Investment Viewpoint: A Constructive Week for Markets

Simplify the complex with clear and concise market insights direct from our investment experts every week.

Markets and macro insights with Brian Flavin, Senior Equity Research Analyst

Key takeaways:

1. The overall tone remains constructive across equities and fixed income, supported by resilient US earnings and ongoing enthusiasm around large-cap technology.
2. Equity performance continues to be driven by a relatively narrow group of dominant growth and AI-related names, with leadership remaining concentrated.
3. Bond markets have performed better in the near term but remain more sensitive than equities to any upside surprises in inflation or shifts in policy expectations.
4. We remain comfortable with the investment strategy currently in place across our portfolios – slightly pro-risk, with a bias to quality and secular growth.

Financial markets were generally stronger last week – what drove this performance?

• Last week, the overall tone remained constructive across both equities and fixed income. Global equity markets continued to find support from resilient US earnings expectations and ongoing enthusiasm around large-cap technology, while bond markets also performed positively over the period.
• Despite that improvement, sovereign yields remain elevated in absolute terms and oil prices continue to be volatile. Macro data still points to a combination of reasonably firm activity and persistent price pressure.
• In that sense, equities are still leaning into the growth story, while fixed income remains more sensitive to inflation, fiscal risk and the possibility that policy easing may be slower than previously expected.

What drove equity market performance?

• Within equities, performance was again led by the US, with the S&P 500 and Nasdaq remaining near record highs and still supported by a relatively narrow group of dominant growth and AI-related names.
• Market breadth has improved somewhat in places, but leadership remains concentrated. European equities were more mixed and lost some momentum as higher energy costs and softer activity signals complicated the near-term outlook. In Asia and Emerging Markets, the picture was also uneven.
• Technology-heavy areas continued to attract interest, but broader regional performance was less convincing, reinforcing the sense that global equity strength is still being driven by a relatively small number of themes and companies.
• Sector leadership continues to favour areas offering earnings visibility, structural growth and balance-sheet resilience. Technology and communication services remain important pillars of performance, while more rate-sensitive and cyclical areas are less consistent.
• Energy remained a significant background influence throughout the week. Even though oil prices fell sharply from the highs seen earlier in the month, they remain elevated in absolute terms and continue to shape inflation expectations, consumer sentiment and the broader macro conversation.

Bond markets had a more constructive week overall – why was that?

• Bond yields eased modestly in several regions. That said, the absolute level of yields remains elevated, particularly in the US and Japan, where 10-year government bond yields continue to trade near multi-year highs.
• European yields are somewhat lower in relative terms over the past month, with German Bund yields around the 3.0% level and UK gilt yields still elevated but more stable near the 4.8%–4.9% range.
• While recent moves have been supportive for fixed income performance, the broader message from rates markets remains one of caution. Investors continue to demand meaningful compensation for inflation uncertainty, fiscal pressure and geopolitical risk.
• As a result, even though bond markets have performed better in the near term, they remain more sensitive than equities to any upside surprises in inflation or shifts in policy expectations, especially in response to the Middle East conflict.

What was the cross-asset message last week?

• The cross-asset message last week was somewhat more balanced. Equity investors continue to focus on earnings resilience, technology leadership and the possible fading of a clear near-term growth shock, while bond investors remain attentive to inflation dynamics and policy constraints.
• The improvement in bond market performance has helped ease some of the recent tension between asset classes, but the divergence in underlying drivers remains important and leaves broader market sentiment somewhat dependent on incoming inflation data.
• As a result, investors focused primarily on the April (Personal Consumption Expenditures) PCE inflation data in the US, which remains central to the interest-rate debate, alongside Durable Goods orders and revisions to first-quarter GDP. Together, those releases continued to suggest that underlying demand is still holding up, even if the broader growth picture is not especially strong and despite elevated price pressures.
• Core PCE came in cooler than expected at 0.2% month-on-month, but still leaving a headline annualised figure of 3.8% year-on-year that was in line.  Core durable goods orders normalised after a huge spike in March, while 1Q GDP growth was revised down from 2.0% to 1.6% quarter-on-quarter.
• In Europe, economic confidence surveys painted a fairly subdued picture and flash inflation readings from France, Spain, Italy and Germany were mixed but still elevated, reinforcing the sense that the region’s recovery remains fragile.
• The overall message is not one of imminent slowdown, but neither is it fully reassuring for bond markets. Growth is still holding up in parts of the global economy, yet inflation pressure and geopolitical uncertainty continue to complicate the policy backdrop.

The week ahead: what to watch out for

Looking ahead, the main macro focus this week will shift back towards the labour market and the inflation outlook. In the US, investors will be watching the ISM manufacturing and services surveys and, most importantly, the May employment report, where payroll growth, unemployment and wage dynamics will all matter for the rates debate. In Europe, attention will centre on the flash euro area Consumer Price Index (CPI) release, alongside unemployment data and final Purchasing Manager Index readings, all of which will help shape expectations around the European Central Bank. Taken together, this week’s calendar should give markets a clearer sense of whether growth is holding up strongly enough to keep yields elevated, or whether softer data might begin to ease some of the recent pressure in rates markets.