Key Points
- Global markets extended their recovery in May.
- Trade war de-escalation reduced global recession fears and led to a broad-based rally back into risk assets.
- US markets outperformed in May, rebounding from the underperformance in April.
Australian Equities
The S&P ASX 200 Accumulation Index continued to rally in May, up 4.2% on the back of the 3.6% increase in April. Markets continued to be buoyed by a de- escalation in US-China trade relations, with both nations decreasing tariffs substantially for 90 days as they negotiate.
All eleven sectors on the ASX posted positive returns in May, led by Information Technology (+19.8%), Energy (+8.6%), Communications (+5.5%), and Financials (+5.1%). Defensive sectors underperformed, with Utilities (+0.3%), Consumer Staples (+1.2%), and Health Care (+1.6%) lagging the broader market rally.
Life360 Inc (360) gained 51.9% and was the strongest performer in the S&P/ASX200 index in May, following a strong 1Q25 update, with revenue and EBITDA both exceeding expectations, while Technology One Limited (TNE) rose 36.8% on another strong earnings result in 1H25 and upgraded FY25 guidance. Other IT stocks, WiseTech Global Limited (WTC) and Xero Limited (XRO), increased by 21.0% and 12.2% respectively, following WTC’s acquisition of e2open and a positive FY25 earnings result from XRO.
The biggest loser in the month was Nufarm Limited (NUF), down 38.2% following a materially weaker 1H25 result on a sharp deterioration in its Seeds business.
The RBA lowered the cash rate in May by 25 basis points to 3.85%, as widely expected, bringing borrowing costs to their lowest levels in two years. The central bank’s commentary was surprisingly dovish, noting that inflation risks had become more balanced and eased into the RBA’s 2-3% target range. Policymakers also highlighted that the overall economic outlook remains considerably uncertain, with household consumption growth softer than expected. Financial markets are fully pricing in two interest rate cuts by the end of this year, with a 70% chance of a third.
Headline CPI inflation remained at +2.4% for the year ending 30 April 2025, while the trimmed mean increased slightly to +2.8%, just above market expectations. The unemployment rate remained at 4.1%, as anticipated, while the Westpac Consumer Confidence Index climbed by 2.2% in May to 92.1, recovering from the 6.0% decline in April.
Global Developed Equities
Global equities extended their recovery in May as trade tensions eased, and consumer confidence rebounded. The delay of tariff increases by the US and China, alongside progress in US and EU trade discussions, has alleviated fears of a global recession. Developed Markets equities rose 5.3% (MSCI World Ex-Australia Index (AUD)), while Emerging Markets gained 3.7% (MSCI Emerging Markets Index (AUD)).
US equities outperformed in May, with the S&P 500 index gaining 6.2%, bolstered by robust returns from the Technology sector. 1Q25 earnings season concluded with over three-quarters of the market reporting positive earnings surprises and more than half exceeding revenue expectations. Market commentary remained cautious, as the full impact of tariffs had yet to be reflected in earnings. Growth stocks (+8.7%) outperformed value stocks (+3.2%), while small caps (+5.9%) rebounded strongly, thanks to potential support from the proposed tax and regulatory changes in the US budget reconciliation bill.
European stocks also posted strong gains in May, following positive US-EU trade talks that alleviated concerns about a recession. The FTSE Eurotop 100 Index rose 4.6%, while Germany’s DAX Index surged 6.6%. In contrast, the UK’s FTSE 100 Index performed more modestly, increasing by 3.3%, as defensive sectors lagged the broader market due to rising bond yields.
The US Federal Reserve kept the funds rate unchanged at 4.25 – 4.50% in its early May meeting, as expected, marking the third consecutive meeting where rates have remained steady. Policymakers observed that tariff announcements have created unusually high uncertainty, increasing downside risks to employment and economic activity, as well as upside risks to inflation.
In economic news, Core inflation in the US increased 0.2% in April, below the expected 0.3% growth, while the annual rate remained at a four-year low of 2.8%. The headline inflation rate also rose 0.2% for the month, with the annual rate dropping from 2.4% to 2.3%. The Federal Reserve’s preferred inflation measure, the core PCE price index, was up 0.1% in April, in line with expectations, as the annual rate slowed to 2.5%, from 2.7%. Retail sales increased 0.1% in April, following an upwardly revised surge in March of 1.7%, as consumers reduced spending in response to tariffs.
Commodities were the worst-performing asset class, with the S&P Goldman Sachs Commodity Index (USD) down 8.8% in May. Gold prices were broadly flat in the month, now up 24.4% over six months and 41.3% across the year, whilst oil prices rebounded from a sharp fall in April, rising 4.4% to USD$60.79/barrel.
Emerging Market Equities
Emerging market equities gained 3.7% in May (MSCI Emerging Markets Index (AUD)), underperforming developed market equities. Despite the easing of tariff concerns, China lagged the broader index, with the CSI 300 rising 1.9%, while the Hang Seng rose 5.3%. Taiwan and Korean markets also rose strongly on renewed optimism from investors regarding artificial intelligence themes. India joined China in lagging the broader index after two months of strong gains, as did Brazil due to a weaker local currency and another increase in interest rates.
Economic data from China was mixed in May, with Retail Sales rising 5.1% year-on-year in April, down from 5.9% in March. Industrial Production grew by 6.1% year-on-year in April, surpassing expectations, but also easing from the 7.7% growth in the prior month, which was the strongest expansion in industrial production since June 2021. Against this backdrop, inflation dropped by 0.1% year-on-year, continuing the declines of the past two months and marking the fourth consecutive month of consumer deflation as trade risks with the US continue to weigh on sentiment.
Property & Infrastructure
The S&P/ASX 200 A-REIT Accumulation Index continued to reverse the negative trend observed prior to April, gaining 5.0% over the month after a 6.4% rise in April. Global real estate equities also performed well, rising by 2.5% (as represented by the FTSE EPRA/NAREIT Developed Ex Australia Index (AUD Hedged)). Meanwhile, global infrastructure, as measured by the S&P Global Infrastructure TR Index (AUD Hedged), continued to climb, achieving a return of 4.4%. Overall, the index has provided a 12-month return of 20.4%.
The Australian residential property market experienced a month-on-month increase of 0.5% (as represented by CoreLogic’s five capital city aggregate), rising 1.7% year to date. Growth, fuelled by rate cuts, was reported across all capitals for the second consecutive month, following a period of contraction. Darwin was the strongest performer (+1.6%), followed by Perth (+0.7%).
Fixed Income
Following a turbulent few months in bond markets, May saw a decrease in volatility, despite higher Treasury yields in the United States. The early tone was set by higher-than-expected payroll data from April (+177k jobs), which exceeded expectations (+138k), alongside steady unemployment at 4.2%. The Federal Reserve took a “wait and see’ approach at its May meeting, with inflation continuing to trend lower.
Demand for 20-year US Treasuries cooled, clearing at a yield over 5.0%. Tariffs continued to evolve, with China added to the 90-day reciprocal tariff pause, while the EU faced a potential 40% increase for lacking urgency in trade negotiations.
Moody’s downgraded U.S. Treasuries from Aaa to Aa1, citing persistent deficits, lack of containment plans, rising debt-to-GDP ratios, and broader comparisons with other sovereigns. This marked the first time a rating agency had downgraded U.S. Treasuries since Fitch in 2023 and S&P in 2011. Meanwhile, the ‘Big Beautiful Bill’ faced Senate debate after passing the House. Against this backdrop, U.S. 10-year Treasury yields rose 24 basis points from 4.16% to 4.40%, while 2- year yields remained unchanged at 3.90%.
In Japan, bond yields continue to rise, with the 10-year yield up by 19 basis points, as the Bank of Japan steps back from market support. These rising yields in Japan are drawing interest away from US markets, particularly among Japanese investors.
Domestically, monetary policy continues to be influenced by the tariffs narrative, with the RBA cutting interest rates by 25 basis points at its May meeting. The market currently anticipates a further three cuts, bringing the cash rate to 3.10% by the end of the calendar year. The RBA is confident that it is well- positioned to manage any uncertainty surrounding monetary policy, as the key risks to inflation are now perceived to be more balanced.
The broader influence of overseas market volatility led to an increase in Australian bond yields in May, with the 10-year bond yield rising 10 basis points from 4.16% to 4.26%, and the 2-year yield increasing 3 basis points from 3.29% to 3.32%.
Alternatives
Preliminary estimates for May indicate that the Index of Commodity Prices increased by 0.4 per cent (on a monthly average basis) in SDR terms, after decreasing by 1.8 per cent in April. The rural, non-rural and base metals subindices all increased in the month. In Australian dollar terms, the index decreased by 1.5 per cent in May.
Over the past year, the index has decreased by 7.7 per cent in SDR terms, led by lower iron ore and coking coal prices. The index has decreased by 2.9 per cent in Australian dollar terms.
HFB Private Wealth Portfolio Performance Report
| Portfolio | May Return (%) | Performance Report |
| HFB Balanced 60 | 2.27% | View here |
| HFB Growth 80 | 3.54% | View here |
| HFB High Growth 100 | 4.61% | View here |
| HFB Balanced Income | 1.96% | View here |
| HFB Growth Income | 3.10% | View here |
General Advice Warning
The content in this section is provided for general information purposes only and does not take into account your personal objectives, financial situation, or needs. You should consider whether the information is appropriate to your circumstances and seek professional advice before making any financial decisions. If you require advice tailored to your specific situation, HFB Private Wealth Pty Ltd would be pleased to assist you through our licensed financial services. This content does not constitute a recommendation or endorsement of any specific financial product or strategy. Before making any investment decision, please read and consider the relevant Product Disclosure Statement (PDS). Past performance is not a reliable indicator of future results. No forecast or projection provided by HFB Private Wealth Pty Ltd is guaranteed to occur.
Disclosure
The views, opinions, and estimates expressed in this section are those of HFB Private Wealth Pty Ltd and its representatives, made in good faith and based on information believed to be accurate and reliable at the time of publication. This material is not a substitute for personalised financial advice. HFB Private Wealth Pty Ltd and its representatives disclaim any liability for actions taken based on this content. This content is issued by HFB Private Wealth Pty Ltd, Corporate Authorised Representative (CAR No. 1300026) of Focused Financial Advice (AFSL No. 286219) © 2025 HFB Private Wealth Pty Ltd. All rights reserved. No part of this content may be reproduced or distributed without prior written consent of HFB Private Wealth Pty Ltd.