MARKET COMMENTARY – JUNE 2026

May continued the positive momentum seen in April, supported by explosive growth from the Artificial Intelligence sector. Market sentiment remained broadly positive, driven by heightened expectations of subsiding geopolitical tensions, though progress remained limited with negotiations proving strained.

Oil prices fell sharply during the month, dropping below $100 per barrel after remaining above $110 for much of the period, though prices remained well ahead of pre-war levels. The decline reflected growing optimism that disruption to shipping through the Strait of Hormuz could prove temporary. However, the speed at which energy markets return to more normal conditions will depend on how quickly transport routes and supply chains can be fully restored.

Global equity markets delivered strong returns. Investors were encouraged by resilient economic data, strong corporate earnings and easing concerns over the longer-term impact of higher energy prices. Volatility remained relatively subdued across equity markets despite the uncertain geopolitical backdrop.

Growth sectors once again outperformed value, supported by ongoing enthusiasm for AI and the companies benefiting from the tremendous amount of investment in related infrastructure. US equities moved significantly higher, with the S&P 500 rising (+6% GBP in May), with technology stocks leading gains as strong earnings reassured investors that spending on AI remains a significant driver of growth. Demand for advanced semiconductors and related technologies continued to support market leaders across the sector.

Emerging markets have been a standout performer this year, with further gains in May. Markets in Taiwan and South Korea delivered particularly impressive returns, benefiting from exposure to the global AI supply chain. Investors continued to favour these regions as a way of gaining exposure to the growth of AI while also benefiting from attractive earnings momentum.

European and Japanese equities also advanced during the month. European markets recovered from earlier weakness as expectations grew that a diplomatic solution to the Iran conflict could eventually reduce pressure on energy prices. In Japan, encouraging economic growth and supportive domestic conditions helped sustain positive market performance.

The UK market delivered positive returns but lagged many global peers. The more defensive composition was less suited to an environment where investors favoured higher-growth sectors, particularly technology. Fixed income markets experienced a mixed month. Government bond yields were volatile as investors responded to changing expectations around inflation, energy prices and central bank policy. Political uncertainty added to pressures, while debate around inflation and interest rates contributed to periods of volatility primarily affecting domestically focused companies. However, falling oil prices towards month end helped ease some inflation concerns, allowing bond markets to recover part of their earlier losses. The Bloomberg Global Aggregate Bond Index finished the month modestly higher.  Corporate bonds remained relatively resilient, supported by healthy company fundamentals and stronger equity markets. Both investment grade and high yield debt benefited from continued investor demand for income, while emerging market debt also delivered positive returns.

Commodity markets declined overall as energy prices retreated from their recent highs. The fall in oil prices provided some relief to inflation expectations, although prices remain above levels seen before the recent conflict. Industrial metals continued to benefit from structural demand linked to the expansion of AI infrastructure and data centre construction.

Overall, May was another positive month for investors and stock markets have delivered strong year to date gains, albeit with some volatility. Markets remain focused on strong corporate earnings, resilient economic activity and the long-term investment opportunities created by AI. The prospect of improving relations between the US and Iran and the eventual reopening of the Strait of Hormuz provides further support. While risks remain, especially if negotiations fail to deliver a lasting agreement, easing energy prices and improving investor confidence have helped broaden the opportunity set across asset classes. In this environment, maintaining diversification across regions, sectors and asset classes remains important to capture growth opportunities while managing ongoing geopolitical and market uncertainty.

Total returns in GBP to 31/05/2026

*April 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.