Italian equity market rebounds in May: what comes next?

In May, major global equity indices delivered mostly positive returns: Italy’s FTSE MIB rose by 6.8%, the Stoxx Europe 600 gained 4.3%, the S&P 600 added 4.3%, and the Nasdaq advanced by 7.5% in local currency terms (total return).

Market attention is currently centered on the evolving landscape of Italian banking sector consolidation, with a significant new development emerging: Mediobanca has announced the sale of its 13.4% stake in Assicurazioni Generali in order to launch a public exchange offer (OPS) for 100% of Banca Generali. Notably, over 40% of Banca Generali’s capital is held by Generali itself. This move is widely seen as a response to the earlier OPS launched by Banca Monte dei Paschi targeting Mediobanca.

This latest development adds another layer of complexity to an already crowded M&A environment in the Italian banking sector, characterized by a high number of transactions within a short timeframe. In addition to the two deals mentioned above, UniCredit has made a bid for Banco BPM, BPER has launched an offer for Banca Popolare di Sondrio, and Banca Ifis has targeted Illimity.

Looking beyond the short term, we believe the sector-wide consolidation process, once complete, will result in a more profitable and efficient banking system, driven by a smaller number of players with increased market share.

Over the past few months, both the financial and utility sectors have delivered strong performances, despite having fundamentally opposing drivers. In an environment of rising interest rate expectations, financials tend to outperform thanks to expanding net interest margins. Conversely, the utility sector—typically linked to long-duration assets—tends to underperform, as the present value of future earnings is discounted more heavily. However, despite the recent rise in interest rates, utility stocks have undergone a rerating, meaning prices have increased despite unchanged fundamentals. We believe current valuations in the sector are now relatively full, making it less attractive in the near term.

Meanwhile, the luxury sector continues to face pressure due to limited visibility on the recovery of the Chinese consumer—historically a key growth driver for the industry. Expectations now point toward a normalization of spending patterns. Additionally, short-term uncertainty stemming from tariffs has contributed, albeit marginally, to a temporary slowdown in discretionary spending, even among Ultra High Net Worth Individuals (UHNWIs)—a demographic theoretically less sensitive, though not entirely immune, to macroeconomic cycles.

In recent weeks, mid-cap stocks have begun to recover relative to large caps, marking a partial closing of the performance gap that has persisted for several quarters. We view this as an early and encouraging sign of renewed investor interest in the SME segment—though the rebound so far has been limited to medium-sized companies. For this trend to become sustainable, we believe greater macroeconomic visibility and stability in the global cycle will be required. Key factors will include resolution of the ongoing U.S.-China trade tensions and geopolitical conflicts.

Commentary by Massimo Trabattoni, Head of Italian Equity