Once again investors showed their willingness to ignore geopolitical tensions and instead focus on fundamentals.

The US administration's aggressive approach to global trade dominated headlines, while Italy's new eurosceptic government added to market concerns. But it was excellent corporate earnings in the US and a strong dollar which had the most impact on financial markets in May.

The strength of the first quarter's earnings season in the US should not be underestimated. At the index level, the S&P 500 earnings per share growth was 24% year on year and profit margins improved to a new record of 11%. So far, three-quarters of companies in the index have reported better earnings than expected.

Investors understandably welcomed these strong results, and the US market rose 5.3% in the month in sterling terms, following a similar percentage gain in April. After a difficult start to 2018, the S&P 500 index is now the best performing market within our strategic asset allocation, rising 3.4%.

It was also another good month for UK equities, albeit a full two percentage points behind the US. The uncertainties around Brexit continue, but our commodity and financials heavy index benefitted from rising oil prices and rising interest rate expectations respectively. The FTSE All-Share also continues to trade at a discount to other markets, attracting value investors.

By contrast, emerging market and European equities both recorded small negative returns in the month, -0.6% and -0.1% respectively.

For Europe, economic data was mixed - eurozone unemployment fell to 8.5%, and consumer confidence remains close to a 17-year high. However, concerns about global trade and a higher oil price appear to be weighing on corporate sentiment.

In addition, the Italian government coalition of the Five Star Movement and the League provides additional uncertainty to the Eurozone's third-largest economy.

Within emerging markets, the strong dollar continued to heap pressure on countries with high levels of dollar-denominated debt. Countries such as Argentina, Turkey and South Africa all saw large currency falls in May. Mention must also be made of Latin America, the worst performing EM region, which fell 11% in sterling terms.

It was also a better month for fixed income investors. Sovereign bonds were in demand towards the end of the month, particularly around the Italian government events, and led to a 1.6% return from UK Gilts, and 2.0% return from overseas sovereigns.

Guy Myles Chairman, Flying Colours Investment Committee