The global stock markets have delivered a mixed bag as we delve deeper into May 2023. While some markets have enjoyed an upward trend, others have seen a dramatic downturn – much to the dismay of eager investors. The global stock market is affected by a variety of factors, with geopolitical events and the US recession at the forefront – causing much indecision amongst traders across the globe.

The US economic growth is slowing down and the risk of a recession is on the rise. Despite the rising recession risk, investors believe the possibility of Fed rate cuts later in the year could bring good news for the stock market. Investors are, therefore, hopeful that the bullish early-year momentum can continue in May, even though historically, it has been one of the S&P 500’s worst months.

All this, without even mentioning geopolitical factors that are influencing markets through unprecedented levels. Let’s dive into some details of what investors can expect for May 2023.

Geopolitical events

One of the key factors affecting global stock markets this May is geopolitical events – something that has been trending for far too long. The ongoing US-China trade war has created uncertainty in the global markets, as it has led to a reduction in trade between the two countries and a slowdown in global economic growth. The fact that Taiwan has now entered the equation between these two economic giants hasn’t helped matters either.

The trade war has had a significant impact on the global stock markets. The uncertainty surrounding the future of trade between the US and China has led to a drop in stock prices for many companies, particularly those with exposure to China. The ongoing negotiations between the two countries have also impacted the markets, with investors eagerly awaiting news of any progress or setbacks in the negotiations.

Another factor contributing to market uncertainty is the conflict between Russia and Ukraine which significantly impacted the markets, particularly in Europe. The sanctions imposed by the West on Russia have had an impact on many European companies with exposure to Russia, and the uncertainty surrounding the conflict has led to a reduction in investment in the region. The conflict has also led to an increase in oil prices, as Russia is one of the largest oil producers in the world.

In light of these factors, traders need to stay informed about the latest developments in these geopolitical events and manage their risk effectively to minimise the impact on their portfolios.

US Recession Watch

Inflation and Fed rate hikes continue to be key market drivers in May, potentially ending this month. These two factors are the hot focus this May, although there is hope that this trend will simmer down by June.

The US stock market had a modest gain in April, as investors remain uncertain about the banking crisis and eagerly await the final Federal Reserve interest rate hike. The S&P 500 experienced a modest 1.4% increase in April, with signs of inflation cooling off and the end of the current interest rate hike cycle being anticipated.

Inflation has been a major concern for the Federal Reserve, as the Consumer Price Index increased by 5% year-over-year in March. While this is a drop from the peak inflation levels of 9.1% in June 2022, it is still well above the Federal Reserve’s long-term target of 2%. This means that the Fed still has work to do to stabilise prices.

The late-April stock market rally was triggered by a weak economic growth report for the first quarter. According to the Commerce Department, the US gross domestic product grew just 1.1%, which is well below expectations of 2% growth from industry experts.

This weaker-than-expected growth is seen as a potential reason for the Federal Open Market Committee to pause interest rate hikes after the May meeting and possibly consider rate cuts later in 2023 – something that could lead to positive activity in the S&P 500.

Industry experts are of the opinion that the latest inflation data points towards a June Fed rate hike. Although inflationary pressures are easing, the trajectory is not moving quickly enough for the Fed to feel comfortable as yet.

The bond market is currently pricing an 85% chance of a quarter-point rate hike, or 25 basis points, on May 3. According to CME Group, traders see a 28% chance of another 25 basis points rate hike in June. The Fed’s response to inflation and economic growth will be critical in determining the stock market’s direction.

Essentially, investors must keep a close eye on inflation and fed-rate hikes in the coming months as they could significantly impact the stock market.

Final thoughts

While April 2023 may have left investors across the globe feeling cautiously optimistic, those who want to commit their funds this May must use their financial intelligence wisely. It’s often the case where investors have relied on the positivity of previous months only to make investment blunders of epic proportions in the following months.

As reported by MarketWatch.com, US Stocks are buoyed by Apple’s latest results. On the other hand, US productivity tumbled in the first quarter of 2023 due to slow economic growth – leaving investors questioning what’s next.

Although the current market climate may not appear to be a bed of financial roses, all it takes is patience and some market intelligence to successfully navigate this May with your portfolio profitably.

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