Market Summary: May 2026
The overall theme for May 2026 was a continued reversal in 2025 performance, with US assets generally outperforming peers, lagging only Asia Pacific. However, much of Asia Pacific’s performance was driven by AI, the principal factor contributing to stronger relative US performance. The stress of the Iran conflict was beginning to subside, and markets were skeptically optimistic that the April 8 ceasefire would transmogrify into a lasting resolution. However, analysts remained concerned that even a full reopening of the Strait of Hormuz would not result in a rapid return to normal for the energy markets. Thus, inflation expectations were softening but persisted above pre-conflict estimates.
US Market
US markets were buoyed higher by gains in the technology sector, as well as a rotation back into US denominated assets. The dollar, as proxied by the UUP, closed up 1.19% for the month, while YTD the index climbed 2.25%, continuing the overall upward trend in the dollar, resulting in a 1-year performance of +4.30%.
Volatility eased, as proxied by the VIXY, which was down 14.41%, which is consistent with relatively calm or recovering equity market.
Top performing sectors included utilities, energy, and technology and growth.
April non-farm payrolls exceeded expectations at 115,000, with unemployment remaining at 4.3%. Inflation was surprisingly strong, with the CPI up 3.8% YoY, and the PPI up 1.4% MoM. Manufacturing, represented by the PMI, was bullish at 55.3, the highest in 4 years, while services PMI was down to 50.9. Meanwhile, US Q1 GDP was revised down from 2.0% to 1.6%.
International Markets
Europe
European markets were higher, though at a slower pace than 2025. Both automobiles and luxury goods remained weak, while Germany’s infrastructure spending provided much needed growth capital.
Eurozone CPI settled at 3.0%, with year-end inflation expected to hit 3.2%, the highest since 2023. Overall, Europe struggled with slower expansion, elevated inflationary risks, and energy shocks. S&P Global expects slower growth from Europe, with its global growth forecast now at 2.2% vs 2.9% in February. Eurozone services PMI fell to its lowest level in 5-years, at 46.4. Manufacturing continued to expand, with a PMI of 51.4, but it did so at a slower rate.
Technology was the strongest sector, followed by basic resources, and travel and leisure.
Asia Pacific
Japan equities rose, fueled by AI-related technology stocks. Japanese CPI was down to 1.4% YoY, but wholesale inflation was up 4.9% YoY, the fastest pace in 3 years.
As proxied by VPL, Asia Pacific experienced strong gains at 8.47% for the year, and 28.39% YTD. Like Japan and the US, AI was the story in Asia, with South Korea and Taiwan leading the charge.
However, China was lower, with the iShares MSCI China ETF falling 4.12% MoM.
Australia raised rates for the third time, and the ASX rose 1.4%.
Emerging Markets
Led largely by South Korea and Taiwan, emerging markets rose 1.98% as proxied by the Vanguard FTSE Emerging Markets ETF. Meanwhile, Indian markets struggled, carried lower by sustained currency weakness due to pressure on foreign exchange reserves.
Fixed Income
Sovereign yields rose, particularly on the long-dated side.
In the US, the 10-year and 2-year spread narrowed, with investors expressing growing concern over a potentially more hawkish Fed. The 30-year climbed to over 5% before closing the month at 4.79%.
European bond yields fell, with the 10-year bund dropping 10 bps. In the UK, the 10-year gilt yield fell 20 points.
Japanese government bond yields rose due to the expectation of continued tightening at the Bank of Japan.
Asset Class | ETF Name | Ticker | 1Mo Return | YTD Return | 1-Year Return |
US Market | Vanguard Total Stock Market ETF | VTI | +5.16% | +11.44% | +29.85% |
Global | Vanguard Total World Stock ETF | VT | +4.62% | +12.37% | +30.49% |
Europe | Vanguard FTSE Europe ETF | VGK | +2.10% | +7.27% | +20.01% |
Japan | iShares MSCI Japan ETF | EWJ | +4.14% | +15.62% | +31.45% |
Emerging Markets | Vanguard FTSE Emerging Markets ETF | VWO | +1.98% | +11.26% | +30.65% |
China | iShares MSCI China ETF | MCHI | -4.12% | -8.57% | +6.50% |
Asia Pacific | Vanguard FTSE Pacific ETF | VPL | +8.47% | +28.39% | +52.70% |
Commodities | USCF SummerHaven Dyn Cmdty Stgy No K-1 ETF | SDCI | -2.00% | +26.27% | +40.98% |
Gold | SPDR Gold Shares | GLD | -2.41% | +1.62% | +23.46% |
Oil | United States Oil Fund | USO | -12.84% | +85.27% | +90.88% |
US Dollar Index | Invesco DB US Dollar Bullish | UUP | +1.19% | +2.25% | +4.30% |
US Govt Bond (~1-Year) | iShares 1-3 Year Treasury Bond ETF | SHY | +0.09% | +0.52% | +3.34% |
US Govt Bond (~5-Year) | iShares 3-7 Year Treasury Bond ETF | IEI | -0.13% | -0.16% | +3.26% |
US Govt Bond (~10-Year) | iShares 7-10 Year Treasury Bond ETF | IEF | -0.05% | -0.30% | +3.96% |
US Govt Bond (20+ Year) | iShares 20+ Year Treasury Bond ETF | TLT | +0.51% | -0.25% | +3.89% |
VIX | ProShares VIX Short-Term Futures ETF | VIXY | -14.41% | -9.74% | -55.86% |
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