MARKET COMMENTARY – MAY 2026

April was a more positive month for investors, despite a difficult geopolitical backdrop. Tensions between the US and Iran continued to dominate headlines, with disruption in the Strait of Hormuz keeping oil prices elevated and Brent crude moving above $110 per barrel by month end. Markets were supported by the two-week ceasefire, which renewed investor confidence. Much of the uncertainty was ultimately ignored as investors focused on stronger earnings and renewed confidence. Much of the market movement was driven by artificial intelligence, and signs that companies linked to the technology supply chain continue to benefit from significant investment.

Global equity markets staged a strong recovery in April, reversing much of the pressure seen in March. The rally was led by a decisive move back into artificial intelligence related stocks, supported by renewed confidence in the technology supply chain. US markets reached new all-time highs with the S&P 500 returning 7.23%. Growth sectors such as technology stormed ahead, ahead of value sectors such as financials and consumer staples.

Emerging markets were a standout area. The MSCI Emerging Markets Index returned 11.32%, boosted by the steep rise in Taiwanese and South Korean markets where semiconductor manufacturers including TSMC and Hynix reaping the rewards of the huge expenditure on AI infrastructure.

US equities were supported by a strong earnings season, particularly from technology and financial companies. A high proportion of companies beat expectations, helping to renew investor confidence after earlier concerns around the profitability of artificial intelligence investment. However, the strength of the rally also means valuations remain sensitive to disappointment, particularly where expectations are already high.

Japanese and European equities also moved higher, gaining over 4%, although exposure to higher energy costs and weaker business activity are concerns. The UK market lagged other developed markets, with the FTSE All-Share returning 2.77%, the defensive composition was less helpful in a month when investors favoured growth and technology. UK inflation also moved higher, with markets pricing in the possibility of further Bank of England rate rises.

Fixed income markets delivered mixed returns with government bonds held back by renewed inflation concerns caused by higher oil prices. UK gilts saw little change but remained volatile as investors reassessed the outlook for interest rates, while US Treasuries fell with mounting concern over inflation caused by the ongoing conflict. Japanese government bonds also fell declined as investors anticipated further rate increases from the Bank of Japan.

Corporate debt more resilient, helped by the stronger equity backdrop and strong company earnings. Investment grade and high yield bonds benefited from narrowing spreads, with investors still attracted to corporate debt income. Emerging market debt also performed well, supported by higher yields and a stable US dollar.

Broad commodities indices advanced, with the volatile oil price rising 11.74% on supply concerns. Industrial metals continue to be supported by demand linked to the construction of AI data centres and related infrastructure. These moves generally benefited oil and commodity based companies but also reinforced concerns that higher energy and natural resources prices could keep inflation elevated for longer.

Overall, April was a strong month for markets, with investors looking beyond geopolitical risks, focusing on earnings growth and the artificial intelligence investment cycle. The range of investment opportunities broadened again, particularly across technology supply chains and selected emerging markets. Without a durable peace agreement between the US and Iran, risks remain significant however. A lasting disruption to the supply of energy and by-products such as fertiliser could push inflation higher, delaying or even reversing expected interest rate cuts. Conversely, if the Strait of Hormuz reopens sooner, energy prices and rate expectations could ease significantly. In this environment, maintaining diversification across regions, sectors and asset classes remains important, both to participate in areas of growth and to manage the risk of renewed volatility.

Total returns in GBP to 30/04/2026

                                                                                           *March 2026

Source of data: FE Analytics, www.bankofengland.co.uk, www.ons.gov.uk

This commentary in no way constitutes a solicitation of investment advice and should not be relied upon in making investment decisions. Past performance is not a reliable indicator of future results. The value of your investments can fall as well as rise and are not guaranteed.