Markets remained in holding pattern throughout May.
Semiconductors soar on AI promises
The promises of a revolution based on artificial intelligence (AI) continued to be the dominant narrative and driving force of U.S. markets. Semiconductor and Graphic Processing Unit (GPU) manufacturers have so far been the main beneficiary of the AI rally, with Nvidia up over 170% and Advanced Micro Devices up over 90% year-to-date.
U.S. avoids catastrophic debt default
The U.S. government was able to agree on a bipartisan deal to raise the $31.4 trillion U.S. debt ceiling prior to the June 5th deadline set by the Treasury that would have resulted in suspending payments. This marks the 90th consecutive increase to the debt limit since the debt limit was first enacted in 1917 through the Second Liberty Bond Act, the U.S.
The deal that ultimately passed through Congress, did not raise the limit to a certain level, instead the limit was suspended entirely until 2025.
Economic slowdown in Germany and China
Germany technically entered a recession in the first quarter of 2023 as GDP growth contracted by 0.5 percent year-on-year, revised from the preliminary estimate of a 0.1 percent decline. This was primarily due to persistently high inflation and increased borrowing costs, despite Eurozone’s inflation rate moderating faster than expected. Likewise hopes for China’s post-lockdown economic boost is quickly losing momentum as recent economic data surprised to the downside. The Citi economic surprise index has reversed following consecutive positive surprises at the beginning of the year following the re-opening of the economy.