Global equities returned the spring in their step in May. After the negative April, the MSCI All-Country World Equity index rose more than 3,8% (in USD) and has now gained more than 8% for the year so far. Developed markets outperformed emerging markets, led by US large- and small-cap stocks. Investors embraced risk, reacting positively to the favorable earnings season – high beta (more volatile) stocks outperformed in May. On average, corporate earnings grew by 6%, compared to a year earlier, making it the fastest earnings growth rate in eight quarters. Inflation data revealed mixed results, with figures in the United States coming out slightly higher than expected.  This caused market consensus for rate cuts to drop to just 1-2 in 2024, yet, nevertheless, bond yields declined (meaning that bond prices rose). The softer rate expectations caused the dollar to depreciate against a basket of currencies. Despite a downward revision to the 1Q2024 GDP growth, US consumer spending held with expectations, aiding corporate profits. European markets also had a nice month as investors awaited a June interest rate cut from the European Central Bank (ECB) despite the stubborn inflation. The United Kingdom reported positive GDP growth for the first quarter, while Asian and developing markets were weaker for the month: Japan’s core inflation accelerated and industrial output underperformed; China’s manufacturing slumped as the property crisis continued to weigh on consumer confidence and the economy as a whole. Oil prices fell in May despite OPEC’s promise to keep production cuts into 2025. In the world of fixed income, lower U.S. inflation drove bond yields moderately lower for the month, and that supported bond returns – U.S. investment grade bonds returned 1,7% for the month, while emerging-market debt rose also by 1.7%.
   Shares in the United States recouped April losses thanks largely to healthy corporate profit growth. The broad S&P500 index climbed almost 5% in May, recording its sixth positive month out of the past seven. The Dow Jones Industrial index added more than 2%, having crossed intra-month its first-ever 40,000-point closing level. The stocks rally widened, although clearly the momentum was propelled by U.S. large-cap stocks, as robust earnings growth in mega-cap technology stocks led to a gain of almost 7% for the NASDAQ.  The tech-heavy index also hit new records, closing above its 17,000 mark for the first time in its history. The boost came from the euphoria arounds AI and Nvidia, especially the chip maker’s latest stellar earnings – the share price rose more than 20% in a week, reaching market value close to $3 trn! Still, monthly advances were broad-based, with sectors such as utilities and real estate, along with U.S. small-cap stocks, among the top performers in May. Energy was the main laggard given weaker oil prices. Data released in the month showed inflation softening in April – headline inflation slowed from 3,5% to 3,4%; and core inflation – from 3,8% to 3,6%. The U.S. Federal Reserve’s preferred gauge for tracking inflation was little changed from the previous month and remained well above the Fed’s 2.0% long-term target. The Personal Consumption Expenditures (PCE) Index rose at a 2.7% annual rate in April―the same as in March. Excluding food and energy prices, the rate has been stuck at 2.8% for the last three months. The Fed’s Chairman emphasized that there had been a “lack of progress” on bringing inflation down, but that interest rate rises were unlikely. Other economic indicators (GDP growth, employment numbers, confidence indicators) also came out disappointing consensus forecasts. The Fed is likely to continue to play its “wait-and-see” game regarding interest rate cuts. US treasuries yields changed modestly over the month – the yield of the benchmark 10-year note fell to 4,50% (from 4,68%). The yield curve remained inverted. Notably, high-yield bonds gained 1,1% in May, and over 11% in the last twelve months, as robust economic activity has supported lower-quality debt issuers in the past year. 
   Shares in Europe rose as well. The pan-European STOXX600 index added more than 2,6% to its value in May, as signs emerged that economic activity in Europe is beginning to improve after several quarters of stagnation. The real estate and utilities sectors were among the top gainers because investors were looking forward to the upcoming ECB meeting on June 6th, at which a rate cut is highly possible. The worst performing sectors were energy (due to lower oil prices) and consumer discretionary (weakness among the luxury goods and automotive shares). The Eurozone’s annual inflation rate stayed unchanged in April at 2.4%. The core rate (excluding food and energy prices), slowed to 2.7%, signalling that the ECB should be on track to cut interest rates by 25 basis points at its next meeting. Another factor for the ECB to consider is that the block’s economy grew by healthy 0.3% in the first three months of the year, while in fact it was in recession in the last half of 2023. The German economy also grew by a 0,2% in the first quarter. Labor market data from the country showed that wages were growing at the fastest pace in nearly a decade (up by 6.3% in 1Q). With the jobless rate are record low, the European labor market remains tight – the unemployment rate fell to a record low of 6,4% in April, having stayed at 6,5% in the previous five months. The number of unemployed people in Europe decreased by 100,000 from the previous month to 10,998 million. Although manufacturing and construction activity still remain weak, a number of confidence indicators point to overall improvement, especially the advances in the services sector. The Eurozone purchasing managers’ index (PMI) for May rose to 52,3, reaching a 12-month high (a reading above 50 indicates growth). Across the Channel, despite the surprising elections in July called by the British Prime Minister, UK equities rose over the month to chalk new all-time highs too. Unlike in the US, where bond yields fell in May, European bonds yields actually crept higher (prices fell) – the benchmark German 10-year Bund yield rose to over 2,66% from 2,58%. Similar to the US, European high-yield debt also did well for the month.
   May brought some tailwind in the sails of the Bulgarian stock indices too. The benchmark SOFIX index rose by more than 6.3% for the month and has already risen more than 13% since the beginning of the year. The month saw a historic share transfer from the small cap market, beam, to BSE’s main market – the organic food producer, Smart Organic AD, became the first company to make such a move, announcing simultaneously a capital increase of nearly BGN 20 million. Thus, among Bulgarian companies, the best performer (for the second month in a row) was the commercial bank First Investment Bank AD, whose price rose by nearly 63% in May, and among the worst performers – the lead-acid battery manufacturer Monbat AD, whose stock price fell by nearly 10%.