Was “Sell in May” the right call in the end? Global equities ended the month slightly lower, led by the mega large technology companies, with a modest decline of -1.6%. This does not qualify as a correction but marks a pause after three months of strong gains. Investor sentiment remained sensitive to geopolitical and macroeconomic developments, shifting between caution and renewed optimism. Market performance was primarily driven by sector rotation and dispersion rather than broad-based weakness.
Geopolitically, renewed dialogue between Iran and the United States improved the outlook for a potential bilateral agreement. While the situation remains fragile, markets responded constructively. Cargo flows through the Strait of Hormuz have partially resumed, and oil prices declined significantly, with Brent closing at USD 73—close to pre-conflict levels. Implied volatility also eased below 17%, reflecting improved risk appetite, and equity markets continued to draw support from earnings growth. Strong demand in primary markets, illustrated by the successful SpaceX IPO, confirms that investor appetite for growth themes—particularly in AI—remains robust. Upcoming IPOs in this space will provide further insight into the depth of this demand.
On the macroeconomic front, US data—including consumer activity, labour markets, and PMIs—continue to signal resilient growth. Should geopolitical tensions ease and inflation moderate, this momentum could strengthen further. However, inflation above 4% has led the Federal Reserve to reassess its policy outlook. Markets are increasingly pricing a firm anti-inflation stance from the new Fed Chair, Kevin Warsh, resulting in higher rate expectations. This has supported the US dollar but prompted a reassessment of valuations in technology equities. The “Magnificent 7” continued to underperform the broad market.
Index concentration remains a key risk consideration. The significant weight of large technology companies, notably the “Magnificent 7” and “hyperscalers” has weighed on headline index performance, while equal-weighted indices delivered positive returns. The technology sector now contributes more than 55% to the volatility of the S&P 500, with Nvidia alone accounting for nearly 12%, highlighting the concentration risk inherent in passive strategies. Note that these figures likely understate true exposure, as they exclude broader AI-related dependencies.
It would, however, be premature to conclude that the technology cycle has reversed. Rather, after substantial outperformance, investors are becoming more selective. In June, outperformance was observed in AI-enabling semiconductors, US small caps, value equities, and healthcare. Conversely, precious metals, bitcoin, energy, and the Magnificent 7 underperformed. As observed in late 2025 prior to the Iran conflict, European equities have resumed relative outperformance. We are selectively increasing exposure.
