The S&P/ASX 200 Index (ASX: XJO) and the S&P/ASX All Ordinaries Index (ASX: XAO) both increased 4.2% in May after President Trump announced he'd pause the majority of tariffs due to stock market volatility. 

Under the President's plan, announced in April, countries face between 11% and 100% tariffs on goods brought into the US.

The Australian share market has now rebounded nearly 18% from its low in April.

However, in a recent note to investors, Macquarie Group Ltd (ASX: MQG) commented that despite the gains, Australia still underperformed global equities in May, with the S&P 500 Index (SP: .INX) +6.5%. 

Australia's lower tech exposure, the main sector driving the global equity rally, is cited as a reason for its equity underperformance.

Australia's gain in May was largely driven by P/E expansion, which added 4.2ppt to returns. 

After the rally, Macquarie notes that the ASX 200 forward price-to-earnings ratio (PER) for the ASX 200 stands at 18.8x, matching the highs seen after Trump's election victory in November 2024.

Sectors supporting Australia's equity markets in May

According to Macquarie's note, Australia's technology sector was by far the best performer in May, climbing 18.8% over the month.

The increase was supported by solid earnings updates, a return of AI trade, and Reserve Bank interest rate cuts.

Life360 Inc (ASX: 360) was the strongest performer in the sector. Its share price soared 51.9% over the month as investors rushed to buy the company's shares following its first-quarter update.

For the three months to 31 March, Life360 posted a 32% increase in revenue to US$103.6 million. This was driven by a 33% increase in total subscription revenue to US$81.9 million. Core subscription revenue lifted 37% to US$76.2 million.

TechnologyOne Ltd (ASX: TNE), WiseTech Global Ltd (ASX: WTC), Xero Ltd (ASX: XRO), and Nextdc Ltd (ASX: NXT) all also posted double-digit gains for May.

TechnologyOne's share price jumped 36.8% over the period following the company's 1H FY25 report. For the six months ended 31 March, the tech stock reported a 19% increase in revenue to $291.3 million. It also reported a 21% jump in annualised recurring revenue (ARR) to $511.1 million. The result meant the company reached its $500 million ARR target 18 months ahead of schedule.

WiseTech's share price rose 21% throughout May after a strong half-year result.

Xero's share price jumped 12.2% in May. Again, this was due to strong FY25 results supported by the business' strong competitive advantage and continued revenue growth.

NextDc's share price increased by 10.8% over the same period. The share price was driven by investors who sought positions on anything linked to AI amid an AI boom.

Elsewhere, the Gold sector was another solid performer, up 10.5% over the month as earnings upgrades continue. The gold price was flat in May.

… and the worst-performing sectors

Defensives were the worst sectors, consistent with the market rally, Macquarie said.

Utilities (+0.3%) was the worst performer, followed by Staples (+1.2%) and Health (+1.4%). 

The 3.3% fall in Consumer Services was the worst among cyclical groups and was driven by earnings downgrades. IDP Education Ltd (ASX: IEL), down 12%, and Aristocrat Leisure Ltd (ASX: ALL), down 6%, drove the group's decline.