, and our Plans — as AI-driven sentiment supported shares, and softer economic data provided hints of slower inflation.
💪 Benchmark Performance: Wealthify's Original and Ethical Plans slightly underperformed compared to their benchmarks, with most of the recent market rally being driven by a handful of AI-related stocks.
📈 Market Movers: US (+4.8%); Europe (+2.9%); UK 250 (+3.8%)
🗒️ Plan Summary: Original and Ethical Plans with a higher allocation to shares performed better than those with a higher allocation to bonds.
🌍 Original Plans: Shares (+1.6%) and bonds (+0.8%) both increased.
🌱 Ethical Plans: Shares (+1.5%%) and bonds (+0.6%) both increased.
🕰️ Going Forward: Whilst we continue to favour bonds, recent pullbacks in markets have presented opportunities for us to cautiously add back equities which we hope to benefit from. We remain confident in our cautious positioning overall and are optimistic that the diverse set of opportunities we’ve selected will continue to have a positive effect on Plans in 2024 (whilst still providing protection if economic conditions deteriorate).
An improvement in market conditions and softer inflation data helped markets recover from April’s losses.
A strong US market performance in May helped global shares to recover their April losses. Although some data suggested the economy might be cooling, members of the US Federal Reserve (the Fed) continued to emphasise that interest rates may need to stay higher for longer.
The AI theme has continued to drive US shares, with NVIDIA (the chip maker powering artificial intelligence) announcing another successful quarter and raising their expectations. Overall, it was a positive first quarter for the earnings of the so-called ‘Magnificent Seven’ - a group of stocks that are dominating the markets right now.
The US employment report at the start of the month showed a significant decline in the number of jobs created and a slowdown in wage growth (which is now below 4%).
Another announcement that helped markets was the lower-than-expected US CPI inflation, which came as a relief given that prices had accelerated for three consecutive months in 2024. This latest data is welcome news, but the Fed will wait for more evidence before considering interest rate cuts.
In contrast to the US, UK core inflation (which excludes more volatile products such as food and energy) increased from 3.9% to 4.2%; making a potential interest rate cut this summer very unlikely. Similarly, core inflation in Europe accelerated for the first time this year, from 2.7% to 2.9%.
Despite this surprise, the European Central Bank (ECB) is expected to deliver its first interest rate cut in June.
Another note for May was the announcement of a surprise general election in the UK. Based on our performance analysis following past elections, we don’t expect this development to have a significant impact on your Plan’s long-term returns.
Our latest investment decision to add some exposure to shares made a positive contribution to our Plans, given the recent improvement in market sentiment. We continue to monitor economic developments to make the most of future opportunities.
Markets
The US (+4.8%), Europe (+2.9%), and the UK 250 (+3.8%) were the best performers this month. The UK 100 (+1.6%) delivered a more modest return due to a stronger pound and a negative contribution from the energy sector. However, other regions like Japan (+0.9%) and Emerging Markets (+0.3%) underperformed.
In contrast to the previous month, developed market shares outperformed Emerging Markets, and those indices with a higher exposure to growth-driven sectors — like the Nasdaq (+6.9%) — experienced the best month in 2024 so far.
Currency
In currency markets, the surprise rise in UK inflation led to the pound being higher against the US dollar by 2%, and against the Japanese yen by 1.7%. The value of the pound also increased slightly against the Euro by 0.3%.
The weakness of the Japanese yen (-10.1% against the pound so far this year) continues to pose a challenge for the Bank of Japan (BoJ).
Investment type performance breakdown
May was a more positive month, with shares rising in our Original (1.6%) and Ethical (1.5%) Plans with a Confident risk level due to a recovery in market sentiment.
In terms of regional exposure, the US, Europe and UK mid-cap (mid-sized companies in the FTSE 250 Index) drove most of the gains, whereas Japanese shares (-0.4% in Original, and -1.5% in Ethical) were negatively impacted by the weakness of the Japanese yen.
Within our Original Plans, the performance of property was flat this month, as the interest rate outlook continued to signal a ‘higher for longer’ environment. Nevertheless, bonds delivered a positive performance for Confident Original (0.8%) and Ethical (0.6%) Plans , mostly led by US Treasuries.
The money market continues to benefit from higher interest rates, providing positive returns for both Ethical and Original Plans across all Plan levels.
Summary with Plan details
Due to the improvement in market sentiment, Plans with a higher allocation to shares performed better than those with a higher allocation to bonds.
Our Investment Team continues to actively monitor the financial markets and their impact on Plans — and are always ready to act in your best interest as events unfold. We are continually evaluating new market information and key market drivers to help keep your Investment Plan on track.
It’s important to remember that it’s normal for markets to go up and down, with periods of volatility to be expected when you invest. As always, we continue to look for opportunities to best position your investments, with the goal of protecting your money and achieving your long-term objectives.
With investing your capital is at risk, the value of your investments can go down as well as up, and you could get back less than invested.
Past performance is not a reliable indicator of future results.
Wealthify does not provide financial advice. Please seek financial advice if you are unsure about investing.
