Monthly Commentary – 02 Jun 2025

Market Overview: A Constructive Turn

May 2025 brought a marked shift in sentiment across global financial markets. Investors were buoyed by a combination of improving economic indicators and a major de-escalation in trade tensions between the United States and China but proved a difficult month for many investment managers as the flip-flopping of policy decision arounds US tariffs led to an ongoing air of uncertainty. The announcement on May 12 that both nations would pause tariffs for 90 days surprised markets and triggered a swift repricing of risk assets.

Supporting this optimism were encouraging economic data points. In the US nonfarm payrolls grew by +177,000, signalling that the labour market remains resilient. The ISM Services Index rose to 51.6, indicating expansion in the services sector, all helping dispel fears of a looming recession and encouraged a broader risk-on rally.

As mentioned above, it wasn’t all smooth sailing. Mid-month, Moody’s downgraded the US credit rating, citing fiscal sustainability concerns. This was the last of the three credit agencies to downgrade the US, but nonetheless it led to a spike in long-term Treasury yields, with the 30-year bond reaching an intraday high of 5.15%, putting pressure on the fixed income market, particularly for long- duration government bonds. This matters when the US government is expected to refinance around $28 trillion in national debt over the next four years.

Key Highlights:

  • Equities: Strong performance across the board for the S&P 500 (+6.3%) and the STOXX 600 (+5.1%)
  • Fixed Income: US Treasuries fell (-1.1%) due to sovereign credit concerns.
  • Cryptocurrencies: Bitcoin rose +10.8%, reaching a record high of $111,092
  • Commodities: Agricultural commodities slumped; coffee and corn led declines with -17.2% and -5.0%, respectively

    Blue Chip Stocks: Sector Rotation and Diverging Fortunes

    In the blue chip universe, May’s rally was accompanied by a notable divergence in performance across sectors and companies. Technology stocks, while still grappling with tariff overhangs, saw renewed investor interest – especially in firms tied to artificial intelligence and semiconductor leadership.

    Semiconductors stood out as clear winners. Broadcom (AVGO) surged, driven by its diversified product offerings across enterprise software and networking solutions. NVIDIA (NVDA), often viewed as the poster child of the AI boom, performed very well making up for a lot of the ground as investors re-assessed the robustness of its potential earnings, highlighting recent consolidation. Taiwan Semiconductor (TSM) also delivered solid returns despite exposure to complex global supply chains.

    Not all tech names, however, fared as well. Apple (AAPL) was hit hard by potential 25% tariffs on non-US manufactured goods, along with a public debate with the US Government about the merits of re-locating its supply chains to India from China, falling -5.4% during the month.

    Outside of tech, the financial and consumer staples sectors provided defensive ballast, but the star of the show was The Walt Disney Company, to quote a Morningstar headline – ‘Disney Earnings: Stellar Results with No Inkling of Recession Fears’

     US Single Stock Monthly Performance Highlights

    Winners

    • Broadcom (AVGO): +25.8%
    • The Walt Disney Company (DIS): +24.3%
    • NVIDIA (NVDA): +24.1%

    Losers

    • Berkshire-Hathaway (BKB-B): -5.5%
    • Eli Lilly and Company (LLY): -17.8%
    • UnitedHealth Group Incorporated (UNH): -26.6%

    ETF Portfolio Insights – Vanilla Funds’ Global Balanced Strategy

    The balanced portfolio for Vanilla Funds revealed a nuanced picture in May 2025, reflecting the complex macro backdrop. The technical and sentiment analysis showed a neutral portfolio bias, with an average score of 5.3/10 for technical indicators and 5.5/10 for sentiment, signalling the struggle that many multi- asset funds are facing – where a continuation of a weak dollar and the on-again / off-again behaviour of the US, UK & European Bond Markets, makes the task of maintaining an attractive asset allocation somewhat challenging.

    It must be said though, given that the portfolio has been constructed to maintain a Balanced level of risk, the monthly performance of 2.63%, does suggest the Equity/Fixed Income asset allocation mix is working well, and is on track to recover some of the ground lost to the impact of President Trump’s ‘Liberation Day’ vision.

    Top-performing ETFs within the portfolio highlighted investor preferences for safety and defence were:

    GLDW (WisdomTree Core Physical Gold) emerged as the strongest holding. Strong technical momentum and bullish sentiment underscored gold’s appeal as an inflation hedge amid ongoing policy

    • DFNG (VanEck Defense ETF), riding geopolitical tailwinds and delivering returns. Analyst sentiment remains firmly
    • CUKX (iShares FTSE 100) and XDAX (Xtrackers DAX) both showed strong momentum and bullish sentiment, benefiting from relative resilience in UK and German equity markets despite broader European economic concerns.

    Conversely, these ETFs weighed on performance:

    • KWBP (KraneShares CSI China Internet) display negative technical signals and bearish sentiment reflecting regulatory and economic headwinds in China.
    • IGLT (The iShares Core UK Gilts UCITS ETF) suffered from a signal from the Bank of England’s interest rate setting committee that suggested a reluctance in continuing the rate cutting