Monthly Market Update – May 2026

Economic growth: Slower but still positive

The global economy in May 2026 remained in expansion, but at a more modest pace than earlier in the year, with estimates for 2026 growth marked down to around 2.2% from roughly 2.9% as higher energy costs and tighter financial conditions weighed on activity. In the United States, real GDP grew at about a 2.0% annualized rate in the first quarter, pointing to an environment best characterized as “moderate growth” rather than boom or recession, with the economy still resilient but clearly cooling.

This combination of slower global growth alongside a still-expanding U.S. reinforced a soft-landing narrative rather than signaling an imminent global downturn. For investors, May’s backdrop remained one in which economic activity continues to support corporate earnings, even if the underlying growth impulse is less robust than in earlier stages of the cycle.

Inflation and interest rates: pressures remain

Inflation pressures in May remained persistent, especially through the energy channel, with disruptions in the Middle East and heightened tensions around the Strait of Hormuz keeping oil prices volatile and slowing the decline in headline inflation. Across regions, inflation in several advanced economies stayed above central bank targets, with energy and services prices continuing to play a significant role, and global projections suggested that inflation is likely to edge up in 2026 before gradually easing into 2027.

In this environment, expectations for interest rates shifted further toward a “higher for longer” path, as multiple central banks either kept policy firmly in restrictive territory or implemented additional rate increases. For the United States and other major economies, the prevailing outlook in May was one where moderate growth and unemployment rates in the mid‑4% range coexist with tight monetary policy, implying that the peak in inflation is likely behind but the journey back to target will be drawn out rather than rapid.

Markets: Equity strength amid crosscurrents

Financial markets in May processed the combination of slower growth and persistent inflation in a way that continued to favor risk assets, particularly equities. Global equity indices reached or approached new all-time highs after a strong April, leaving stocks near record territory even as the macro backdrop remained mixed.

Leadership was still concentrated in U.S. markets and sectors linked to technology and artificial intelligence, where enthusiasm around productivity gains and earnings growth remained a key driver of performance. This concentration meant that, despite strong headline index levels, underlying market breadth was more uneven, with many areas lagging the largest growth and AI-related names.

Fixed income markets told a different story, as investors reassessed the timing and extent of future rate cuts and pushed sovereign yields higher. For diversified portfolios, this created a familiar tension between buoyant equity returns and renewed pressure on bond prices as yields adjusted to a “higher for longer” policy and inflation outlook.

Sentiment and confidence: Cautious beneath the surface

Major equity indices continued to trade near record levels in May, but sentiment data showed consumers taking a more cautious view of conditions. The US Consumer Confidence Index edged lower, with respondents reporting softer assessments of current business conditions and the labor market.

This dip in confidence occurred alongside an ongoing stock market rally and still-strong labor headlines, highlighting a divergence between financial market performance and household perceptions. At the same time, geopolitical tensions and the risk of energy-related shocks remained important sources of macro uncertainty, reinforcing a sense of unease beneath the surface of headline asset prices.

Such divergences are common late in economic cycles, and May’s data fit that pattern: asset prices reflected optimism about earnings and innovation, while consumers and policymakers stayed sensitive to inflation, borrowing costs and geopolitical risks. The result was an environment that remained supportive in many respects but also complex, with constructive and challenging forces coexisting rather than pointing in a single clear direction.

Thank you for taking the time to review this month’s update. May 2026 underscored that markets can continue to make progress even as growth moderates, inflation pressures linger and confidence remains uneven, with equities still drawing support from solid economic activity and ongoing enthusiasm for large‑cap technology and AI‑related leaders.

At the same time, elevated energy prices, higher bond yields, and a slower path toward lower policy rates remain key features of today’s landscape, and the environment continues to be constructive but defined by meaningful crosscurrents that we will monitor closely on your behalf.