Easing Middle East tensions and falling oil prices helped lift global equities and bond markets, reducing inflation concerns.
Equity gains were led by a narrow group of technology and semiconductor stocks, particularly in the US and Asia.
Inflation trends diverged across regions, while growth concerns persisted in Europe and China despite resilient labour markets in the US.
May 2026 saw an improvement in global market sentiment as signs of easing tensions in the Middle East and a sharp fall in oil prices reduced fears of persistent inflation and stagflation. Equity markets moved higher, led by technology and AI‑related sectors, although gains remained concentrated in a narrow group of stocks. Inflation trends were mixed across regions, while growth concerns persisted, particularly in Europe and China. Bond markets recovered alongside improving sentiment, with tightening credit spreads supporting returns, although expectations for further policy tightening remained a key influence in the US.
European equity markets edged higher in May, supported by falling oil prices and easing geopolitical concerns. Gains were led by technology stocks amid continued AI‑driven optimism, while energy and utilities lagged as oil prices declined. Inflation rose further, driven primarily by services, adding to pressure on the European Central Bank to tighten policy. At the same time, the growth outlook weakened, with the European Commission downgrading its GDP forecasts, highlighting the ongoing economic impact of recent energy shocks.
UK equities advanced in May as optimism around a potential peace agreement supported sentiment. Inflation fell more than expected, driven largely by lower energy costs, while economic growth surprised on the upside in the first quarter. However, underlying conditions remained mixed, with signs of a softening labour market, declining vacancies and weaker retail sales pointing to pressure on consumers despite improving confidence.
US equity markets continued to perform strongly, with major indices reaching new highs, supported by robust AI‑driven earnings and improving sentiment as geopolitical tensions eased. Inflation rose further, largely reflecting higher energy prices, while underlying price pressures remained more contained. The labour market showed continued resilience, although economic growth was revised lower, suggesting some moderation in overall activity despite strong market performance.
Asian equity markets delivered strong gains in May, outperforming developed markets, although performance remained highly concentrated in a small number of technology and semiconductor stocks. Korea and Taiwan led advances on the back of continued AI‑related demand, while Japan also benefited from strength in technology sectors. In contrast, China underperformed amid weaker economic data and ongoing concerns around domestic demand, highlighting an uneven regional outlook.
Emerging market equities moved higher overall, although performance varied significantly across regions. Gains were driven primarily by North Asian markets, particularly Korea and Taiwan, where semiconductor demand remained strong. Elsewhere, China lagged due to weaker domestic activity, while India remained broadly flat amid external headwinds. Latin America delivered mixed results, with tighter monetary conditions weighing on Brazil, while other markets benefited from commodity strength.
Global bond markets recovered in May as improving sentiment and easing geopolitical risks supported demand. UK gilts outperformed, benefiting from softer inflation data, while US treasuries lagged amid expectations of further policy tightening. Corporate bonds delivered strong returns, supported by tightening credit spreads across both investment grade and high yield markets, reflecting resilient investor appetite despite ongoing macro uncertainty.
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