The Authors: DJE’s strategy team continuously monitors and evaluates the markets using the firm’s proprietary FMM methodology, which combines fundamental, monetary and technical market criteria.
Following the supportive market environment in April, the recovery continued in May. US technology stocks once again delivered particularly strong performance, while the Japanese equity market also posted notable gains. Overall, US markets once again outperformed European exchanges over the course of the month. At the sector level, technology, raw materials and consumer cyclicals were the main areas of strength globally. By contrast, energy stocks, utilities and consumer staples lagged somewhat.
Looking ahead to June, our overall stance remains constructive. That said, over the summer months the market environment is likely to be shaped initially by a more subdued trend. As the year progresses, especially from the fourth quarter onward, momentum could pick up again. Historically, the final quarter is often one of the stronger phases of the equity market year.
This view is supported primarily by the resilience of the US economy, which continues to show no clear signs of weakening. Growth prospects there remain more favourable than in Europe. A further tailwind comes from the fact that US industry continues to benefit from reshoring, data centre investment and semiconductor fabrication capacity. An environment of solid economic growth without renewed pressure for additional rate hikes is particularly supportive for the US. Against that backdrop, US equities are likely to outperform European stocks on a relative basis. Asia should also not be underestimated in this environment. Additional positive impulses could come from an easing of tensions in the Middle East and in Ukraine.
At the same time, Europe’s weaker economic momentum should not be equated one-to-one with equity market performance. One encouraging factor is that many European companies continue to generate solid free cash flow.
Opportunities we see:
Structural investment themes: In our view, themes with long-term structural tailwinds remain attractive. These include defence, infrastructure, the energy transition with continued grid expansion, and the digital space centred around AI and data centres. The Hong Kong property market also represents a specific opportunity.
US region: US equities are likely to perform better on a relative basis than European stocks. The more resilient economic backdrop and the overall more favourable macro environment continue to support the US market.
Asia region: Asia should not be underestimated in the current environment either. Prospects remain constructive in selected market segments.
Geopolitical easing: Any de-escalation in the Middle East and in Ukraine would be a clear positive catalyst for capital markets.
Selective stock-picking: Companies with strong to very strong free cash flow generation remain attractive. These quality characteristics can currently also be found frequently among European corporates.
Risks We Are Monitoring:
Iran / geopolitics: The most significant risk at present is a prolonged war in Iran. A sustained escalation could continue to weigh on markets.
Economic growth: A sharper slowdown in the US economy remains a risk. Overall, however, downside economic risks are currently more pronounced in the eurozone.
Interest rates in Europe: The prospect of further rate hikes would act as an additional drag on economic activity.
France / fiscal policy: Within the eurozone, France remains a particular risk factor. Debt accumulation is continuing. Over the medium term, fiscal policy in Europe could turn more restrictive after the expansionary phase in 2026/27.
IPOs / liquidity: The technical execution of several large upcoming IPOs presents a challenge. At the same time, such transactions could absorb a meaningful amount of market liquidity, thereby weighing on supply and demand dynamics.
US sovereign debt: The debate over the sustainability of US government debt also remains a risk factor. Rating agencies are increasingly questioning the durability of the fiscal position, particularly in light of significantly higher interest costs.
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