During the month of May, the equity markets showed a solid recovery; the main stock indexes, the S&P 500, ACWI* and NASDAQ, registered returns of 6.15%, 5.51% and 9.56%, respectively. The NASDAQ, composed mainly of technology companies, was one of the biggest beneficiaries, almost completely recovering its accumulated losses for the year. On the other hand, within the fixed income markets, High Yield bonds stood out, which were supported by the still resilient economic data of the U.S. economy and obtained a gain of 1.68% during the month.

Investor optimism was driven by a more favorable outlook regarding global trade issues, as well as corporate reports for the first quarter of the year. At the end of the reporting season, major U.S. companies continued to show positive performance with 78% beating expectations in earnings. Results reflected a year-over-year increase in sales of 4.9%, while earnings increased by 13.3%, both metrics showing a solid growth trend. One of the reports that generated the most market attention was that of Nvidia (NVDA); although the company missed earnings expectations due to a $4.5 billion non-recurring charge related to restrictions on its sales in China, Nvidia CEO Jensen Huang presented an upbeat forward guidance, which continued to boost the stock.

On the fiscal front in the US, the possible approval of a new tax law by the Trump administration generated criticism. This legislation includes significant cuts in social programs and tax adjustments that, according to US Congress estimates, could leave more than 10 million people without health coverage by 2034. In addition, the fiscal deficit is projected to increase by at least $3 trillion over the next decade if these initiatives are adopted. This has created an environment of high political polarization and concern about the long-term sustainability of public finances. It is this outlook that recently prompted Moody's to downgrade the U.S. sovereign debt rating by one notch to Aa1.

Finally, in the local market, Mexico's economy faces its own set of challenges. During May, annual inflation rebounded to 4.42%, driven mainly by agricultural products such as chicken, beef, tomatoes and papaya. Core inflation, which excludes volatile prices, also rebounded slightly to 4.06%. We expect prices to remain around these levels, allowing Banxico to continue with its rate cuts to boost a slowing economy. For the June 26 meeting, we estimate that the rate will be cut by 50bp to bring the benchmark rate to 8.00%.

In the foreign exchange market, the dollar continued its generalized devaluation against world currencies, accumulating a devaluation of 6.67% with respect to the peso, closing the month at $19.44. We do not anticipate devaluation pressures for the peso in the near future, so it is likely to remain at these levels or even strengthen.

‍