May 2026 Market Review: Equities Extend Their Recovery

May saw markets build on April's rebound rather than stall. Equities pushed higher across most major regions, led once again by the US, and the bond market turned from a source of pain into modest support as gilt yields eased. Behind both moves sat a sharp fall in the oil price which took some of the heat out of the rate-hike fears that had built through the spring.

Equities: US Leads, FTSE Lags Again

The US stayed clearly in front. The S&P 500 rose around 5% in May to a record close of 7,580, its ninth straight weekly gain and longest winning run since 2023, while the Nasdaq's 8% gain made it the strongest of the major US benchmarks. The Dow closed above 51,000 for the first time. Two forces drove the month: growing optimism that the US-Iran ceasefire would hold, and a renewed surge in artificial intelligence stocks, with technology and AI-linked names doing almost all of the heavy lifting.

Europe advanced more modestly, supported by falling energy prices and hopes that the ceasefire would hold. The UK repeated a familiar pattern of lagging behind. The FTSE 100 rose just 0.6%, a second consecutive monthly gain but a muted one by global standards, and remained roughly 4% below the record levels above 10,900 it traded at before the conflict. Its heavy weighting toward energy made for a volatile month, with BP and Shell swinging on each twist in the oil price rather than moving in one direction. Domestic political uncertainty added to the unease, after Labour suffered setbacks in May's local elections. The net effect was an index that again trailed both Wall Street and its European peers.

Fixed Income: Gilt Yields Step Back from the Brink

April had been a difficult month for bonds, with the 10-year gilt yield breaking above 5% as markets priced in the risk of further inflation and even rate rises. May was volatile but ended on a calmer note. Yields actually spiked again mid-month, with the 10 year touching around 5.1%, as Labour’s poor local election results triggered calls for the Prime Minister to resign and unsettled the bond market. They then eased back to around 4.85% by late month, a fall of roughly 30 basis points and the biggest weekly drop since late 2023, as the political pressure receded and oil fell. As bond prices move inversely to yields, that late retreat meant stronger prices on existing holdings.

Oil Falls Sharply

An important driver behind these moves was the oil price. Brent crude had spiked above $110 a barrel at the height of the conflict. It fell steadily through May as the US and Iran moved toward a 60-day memorandum of understanding to pause hostilities, settling around $90 by the final session. That is roughly 20% below its 2026 peak and the worst month for Brent since the early days of the pandemic in 2020.

Caution still applied though. The Strait of Hormuz had not fully reopened, tanker traffic remained well below pre-conflict levels, and analysts warned that even a partial reopening would leave lasting damage to Gulf refining and pipeline infrastructure. The ceasefire itself stayed fragile, with repeated questions over whether the truce would hold, and prices remained volatile on each development. But the broad trajectory was firmly downward.

UK Inflation Comes Down

On 20^th May, the ONS reported that CPI inflation fell to 2.8% in the year to April, down from 3.3% in March. The drop was larger than many had expected and was driven chiefly by lower household energy bills, after Ofgem cut its price cap by 7% on 1^st April. Core inflation, which strips out volatile energy and food, fell to 2.5%, its lowest since July 2021, while services inflation eased to 3.2%.

The fall was welcome but rests quite heavily on one factor, the 7% cut to Ofgem's price cap, a one-off drop in bills, rather than a sign that underlying inflation has been tamed. With the conflict still unresolved, the Strait of Hormuz not fully reopened and wider supply chains still strained, any renewed flare-up that push crude or shipping and freight costs back up would feed straight through to UK prices. That risk is why the Bank of England has preached caution despite the better data. 

The Portfolios

May was another constructive month for the Smart Portfolios, with equity again the dominant driver of returns across all five risk profiles. Higher-risk portfolios, with their greater equity weighting, captured the most from the continued rally. Whilst US equity made the largest contribution given its size in the portfolios, the strongest individual performer was emerging market equity, which led the equity sleeve comfortably ahead of the US, Japan and Europe. Fixed income was positive contributor after experiencing mixed returns over the past few months. Gilts rose alongside gains in emerging market debt and corporate credit. UK equity was the relative laggard, reflecting the FTSE's muted month, while gold was the sole detractor.

The Smart Portfolios provide professionally managed, risk-profiled discretionary managed portfolios using BlackRock's iShares ETFs across five options from Conservative to Aggressive, matching different time horizons and risk tolerances. Automatic rebalancing maintains target allocations, while costs significantly below traditional active funds compound meaningfully over time. The portfolios are available in ISA and SIPP structures for tax efficiency.

Sources: Bloomberg, ONS, Bank of England, CNBC, S&P Global Market Intelligence, FTSE Russell, LSEG, EIA, Reuters (all data as at 31 May 2026)

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