June Market Update - Resilience, Recovery and Why Diversification Still Matters
Global markets have demonstrated encouraging resilience. After a challenging start to the year, May brought a meaningful shift in sentiment, with equity markets rebounding; inflation softening in key regions; and central banks taking a more balanced tone.
A Broad-Based Rally
Equity markets staged a strong comeback in May. The S&P 500 gained around 6% over the month, while the tech-heavy Nasdaq rose by nearly 8%, driven by continued momentum in AI and innovation-led sectors. U.S. small-cap stocks also rallied, up roughly 5.9%, supported by expectations of regulatory and tax relief for smaller businesses.
In the UK, the FTSE 100 climbed 4.3% across the month, supported by a more stable inflation backdrop and a modest improvement in consumer sentiment. UK GDP grew 0.7% in Q1, slightly ahead of expectations, and the International Monetary Fund revised its full-year growth forecast for the UK up to 1.2%.
Europe saw similar gains, with major indices like the Euro Stoxx 50 up over 5% as eurozone inflation dipped below the European Central Bank’s 2% target for the first time in several years. In emerging markets, gains were led by Asia: Taiwan surged 12.5% in May, and South Korea added 7.8%, as a weaker U.S. dollar and more stable trade outlook improved investor sentiment.
Credit Concerns vs. Income Opportunities
Global bond markets were a mixed bag. The Bloomberg Global Aggregate Bond Index fell around 0.4% in May, weighed down by concerns over U.S. debt sustainability. Moody’s downgraded U.S. sovereign credit from AAA to Aa1, citing ballooning fiscal deficits and rising debt servicing costs - triggering a temporary spike in Treasury yields.
However, corporate bonds held up relatively well, particularly in the high-yield space, where investor appetite for income remained strong in the absence of further U.S. rate hikes. Demand for credit has been underpinned by a still-healthy jobs market and resilient consumer spending, particularly in the U.S.
Stable but Subdued
Commodities moved modestly. Brent crude oil hovered in the $60–65 per barrel range after falling mid-month, with markets balancing OPEC+ supply signals against steady demand. Gold slipped 0.8% as safe-haven demand eased, and industrial metals rose slightly on firming global manufacturing data.
Currency markets were relatively quiet. The U.S. dollar weakened marginally through May, allowing currencies like the euro to rise to $1.14 and the pound to $1.28 by early June. The softer dollar helped support returns from non-U.S. assets and emerging markets.
A Shift in Tone
Monetary policy is evolving. The Federal Reserve left rates unchanged in May at 4.25–4.50%, citing a need to monitor inflation, which remained at 2.5% headline and 2.9% core. Fed officials reiterated that while progress has been made, the job isn’t done yet.
In contrast, the European Central Bank cut rates by 25 basis points in early June, following eurozone inflation’s fall to 1.9%. ECB President Christine Lagarde signalled a cautious pause in future moves. The Bank of England also cut its base rate by 25bps to 4.25% - the first cut in this cycle - but struck a balanced tone given that UK inflation, though falling, remains at 3.5%.
Less Drama, More Dialogue
Trade policy continues to simmer in the background. The U.S. paused new tariffs on EU goods in May and signalled openness to further talks with China. Meanwhile, the UK made progress on a potential bilateral trade deal with the U.S.
Domestically, U.S. lawmakers advanced a large fiscal package - including extended tax cuts and increased defence and infrastructure spending - designed to stimulate growth ahead of the 2026 elections. However, it also adds to longer-term debt pressures, one reason cited in recent credit rating actions.
The Case for Diversification
Market sentiment has shifted rapidly in recent months - swinging on inflation data, interest rate moves, trade news and geopolitics. Trying to time these changes is difficult, even for professionals.
A diversified portfolio - spread across asset classes, regions, and sectors - helps protect against surprises and take advantage of opportunity. It smooths the ride when markets are choppy and helps keep long-term plans on track. With inflation cooling, central banks becoming more predictable, and global growth stabilising, now is a good time to ensure portfolios remain balanced and resilient.