Monthly Market Commentary - June 2026

May saw global stock markets pick up where they left off the previous month. The MSCI All Country World Index returned 6.1%, not far off April’s 7.3% return (all returns total and in sterling, unless otherwise stated). That means the global benchmark is now up 7.6% since the outbreak of the Middle East conflict on 28 February.

Asia and the US led the way thanks largely to their exposure to the AI (artificial intelligence) trade—the main US stock index set 11 new closing highs in May alone. Overall, the MSCI North America index rose 5.9% over the course of the month. Europe was not far behind with the MSCI Europe Ex UK up 4.6%, while the resources-heavy, tech-lite MSCI UK added 0.5%. It wasn’t all just about AI. Other tailwinds were at work too.

B is for Beats: The Q1 earnings season continued to produce the goods in May and not just in the tech sector. As at end of May, 97% of companies listed on the main US market had reported, according to FactSet. Of these, the data provider estimates 85% posted an earnings (EPS) beat, while 81% delivered a positive revenue surprise. The beats have been broad based with all but one of the market’s 11 sectors reporting a year-over-year (YoY) increase in earnings.

FactSet estimates the blended YoY earnings growth rate for the US main market could be as high as 28.6% for Q1 2026. If achieved, this would easily beat the 16.4% average rate seen over five years and be almost three times the 10.3% average recorded over 10 years. Rewind back to 31 March and a 13.1% YoY earnings growth rate was pencilled in for Q1 2026. As for revenues, the equivalent Q1 growth rate stands at 11.8%, comfortably higher than the 9.9% estimated at end of March.

C is for Ceasefire: While not the enduring peace deal the world craves, the fragile ceasefire agreed on 8 April has largely held. Furthermore, noises coming from the US and Iranian camps in terms of striking an agreement took on a more positive tilt towards the end of the month after both sides confirmed progress had been made on a number of key issues. Among these is the reopening of the Strait of Hormuz by Iran. If agreed, this would eventually enable the estimated 13m barrels of oil per day in production that have been lost due to the effective closure of the shipping channel to come back online. Pre-conflict around 20% of global oil and gas production passed through the strait.

The prospect of a deal drove oil prices lower. By the end of May, Brent Crude was 11.9% lower at US$92 per barrel. The situation is fluid though and it remains to be seen if a permanent agreement can be reached.

Inflation problem, what inflation problem?

The conflict is now over three months old. With every passing month, the probability of the higher-for-longer oil price scenario increases. For even if the strait reopens within the next month, it will take time for production in the Gulf to be fully restored due to lack of storage capacity and damage to essential infrastructure.

For higher-for-longer oil prices read a higher-for-longer inflationary threat. Don’t be fooled by the drop in the UK’s April inflation print to 2.8% compared to March’s 3.3% and expectations of 3%. Ironically, the fall was largely caused by a drop in energy bills as a result of lower pre-war wholesale energy prices. This is due to be reversed in July with energy regulator Ofgem announcing a 13% increase in the energy price cap for the 1 July to 30 September 2026 period.

In the US, higher prices are showing up in the data after the US consumer price index (CPI) jumped 0.6% month-onmonth in April, after rising 0.9% in March. On an annual basis, prices are up 3.8%. Strip out energy and food and core CPI was up 0.4% in April and 2.8% on the year compared to expectations of 0.3% and 2.7% respectively. Forward-looking data are pointing to further CPI rises to come. The producer price index (PPI) clocked up its largest monthly increase since March 2022 after rising 1.4% in April. Over 12 months, the PPI is up 6.0%. Similarly, annual inflation in the Eurozone came in at 3.2% in May, the highest it’s been since September 2023 and an increase on the previous month’s 3%.

Rates on the rise?

Markets are expecting central banks to hike rates to combat inflation. In the UK, two quarter-point increases are forecast by the end of the year, which would bring rates up to 4.25%. In the US, one quarter-point rise is now expected—at the beginning of the year two cuts from the Federal Reserve were being priced in for 2026. In Europe, two quarter-point rate hikes are now expected in 2026 which would raise borrowing costs in the Eurozone to 2.5%. The first of these could come as early as June.

Bonds leave it late

Against such a backdrop, government bond yields spent most of May on an upwards trajectory, so much so that, for the first time since 2007, the US Treasury department issued US$25bn 30-year bonds at a 5% yield. However, news of renewed efforts to end the Middle East conflict helped bonds rally towards the end of the month.

In the UK, a domestic politics premium appears to have been baked into gilt yields. The 30-year yield hit 5.81% in May following a poor showing from the ruling Labour party in local elections. The results triggered a leadership contest (of sorts) after Wes Streeting resigned from Sir Keir Starmer’s cabinet and Manchester mayor Andy Burnham put himself forward to be Labour’s candidate for the Makerfield by-election in June. Should Burnham win, he is widely expected to challenge Starmer for the leadership along with Streeting.

Reassuring noises from Burnham that he would stick to the government’s fiscal rules did help sentiment recover. Together with the softer-than-expected April inflation print, gilt markets rallied in the second half of May to end the month up 2%. 15yr+ was the standout maturity range after rising 3.4%, while short-dated notes had to settle for a 0.8% gain.

Conclusion

Stock markets up; government bonds up— May was a good month for diversified portfolios. Both asset classes though rose for different reasons. For stock markets, the AI trade has been front and centre along with a strong Q1 earnings season. Following share price moves seen to date and the quantum of AI capex planned, questions remain over the sustainability of the trade but, with blockbuster IPOs expected, heightened interest in all things AI is likely to persist in the months ahead. That said, we continue to be selective in the space and remain focused on seeking to identify growth opportunities at a reasonable price, not at any price.

For government bonds, inflation data and on-off peace talks in the Middle East have set the tone. Should the conflict come to an end sooner-rather-than-later then the hope is the war’s inflationary impact can be contained. If this were to happen then interest rates may not have to be raised as high as had previously been feared. In this scenario, the relatively high starting yields on offer would look attractive and therefore provide scope for further gains. Risks remain and we are monitoring markets and the geopolitical and macroeconomic environment closely.

Stocks and bonds may have generated positive returns during May, but with both asset classes having their own individual drivers, the benefits of diversification are alive and well. Portfolios diversified at asset class, sector and geographic levels continue to offer investors an attractive risk/return profile, especially when held for the long term.