The old Wall Street proverb about Mr. Market doling out maximum pain to the maximum number of participants rang true in May. Despite widespread investor caution amid erratic White House policy signals, concerns about global fiscal stability, and doubts over corporate profit resilience, equity markets soared. The MSCI World Index delivered a robust 5% gain in sterling terms, its best showing in half a year, fuelled by renewed optimism and a potent dose of strategic realignment.
Coined by Financial Times columnist Robert Armstrong, the ‘TACO’ trade—‘Trump Always Chickens Out’—came into sharp focus after a dramatic pivot from the US President. Having threatened a sweeping 50% tariff on European Union exports, Donald Trump reversed course within days following a conciliatory conversation with European Commission President Ursula von der Leyen. The decision to postpone trade talks until July brought relief to markets and rekindled appetite for risk assets, particularly in sectors exposed to transatlantic trade flows.
Technology stocks led the charge, with the Nasdaq 100 index rising an astonishing 8.6% over the month. Nvidia stood out, posting strong top- and bottom-line earnings that allayed short-term fears over AI chip demand. Investors were quick to return to the Magnificent 7, Apple, Microsoft, Amazon, Nvidia, Alphabet, Meta, and Tesla, whose combined momentum has powered more than half the S\&P 500’s performance since early April.
European equities weren’t far behind. The MSCI Europe ex-UK Index climbed 5.1%, driven by trade optimism and strength in export-focused and technology sectors. The UK’s FTSE All-Share, while positive at 4%, slightly lagged due to the underperformance of defensive sectors, including utilities and healthcare, as they struggled with rising G7 bond yields and US healthcare policy overhangs. Meanwhile, emerging markets enjoyed a pronounced rally, particularly in Taiwan and South Korea, where AI enthusiasm and a weaker dollar lit a fire under semiconductor-related names.
Fixed income markets, however, painted a more cautious picture. Global bond indices slipped slightly as long-dated yields continued their march higher. A combination of fiscal anxiety, bloated government debt levels, and lacklustre demand at auctions contributed to the sell-off in sovereign debt across the US, Japan, Germany, and the UK. Yet, corporate bond markets remained resilient. Investment grade and high yield spreads compressed notably from their April wides, a signal that credit markets are not pricing in an imminent recession. This divergence in sentiment reflects confidence in the health of corporate balance sheets, even as governments grapple with mounting fiscal challenges.
Commodity markets saw mixed action. Oil hovered above \$60 per barrel, buoyed by strategic OPEC+ interventions but constrained by muted demand expectations. The gold market, meanwhile, offered a masterclass in investor psychology. A surge above \$3,500 per ounce drew in late ETF inflows, only for a sharp 10% correction to follow as the TACO narrative undercut haven demand. For seasoned investors, the pullback was a healthy reset in an otherwise bullish structural trend.
Against this backdrop, the S\&P 500’s 20% rebound since early April stands out as one of the swiftest in modern memory. Yet, beneath the surface, a more subtle shift is taking place. The dominance of US-centric positioning, rooted in Trump-era optimism and concentrated bets on AI, mega-cap tech, and short-term Treasuries, is slowly unwinding. Our analysis suggests that capital is beginning to rotate toward more diversified international exposures, particularly in markets offering relative valuation advantages and structural growth catalysts.
Our positioning reflects this evolution. We maintain a balanced equity exposure between US and non-US holdings, with conviction in Europe, driven by fiscal expansion and robust financials, India, which benefits from tariff insulation and a domestic rate-cutting cycle, and Chinese technology stocks trading at compelling discounts relative to US peers. These markets offer not only upside potential but also a meaningful diversification away from crowded trades.
In fixed income, we’ve moved away from long-duration sovereign debt in favour of physical gold. The wave of sovereign issuance expected this year poses refinancing risks, particularly for weaker credits. By contrast, high-quality corporate bonds, especially those issued by well-capitalised European banks and insurers, offer attractive yields without the same structural headwinds.
Precious metals remain a core component of our defensive strategy. The gold correction has opened attractive entry points, and select miners with strong balance sheets and disciplined capital allocation strategies stand to benefit significantly. Many are generating ample free cash flow and may return capital to shareholders through buybacks and special dividends, signalling strength as the bull cycle matures.
TEAM plc (LON:TEAM) is building a new wealth, asset management and complementary financial services group. With a focus on the UK, Crown Dependencies and International Finance Centres, the strategy is to build local businesses of scale around TEAM’s core skill of providing investment management services.
