Reflections of the CIO May 2026...

May was another month of very strong performance across global markets, although as has often been the case this year, the underlying path was far less straightforward than the headline returns might suggest.

Equities and government bonds both finished the month in positive territory, helped in large part by a late decline in oil prices and the continued strength of investor enthusiasm for artificial intelligence (AI) related companies. Beneath this, however, markets were grappling with a familiar combination of geopolitics, inflation concerns and shifting expectations around policy.

The month was again split into two halves, with the first proving much more difficult than the second. Benchmark government bonds globally were particularly weak in this early period, as yields rose sharply to reflect the future effects of a sustained period of high oil prices. With energy prices elevated following the disruption to supply through the Strait of Hormuz, markets were forced to consider the impact on inflation. The longer the oil price remains high, the greater the inflationary shock to the global economy, with higher inflation in turn implying higher interest rates or a slowdown in demand. [1] Neither outcome is particularly supportive for markets, explaining why both bonds and equities struggled during the opening weeks of May.

Eventually, sentiment began to shift. The outline of a memorandum of understanding between the United States and Iran was enough to reverse the move in oil markets, pushing the price lower and improving confidence more broadly. Oil prices, which had been elevated for much of the period, fell sharply into month end, declining by close to 20% from their recent highs.[2] This shift was enough to ease inflation concerns at the margin, allowing bond yields to stabilise and equity markets to move higher.

By the end of May, global stock markets had not only recovered from their earlier weakness but had pushed on to new highs in many cases, continuing a trend that has seen markets display a remarkable ability to look through geopolitical uncertainty.  However, as has been the case for some time, the strength of the equity rally has been far from broad-based.

Performance has remained heavily concentrated in the technology sector and, more specifically, in companies linked to the buildout of AI infrastructure. Strong earnings growth in this part of the market, combined with substantial ongoing capital investment, continues to drive returns and shape overall market direction. The scale of enthusiasm is perhaps best illustrated by developments in the primary market, where the prospective listing of SpaceX has been discussed at valuations approaching $1.75–$1.8 trillion, an extraordinary level for a business that remains at an early stage in translating its long term opportunities into consistent profitability.[3]

There were, however, some ‘warning shots’ within what was otherwise a strong month. Nvidia, for example, delivered another set of exceptionally strong results, with revenues rising by more than 85% year-on-year, yet the market reaction was notably muted.[4] This type of response can often be interpreted as an indication that a great deal of good news is already reflected in valuations. We also cannot dismiss the signals coming from bond markets. Inflation remains stubbornly persistent and, even with the recent fall in oil prices, could move higher again if energy markets remain volatile or if supply disruptions re-emerge.

The market data for May reflects this dynamic. Equities delivered strong returns overall, with global markets rising by over 5% during the month and more than 10% year to date, led by particularly strong performance in Japan and Asia. Fixed income returns were more modest but still positive, as the late fall in yields helped offset earlier weakness. In contrast, commodities declined over the month, driven primarily by the fall in oil prices, with Brent crude posting a double-digit negative return.

Looking forward, the near term outlook continues to be shaped by a tussle between several competing forces. The powerful tailwind from AI-related investment continues to support equity markets, while at the same time geopolitics, energy prices, inflation dynamics and central bank policy all exert significant influence in different directions. These cross currents make it more difficult to form strong convictions about the precise path ahead.

From the current starting point, it would be reasonable to expect some moderation in market progress after the strong gains seen so far this year, alongside a higher degree of volatility as these competing influences play out. As ever, forming a clear view is difficult in an environment such as this, and a degree of humility is required. The range of possible outcomes remains wide, but history suggests that periods of uncertainty such as this do eventually pass, even if the path in the meantime is not always a smooth one.