Written by Lloyd Adams, TEAM Plc

An adage states that Mr. Market tends to inflict the greatest amount of pain on the greatest number of participants. Wildly unpredictable policy gyrations in the White House, fears over the outlook for corporate profits, and the unsustainable path of mounting G7 government deficits were all seemingly good reasons for money managers to batten down the hatches during May.

Yet global equities surged, with the MSCI World Index up almost 5% in sterling terms—its best month in six—as investors warmly embraced the ‘TACO’ trade. Pithily coined by Financial Times columnist Robert Armstrong, the term encapsulates the notion that (President) “Trump Always Chickens Out” on trade policies, particularly in relation to his beloved tariffs, and that risky assets rise in response.

Trump’s latest TACO offering concerned Europe, with the Donald performing a volte-face less than 72 hours after threatening a straight 50% tariff on all EU exports, following a “very nice” phone call with European Commission President Ursula von der Leyen. The White House administration is seeking to close a $230 billion trade deficit with the EU, and the two leaders agreed to push back the deadline for reaching an agreement to July 9.

Tech giants pushed the technology-laden Nasdaq 100 up 8.6% over the month, with market darling Nvidia delivering top-line and bottom-line earnings results that assuaged fears over weakening demand for AI-related chips—at least in the short term. Note that the Magnificent 7 (Apple Inc., Microsoft Corporation, Amazon.com Inc., Nvidia Corporation, Alphabet Inc., Meta Platforms Inc., and Tesla Inc.) have accounted for well over half of the S&P 500 Index return since the lows in early April.

European equities followed suit, with the MSCI Europe ex-UK Index rising 5.1%, as TACO-driven optimism about U.S.–EU trade talks boosted technology and export-oriented cyclicals. The UK’s FTSE All-Share underperformed slightly, returning 4%, as defensive sectors like utilities and healthcare faced pressures from rising G7 bond yields and U.S. drug pricing reforms. Emerging markets—particularly Taiwan (+12%) and South Korea (+7.8%)—surged on AI and semiconductor demand, aided by a weaker U.S. dollar.

Fixed income markets faced some turbulence, with the Bloomberg Global Aggregate Index down 0.5%. A major development in recent weeks has been the sustained rise in global long-duration bond yields. This reflects a combination of fiscal concerns on financing existing government debt mountains and planned fiscal largesse, leading to weaker demand at long-dated auctions. While America has dominated the narrative in this regard, Japan, Germany, and UK government bond yields have risen far more sharply.

Similar selling pressure has not been witnessed within the investment-grade corporate bond and high-yield corporate bond sectors, both of which have seen substantial spread compression (indicating a rosier outlook for companies) since the carnage of early April. The journey spreads have taken over the past six weeks in both sectors also suggests that an outright recession led by the U.S. will likely be avoided.

Commodities were mixed. Oil prices stabilized at over $60 per barrel, supported by OPEC+ supply tweaks but restrained somewhat by ongoing demand concerns. The most interesting development was arguably in the gold space. Recent front-page headlines about the $3,500-an-ounce level being achieved attracted a flurry of late-to-the-party ETF buying—only for the yellow metal to correct by -10% intramonth, as TACO-driven risk-on sentiment reduced haven demand. A classic washout.

Portfolio Positioning

The S&P 500’s 20% V-shaped rally from the early April lows has been among the most ferocious and impressive in recent history. Yet, despite the noisy headlines, the reality is that most major markets remain essentially flat for the year so far. The marginal buyer remains a “buy the dip” retail investor who has steadfastly ploughed more than $80 billion into U.S. equities via ETFs and single stocks in April and May alone.

Our investment framework indicates that the prevailing view of “U.S. exceptionalism,” which peaked with Trump’s euphoric election victory and dominated portfolio positioning in the fourth quarter of 2024, marked the beginning of a steady drift of asset migration away from America—specifically, Nvidia and AI-related technology, the dollar, and ‘not-so-safe’ U.S. Treasuries—into international markets.

The strategy of blending safe, short-term U.S. Treasuries with seemingly impervious “risk-on” mega-cap technology shares (including Nvidia) brought with it an exceptional short-term risk-adjusted return profile—but also a generous helping of concentration risk, correlation risk, and currency risk. This is now beginning to be more carefully appreciated. An unwind is underway, although we don’t anticipate an extreme one-off event.

TEAM’s equity exposure continues to exhibit a balanced tilt between U.S. and ex-U.S. markets—specifically Europe (relative valuation merit, fiscal largesse catalysts, well-capitalised banking and insurance sectors), India (valuation reset, global tariff insulation, rate-cutting cycle that should boost housing and consumption), and Chinese technology shares (steep discount to Magnificent 7 valuations, earnings growth inflecting upwards, stellar operational performance not reflected in current prices).

Within fixed income, physical gold has replaced our long-duration bond exposure given the backdrop of mounting government deficits and a wall of supply this year that could create refinancing problems for weaker companies. Our preference in the space remains high-quality investment-grade corporate credits and financial hybrid bonds issued by well-capitalised European banks and insurance companies.

Gold remains essential portfolio insurance, while selective high-quality precious metal mining stocks offer excellent upside potential. Following an extended period of industry consolidation and renewed focus on capital efficiency, the survivors are making hay. At current spot prices (both gold and silver), significant cash flow generation offers scope for meaningful share buybacks and/or special dividends through this bull market cycle.