What happened in May?

U.S. equities moved higher in May as positive fundamental data prevailed over headline news. Macroeconomic data continued to paint a rosy picture of the U.S. economy with consumer spending ticking higher in April driven by rising incomes and higher employment. The final tally from first quarter earnings was positive for companies in the S&P 500. In contrast, numbers released by the Commerce Department showed that corporate profits grew by a small amount in the first quarter from a year ago and, without the added benefit from the tax overhaul, profit growth would have been lower.

Geopolitical events were in focus throughout the month. The markets reacted rather severely to news of a new Italian government that may center on skepticism towards the Eurozone. Investors were worried about the state of Italian debt if the country decides to move back to the devalued lira and out of the Eurozone’s economic protection. These political concerns and U.S. trade tariffs impacted the EU market negatively in May. Emerging markets continued to struggle as the U.S. dollar strengthened, making their dollar denominated debt more expensive and pulling investors away from the riskier asset class. At the end of the month, the U.S. decided it would implement tariffs on steel and aluminum products from Canada, Mexico and the EU. This move raised concerns over potential retaliatory trade policies from these countries as well as the impact of higher priced goods on manufacturers and multinational corporations.