Large-cap US tech stocks continued to outperform in May, with the Nasdaq returning 5.9% and the S&P 500 up 0.4%. Artificial intelligence stocks powered most of the market’s gain as tech innovation fueled investor optimism. US equities held up despite rising Treasury yields and a more hawkish Federal Reserve. Yields rose mostly at the front-end as debt ceiling concerns surfaced. Positive consumption, GDP, and labor market data may have delayed expectations for a recession. Meanwhile, the contraction in US manufacturing has diverged from services data, reflecting an uneven economic cycle. US inflation continued to ease, albeit less than expected.

Within the US market, growth outperformed value, with Information Technology and Communication Services in the lead. Energy and Materials lagged the broader market as oil and industrial metal prices declined. Defensive sectors such as Consumer Staples and Utilities continued to underperform.

Outside the US, emerging market equities declined as the dollar strengthened. Chinese equities continued lower as earnings and economic data came in below expectations. European equities also underperformed the broader MSCI ACWI Index in May, partly because of negative economic surprises.

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