NEI Monthly Market Insights: May 2024

Jun 24, 2024

Equities continue the rally, but economic paths diverge

After a brief respite in April, global equities resumed the rally to find higher ground in May, as ongoing moderation of inflation and resilient economic trends continue to boost investor optimism. The S&P 500 Index returned 4.1% driven by optimism on rates outlook, better than expected corporate earnings, and the strength in growth trajectory in the information technology (IT) and communication services sectors. The utilities sector in the U.S. also rebounded dramatically, benefitting from renewed investor interest from compressed valuations and the potential to benefit from lower interest rates on the horizon. Gains were more muted in Canada and Emerging Markets at 2.6% and -0.2% respectively, both primarily due to the relative lag in the IT sector. Europe also had a strong month returning 4.0% in CAD terms, partly due to currency fluctuations.

Canadian and global fixed income also generated positive performance of 1.8% and 0.8% for the month, with significant movements on yields during the month as markets speculate on divergence in the timing of rate cuts between the major central banks.

The NEI perspective

In addition to the increasingly divergent path of regional economies, the inflation trajectories in the U.S., Canada and Euro area are also causing central bank policy responses to be less synchronized.

78% of S&P 500 companies reported Q1 results that exceeded consensus estimates. The S&P 500 reported earnings growth of 6.0%, the highest year-over-year since Q1 of 2022. Strong earnings of mega-cap companies helped with this growth.

Utilities have emerged as a top performer as investors have started to look outside of mega-cap technology for diversification into other more defensive sectors, due to certain risks in U.S. markets.

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