Highlights
Stock markets continued to advance in May despite the ongoing stalemate in the Strait of Hormuz, where a fragile equilibrium—costly, yet sufficient to avoid the worst—appears to be taking hold. Pressure is nevertheless mounting to gradually restore maritime traffic this summer, as global inventories cannot offset the situation indefinitely.
Meanwhile, other themes are commanding investors’ attention, beginning with the persistent outperformance of emerging markets. Once dominated by cyclical sectors, these markets are now being driven by the rise of artificial intelligence, which is boosting both the earnings and index weight of a handful of Asian technology giants. In this context, the main risk lies less in valuations—which remain relatively reasonable—than in the high degree of concentration around a single investment theme.
In parallel, Kevin Warsh’s arrival at the helm of the Federal Reserve comes at a particularly delicate moment for bond markets. Treasury yields are being pushed higher by a combination of factors, including a rising term premium, inflationary pressures, and a significant reassessment of monetary policy expectations. For now, the situation remains manageable, but investors should remain vigilant, particularly if more persistent inflation complicates the task of a new Fed Chair who has yet to be fully tested by the markets.
Ultimately, the challenge for investors in a world where historic events unfold at a relentless pace is to keep sight of the bigger picture. While risks remain abundant, strong earnings growth and the fragile—but holding—balance in energy markets suggest that the prevailing winds continue to favor equities.
Bottom line
Despite persistent uncertainty, the resilience of equity markets—which continue to trend higher despite numerous obstacles—deserves recognition. In this environment, we maintain an overweight position in equities while remaining mindful of geopolitical risks, inflationary pressures, and the growing concentration around the artificial intelligence theme.