May 2026 Market Update

Treasury yields that had increased to multi-year highs mid-month as inflation accelerated, receded slightly by month end as rate-change expectations adjusted. Despite persistent inflation and fixed income volatility, equity markets rallied to fresh all-time highs, powered by technology and broadening AI-related earnings strength.

April 2026

Macroeconomics

The April BLS jobs report was stronger than anticipated with payrolls increasing by 115,000 while prior months were reduced by a combined 16,000 jobs as the unemployment rate held at 4.3 percent. The Consumer Price Index (CPI) rose at an annualized rate of 3.8 percent in April, driven mainly by energy prices that are 18 percent higher. The Fed’s preferred measure of core Personal Consumption Expenditures (PCE) that excludes food and energy, rose at an annualized rate of 3.3 percent in April.

Warsh expressed an alternative approach to calibrate inflation. One measure under consideration is the Dallas Fed’s Trimmed Mean PCE that reported an annualized rate of 2.3 percent in April. The Commerce Department’s PCE has been the Fed’s favored yardstick versus CPI, as it captures a broader range of spending and adjusts for how consumers shift between products as prices change. The Trimmed Mean PCE systematically excludes price changes above and below certain percentile thresholds.

The Conference Board Consumer Confidence Index survey declined a bit in May to 93.1 on pricing pressures. The Personal Savings Rate as a percentage of disposable income was 2.6% in April and down from 3.6 percent in February – a declining trend suggesting consumers are relying more on savings to pay bills. The ISM US Manufacturing Purchasing Manager Index (PMI) increased in May 54.0, which was the fifth straight month of expansion with most underlying components increasing.

Equity Markets

Markets rose in May as the S&P 500 gained 5.3 percent, reaching eleven record highs during the month and closing at 7580 on the final day. Sector performance varied widely, with Information Technology (+16.0 percent) along with Consumer Discretionary (+2.6 percent) and Healthcare (2.5 percent) leading, while most other sectors were negative with Energy (-5.6 percent) the laggard. All major indices were positive during the month; large-capitalization stocks outperformed small- and mid-cap stocks on a relative basis. Growth outperformed value on a relative basis, while the equal‑weighted index underperformed the cap‑weighted index.

International equity markets were also positive this month with emerging markets (EM) up +9.7 percent and developed markets (EAFE) up +3.1 percent. EM performance by region was led by Asia (+11.9 percent), followed by Eastern Europe (+3.4 percent) and Latin America (-4.7 percent). EAFE performance by region was led by Asia (+3.8 percent) and followed by Europe (+2.8 percent). Netherlands (+9.3 percent) and followed by Japan (5.0 percent) led major developed market economies, while Korea (+35.3 percent) led emerging countries.

Fixed Income Markets

Fixed income markets remained in a state of heightened volatility with the Bloomberg US Aggregate Index positive at +0.3 percent. The U.S. Treasury yield curve flattened as yields rose across the middle from 4-months to 10-years amid concerns about elevated inflation, economic growth declaration and new Fed leadership. Investment-grade (IG) corporates and high yield spreads remained stable amid resilient fundamentals, while mortgage-backed securities benefited from lower prepayment risks as rates remain elevated to enhance cash flow stability.

Looking Ahead

Markets will continue to juggle the complex backdrop of uncertainty regarding energy prices, inflation trajectories, global growth and evolving central bank rate policy under new leadership. The dynamic of unsettled geopolitical risks in the Middle East and strong corporate earnings driven by AI-related investments will continue to be central themes influencing market sentiments. A successful completion of a pending peace deal with Iran would be a significant factor in sustaining risk-on equity momentum while also stabilizing fixed income markets.