May performance only a trend slowdown from stagflation theme

May performance did not change the trend in asset prices. The global macro trends are still in place and the stagnation story still dominates thinking. There will be volatility caused by the switching between inflation or recession as the dominant theme. Higher inflation hits fixed income hard, but equities have not been immune from price increases from input costs. Higher recession fears cause a switch to fixed income from equities. The swings in stagflation thinking will impact views on monetary policy which also feedback to equity and bond markets.

The clear loser has been growth stocks which have been deeply affected by changes in the discount rate. Value stocks have served as an investment area of protection. Surprisingly, the mid cap and small cap indices have done slightly better than large caps. Clearly, the large cap growth and tech sectors have been affected by rising rates. 

With improvement in equities, there has been an improvement in credit markets. Long duration Treasuries were hurt by the continued talk of higher rates from the Fed. It is notable that TLT, BWX, and EMB, the core sovereign bond indices have all underperformed the major stock indices.