The month of May brought a powerful rebound in global equity markets, as the panic-driven sell-off of April gave way to renewed optimism. The MSCI All Country World Equity index rose by 6% (in USD), with nearly all major regional markets participating in the upturn. Once again, international equities, especially developed markets large-cap stocks, outperformed U.S. peers. The month started with a wave of relief after the U.S. administration announced a 90-day suspension of the tariffs unveiled on “Liberation Day” in early April. This postponement opened the door to negotiations with key trading partners (most importantly with the European Union and China), and helped ease fears about a trade-related recession. As concerns subsided, the investors’ appetite for risk returned with full force. U.S. equities rebounded sharply, supported by strong corporate earnings, while the weaker U.S. dollar provided an additional tailwind to international and emerging markets. The return of calm was also visible in the VIX (a volatility index), which fell from its April highs of 60 to below 20 by the month end. European markets enjoyed a strong May too, with every market finishing in positive territory. Purchasing Managers’ Index (PMI) figures were revised upward, marking a third straight month of improving manufacturing numbers on the Old Continent. Asian equity markets also delivered a strong performance in May: Japan’s TOPIX gained 5.1%, helped by solid earnings and a stable yen. Chinese equities were an exception, with more subdued performance in May, but markets in Taiwan and South Korea really stood out, advancing 12.5% and 7.8%, respectively, driven by surging demand for semiconductors and all AI-related infrastructure. Thus, information technology and industrial stocks led the market for the month, while healthcare and real estate stocks trailed. In general, higher-beta and volatility stocks outperformed across the globe. Small cap stocks also had a good month. Global bond markets had a somewhat volatile month as well, but finished May with only moderate changes overall. The U.S. government debt lost its stellar credit rating, when Moody’s downgraded it by a notch from the highest AAA level. The markets hardly reacted because this move was not a surprise, as it simply matched the rating of the other two leading agencies.  While a de-escalation of China-US trade tensions eased US recession fears, the market’s focus quickly switched to concerns around US fiscal sustainability – the “big, beautiful” tax bill introduced by Donald Trump, was perceived to worsen US debt situation, driving the longer-end Treasury yields higher (bond yields move inverse to bond prices). European government bond markets in comparison had a much better month, especially in the periphery. Core markets – such as Germany – saw only modest yield rises. Peripheral markets outperformed because they benefited from the European Central Bank’s (ECB) dovish shift, and the narrowing spreads over German bunds. The Bloomberg Global Aggregate Bond index fell by 0.4% (in USD); the risky lower quality credit (high-yield) significantly outperformed for the month.
             The US equity markets were one of the best performing developed markets in May. The major U.S. stock indexes generated strong positive results – the tech-heavy NASDAQ finished about 9% higher for the month, rising out of bear market territory, while the broad S&P500 gained over 6%, recording its best month of May performance since 1990. Most of the market’s leadership came from cyclical sectors (Industrials and Consumer Discretionary), which had been deeply oversold during April’s stampede. The strongest gains, however, were demonstrated by AI-related stocks, which had been hit hardest in April - Information technology stocks led the market with more than 10% monthly return for the sector. On the contrary , Energy and Healthcare continued to underperform, as the Energy sector remained under pressure from lower oil prices, while Healthcare stocks were dragged down by the ongoing policy uncertainty surrounding  President Trump’s newly-announced reform of drug pricing. Interestingly, among the almost completely reported US corporate earnings results for 1Q 2025, Healthcare posted a 43% profits rise, the highest among all 11 sectors. On average, companies in the S&P500 posted a earnings gain of almost 13% compared to an year earlier, which is nearly twice that of analysts’ expectations, and marks the second consecutive quarter of double-digit net income growth. The macroeconomic backdrop in the United States remained broadly supportive. The labor market continued to display remarkable resilience, with the unemployment rate staying close to multi-decade lows and wage growth maintaining a steady pace. Inflationary pressures remained the key concern for the Federal Reserve (Fed). While headline CPI showed further signs of moderation (inflation cooled for a third straight month to 2,3% in April), services inflation and companies’ labor costs remained elevated. Markets were unsure on the prospect of future rate cuts by the Fed, and currently are pricing in two to three ¼% cuts, depending on the strength of incoming data. Meanwhile, Moody’s downgrade of the U.S. sovereign credit rating in May served as a sobering reminder of America’s deteriorating fiscal outlook. Trump’s “big, beautiful bill” (approved by the House of Representatives by just 1 vote) proposes increased defence spending, extends previous tax cuts, and further cuts spending on some programs (like Medicaid). Investors feared that the bill will add to the US deficit and debt. The credit rating downgrade triggered a brief sell-off in longer-dated Treasuries, leading to a steepening of the U.S. yield curve, as shorter maturities priced in slower growth (even recession) while longer maturities priced in rising debt concerns and higher inflation. Despite the better prospects of higher interest rates for longer, the US dollar was flat for the month. US Treasury yields generally rose during the month: the benchmark 10-year Treasury yield traded in a wide range, peaking at 4.5% in mid-May before falling to 4.3% by month-end. 
             European equity markets posted strong gains, buoyed by easing trade fears and improving macroeconomic data. Initially, President Trump threatened 50% tariffs on the EU, starting from 1 June, but the deadline was subsequently negotiated to July 9th. Shares at first fell amid the tariff threat but later recovered. The STOXX Europe 600 index rose by 4.9% in May, with German and French equities leading the increase. Top performing sectors included Industrials, Information technology and Financials while the Healthcare sector lagged. Germany’s DAX equity index gained 5.5% over the month, supported by a stronger-than-expected 0.2% GDP growth in the first quarter and rising industrial orders. In addition to the market-friendly delay in U.S. tariffs, the European Central Bank (ECB) cut its deposit rate by 0.25 percentage points to 2.25%, citing a weakening growth outlook. Eurozone composite PMI fell to 49.5 (a six-month low), with services activity weakening and manufacturing activity continuing to stagnate (a reading below 50 indicates contraction). Nonetheless, the lowering of interest rate expectations helped stabilize financial conditions. In the UK, the FTSE 100 equity index gained 4.1% in May, lagging behind continental markets as inflation remained more persistent (inflation jumped to 3,6%, a 15-month high) and the Bank of England (BoE) expressed caution. Moreover, large UK-listed pharmaceutical companies came under pressure following Trump’s drug pricing reforms, which threaten revenue from U.S. sales. On the other hand, the UK and EU agreed a deal to “reset” relations and deepen ties in the aftermath of Brexit. The deal covers a defence and security pact, fishing rights, and removes administrative hurdles for farm exports. European fixed income markets were more stable, especially in the periphery. Core markets – such as Germany and France – saw only small yield rises. The ECB’s improved outlook benefited peripheral government bonds (Italy, Spain), whose credit spreads over the German bunds narrowed. The yield of the 10-year Itialian government bonds actually fell slightly on the month. The UK gilts were not spared, and their yields rose through May, reflecting the prospects of higher inflation and worsened fiscal outlook, which limit the BoE ability for future rate cuts.  
            Shares on the Bulgarian Stock Exchange brought great joy to investors in May. The representative SOFIX index "exploded" with a yield of nearly 13%, after some of the biggest names in it rose significantly for the month - only two companies from its composition ended negatively, and a total of 13 companies had positive returns. The upswing in European markets was passed on to our home bourse and the broad BGBX40 index ended the month with a staggering 9.3% gain! In May, another meeting was held with the companies participating in the BeamUp Lab program, aimed at small and medium-sized enterprises interested in listing on the public markets. The meeting was hosted by the Bulgarian Bank for Development (BBD) and focused on the possibility of equity financing for start-ups and early stage businesses. After the close of trading for the month, among the individual names, the stock of Bulgarian technology champion Shelley Group AD stood out with price rise of 38.5%, while among those with the worst performance was the metal packaging manufacturer Bulmetal AD, whose price fell 8.2% in May.
Source: Bloomberg, BSE