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16th June 2026
Cappuccino Commentary
May 2026 Review
In spite of the conflict in the Middle East, equity markets and risk assets delivered strong returns. The mood music seemed to be that a resolution was strongly favoured by both sides, but the conflict continued to roll on past its 100-day anniversary. Outside of this, markets were generally buoyed by the euphoria around artificial intelligence (AI) investments coupled with some strong fundamental earnings from many corporates in the US. “Magnificent Seven” firms, Amazon, Alphabet and Microsoft all demonstrated returns from their AI investments as their computing units benefited from the intense demand for AI infrastructure. Later in the month, the world’s most valuable company, Nividia, posted stronger than expected earnings with data centre revenue doubling in the last quarter. AI spending helped US GDP rise to 2% in the first quarter of 2026, however May’s reading wasn’t enough to stop US public debt exceeding US annual GDP for the first time since World War Two.
The best performing equity region for the month was Emerging Markets which posted a positive return of over 10%. However, when you start to dig a little deeper, across the Emerging and Asian countries the returns were very different. Again, the AI theme helped drive markets such as South Korea and Taiwan higher thanks to their role in the AI supply chain. However, China did not benefit and their equity market was negative for the month, down nearly 3% on the back of weak domestic sales and industrial production. The broad Asia equity index returned 1.4%, substantially less than the emerging market index. Though Europe has delivered mixed economic data and inflation has been stickier than expected, the region delivered a healthy equity return of nearly 6% on the back of the deescalation of tensions in the Middle East.
The US equity market was up nearly 7% on the back of the AI trend. The AI boom dominated US market growth over the month, with the US information technology sector up 17% in May. Having delivered a stronger-than-expected Q1 GDP number (+2.1% growth), Japanese equities generated returns over 7%. The UK equity market delivered decent if less spectacular returns than many other regions – 2% over the month. In this risk-on environment, broad commodities posted marginally positive return, while gold seemed to lose a bit of its shine and was fractionally negative for the month.
Fixed income markets were volatile over the month as yields contracted and increased based on expectations of shifts in inflation and central bank rhetoric. Kevin Warsh’s appointment as Fed Chair was confirmed by the US senate. Despite the likelihood that he’ll be more sympathetic to the whims of Donald Trump than his predecessor, Jerome Powell, its unlikely he’ll be able to cut interest rates with inflation going in the wrong direction and US job numbers in reasonable health. Overall, fixed income delivered positive returns in May, with the reduction in the conflict in the Middle East being the biggest factor. This saw the price of oil drop below $100 a barrel, relieving some inflationary pressures.
The UK bond market – both UK gilts and corporate bonds – were the best performing of the bond markets, both posting positive returns of 1.9%. In contrast to the employment numbers in the US, here in the UK we saw unemployment unexpectedly rise to 5% and job vacancies fall to a five-year low. Alan Milburn’s independent interim report on young people and work also highlighted how opportunities for young people are declining at an alarming rate with one in six set to be NEET (Not in employment, education or training) within the next five years. With the Bank of England trying to cope with inflationary pressures, it’s unlikely they’ll be able to cut rates in an attempt to drive jobs growth any time soon.
In general, May was a choppy month but one that ultimately proved fruitful for investors. Now that a memorandum of understanding has been agreed between the US and Iran, we might finally see an end to the conflict and the resumption of oil exports via the Strait of Hormuz. If we do, this could reduce inflationary pressures and improve growth prospects for the rest of 2026.
Please note:
For regulated financial advisers and investment professionals only. Copia does not provide financial advice, and the contents of this document should not be taken as such. The value of investments can increase and decrease, past performance and historical data cannot guarantee future success, and any references to individual stocks or asset classes are made purely for illustrative purposes.
The performance of each asset class is represented by certain Exchange Traded Funds and Passive Funds available to UK investors and expressed in GBP terms selected by Copia Capital Management to represent that asset class, as reported at last UK market close before the end of the calendar month. Reference to a particular asset class does not represent a recommendation to seek exposure to that asset class. This information is included for comparison purposes for the period stated but is not an indicator of potential maximum loss for other periods or in the future.