Monthly Market Commentary – May 2026

Global markets summary

April 2026 was, by any measure, an extraordinary month for global financial markets. Against a backdrop of persistent geopolitical tension, unresolved conflict in the Persian Gulf and the lingering shadow of an energy shock that had rattled portfolios only weeks earlier, investors did not merely hold their nerve. They bought.

The force behind that conviction was artificial intelligence (AI). The theme returned with a clarity of purpose that swept aside the caution of the preceding quarter, propelling technology-linked indices to record highs and igniting a risk-on mood that proved both broad and durable. Asian markets were its principal beneficiaries: the MSCI AC Asia ex Japan Index led all major equity benchmarks, rising 12.86% in sterling terms, while the MSCI Emerging Markets Index advanced 11.32%, powered by extraordinary momentum across the global AI supply chain. Developed markets followed with purpose: the S&P 500 gained 7.16% in sterling, the MSCI World rose 6.35%, and Japanese equities added 5.93%. UK equities participated in the advance, returning a more measured 2.10%, reflecting the index's relative distance from the technology earnings cycle that animated markets elsewhere.

Fixed income told a sobering counterpart story. Government bonds came under pressure as elevated energy prices stoked inflation expectations, with UK gilts slipping 0.48% and the Bloomberg Global Aggregate Corporate index retreating 1.71%. The message from bond markets was clear: the path to rate cuts remains complicated, and the inflationary undertow from prolonged Hormuz disruption has not been priced away.

The sharpest signal of the month's mood, however, came from gold, which fell 4.16% in sterling terms. Gold does not decline in months of genuine fear; it declines when investors are prepared to abandon safety in favour of growth. That willingness, expressed emphatically across equity markets in April, is perhaps the most instructive single data point the month produced.

April served as a timely reminder of a truth that discomfort can obscure: markets are capable of climbing walls of worry, and structural themes of sufficient power do not wait for the geopolitical backdrop to resolve before delivering returns.

United Kingdom

UK equities underperformed the broader global equity complex in April, in the context of a strong risk on environment. The global rally was broadly driven by the technology sector, which has a relatively low level of representation in the domestic market.

The UK economic backdrop in April was shaped by resilient activity data, persistent inflation, and growing headwinds from the ongoing conflict in Iran, with the latter casting an increasingly long shadow over the outlook.

On the activity front, February's GDP print surprised meaningfully to the upside at +0.5% month on month, well ahead of the +0.1% anticipated by analysts, pointing to underlying economic momentum at the start of the year. Retail sales data also appeared robust, with March volumes rising 0.7% ahead of the +0.1% consensus, while BRC (British Retail Consortium) data showed total retail sales up 3.6% year on year. However, both readings were heavily flattered by the timing of Easter, which fell in March this year versus April last year, making the headline figures somewhat misleading.

The labour market offered a mixed picture. The unemployment rate came in at 4.9%, slightly lower than expected. However, average weekly earnings growth of 3.8% edged above expectations. Against this backdrop, March CPI came in at 3.3%, in line with forecasts but up from 3.0% the prior month, keeping inflation firmly above target.

It was, therefore, no surprise to see the Bank of England hold rates at 3.75% in an eight-to-one vote. Rate cut expectations have been pared back further, with markets now pricing a shallower and more delayed easing cycle following a meeting that offered little reassurance on the inflation outlook. The BoE acknowledged both upside inflation risks from supply shocks and significant downside risks to growth, a delicate balance that is likely to define policy deliberations through the summer.

The combination of above-target inflation, a loosening labour market and slowing consumer activity presents a challenging backdrop as the Government faces a series of local elections in May. Political uncertainty of this kind, at a moment when fiscal credibility remains under scrutiny, is a dynamic that financial markets will be watching closely.

North America

April rewarded patience, and it did so emphatically. The S&P 500 gained 7.16% in sterling terms, closing the month at a new all-time high alongside the Nasdaq, driven by a decisive return of conviction in artificial intelligence. The Philadelphia Semiconductor index surged close to 40% over the month alone, growth equities outpaced value by a material margin, and the breadth of the advance was encouraging. This was not a recovery confined to a handful of mega-cap names.

Underpinning the move was one of the strongest corporate earnings seasons in years. Of S&P 500 companies reporting, 84% exceeded expectations against a five-year average of 78%, with blended earnings growth running at 27.1% year on year, the strongest rate since late 2021. Among the Magnificent Seven, Alphabet stood out, positioning itself as a credible hardware rival to NVIDIA in the AI accelerator market. Meta, by contrast, raised its capital expenditure guidance by close to ten billion dollars from only three months prior and investors responded with anxiety rather than enthusiasm. Margins matter, and the market has become noticeably less tolerant of unchecked spending.

The Strait of Hormuz has been closed to commercial traffic since the US and Israeli strikes on Iran in late February, disrupting roughly 20% of global oil and LNG supply. Brent crude briefly breached $110 per barrel in April, and ExxonMobil, Chevron and ConocoPhillips have each warned that strategic reserves are running dangerously low. Higher energy costs for longer add an inflationary undertow that complicates the Federal Reserve's path considerably.

The structural case for US equities has not changed. Corporate America is growing earnings at its fastest pace in four years, the US economy expanded at 2.0% in the first quarter, and the AI capital expenditure cycle shows no sign of fatigue. Investors who held their nerve through a volatile first quarter have been well rewarded. Vigilance is warranted; abandoning a well-constructed position is not.

Europe

European equities delivered a meaningful recovery in April, though the month was more conditional than its headline return suggests. The STOXX 600 gained approximately 5.5% in sterling terms, a welcome result that nonetheless masked a dramatic mid-month swing driven almost entirely by events in the Persian Gulf. For sterling investors, the currency effect was negligible: the euro moved barely half a percent against the pound over the period, meaning the local and sterling returns were, for practical purposes, identical.

The month pivoted on a single day. On 17 April, Iran's foreign minister announced that commercial ships could transit the Strait of Hormuz for the duration of a truce, and European markets erupted. The STOXX 600 surged more than 1%, short-term bond yields fell sharply, and oil dropped 11% in a session as money markets rapidly unwound expectations of further ECB rate increases. The index came within touching distance of its pre-conflict levels. It proved fleeting. A second round of ceasefire negotiations in Islamabad ended without agreement, Trump threatened renewed blockades of Iranian ports, and the STOXX 600 posted a weekly loss of 2.5% in the final stretch of April, surrendering a meaningful portion of its gains before settling higher on the month.

The sector picture was revealing. Defence names continued to underpin structural resilience, consolidating after extraordinary gains over the prior 18 months rather than reaching new highs. Technology offered a brighter signal: SAP surged following first quarter results that exceeded expectations on cloud demand, providing Europe with at least a modest echo of the AI-driven earnings momentum sweeping US markets. Luxury goods were a significant drag. Kering fell 9.3% and Hermes dropped 8.2% after both reported sharp revenue declines in the Middle East and cited material currency headwinds. Geopolitical disruption does not affect European sectors uniformly, and April illustrated that point clearly.

The broader picture reflects a story of diverging momentum. Europe's structural dependence on imported energy leaves it more exposed to Hormuz disruption than the United States, and this showed in the performance gap: the S&P 500 gained 7.16% in sterling terms in April against approximately 5.5% for the STOXX 600. The ECB, which had been on an easing path through 2025, now faces the prospect of oil-driven inflation arresting the rate cut cycle precisely as German business confidence deteriorates and the government halves its 2026 growth forecast. Year to date, the STOXX 600 sits in the low single digits in sterling terms against approximately 6% for the S&P 500. Europe's solid first quarter lead has been erased, and for the time being, momentum sits firmly across the Atlantic. Our underweight position in European equities reflects exactly this dynamic.

Rest of the world

If April belonged to any region, it belonged to the emerging world. While US technology grabbed the headlines and European equities delivered a conditional recovery, it was Japan, Asia Pacific and the broader emerging markets universe that produced some of the most striking numbers of the year. Japan's month was historic: the Nikkei 225 surged 16.5% in yen terms, breaching 60,000 for the first time in its history on 23 April and closing at 59,484. For sterling investors, the return was approximately 15.3%, as the yen softened modestly against the pound over the period.

The same AI and semiconductor tailwind that drove US markets to record highs propelled comparable gains across Japan's listed chip and component manufacturers, with Sony, Tokyo Electron and Shin-Etsu Chemical among the contributors. The Bank of Japan held its policy rate at 0.75%, though ten-year Japanese government bond yields rose to 2.35%, their highest level since 1997, reflecting the persistent tension between the Bank's gradualism and rising inflation expectations. As one of the world's largest net importers of energy, Japan faces an acute structural headache from elevated oil prices, and a sustained period of energy costs above current levels would test corporate margins in ways that the April rally has not yet been asked to price.

The emerging markets story is more than a simple recovery trade. The MSCI Emerging Markets Index, which fell 13.06% in a single month in March as investors fled risk assets, had erased all its war-related losses by 20 April and closed the month with a year-to-date return of approximately 16% in US dollar terms, with currency movements broadly neutral for sterling investors. The breadth of the gains is as noteworthy as their scale: South Korea's KOSPI has surged 45% this year, powered by Samsung and SK Hynix on AI-linked memory demand; Taiwan's TAIEX has gained 34%, driven by Taiwan Semiconductor, which reported a projected 50% increase in quarterly net profit; and Brazil has risen 16%, its oil producers finding themselves in an advantageous position outside the conflict zone.

One development beyond equity markets demands close attention. On 28 April, the UAE announced its withdrawal from OPEC, effective 1 May. As the cartel's third largest producer, with capacity approaching 4.85 million barrels per day, the departure is a structural event rather than a symbolic one. Once the Hormuz strait reopens, the UAE will be free to increase production without restraint, and Wood Mackenzie estimates that a return to pre-conflict production levels alone could take six months, with further expansion thereafter. The coherence of OPEC, already strained, looks materially weaker as a result. For investors watching oil markets, the prospect of sharply lower prices once the strait reopens carries significant implications for energy equities, inflation forecasts and central bank trajectories alike.

For sterling investors with allocations to emerging markets and Asia Pacific, April was a rewarding month and an encouraging chapter in a year that has consistently surprised to the upside in this part of the world. The risks are real: energy dependence, geopolitical proximity to the conflict zone and, in Japan's case, the unresolved tension between accommodative monetary policy and rising yields. Yet the structural investment case for the emerging world has rarely looked more compelling relative to the alternatives. Emerging markets have now outperformed US equities for five consecutive quarters. The pattern is too consistent and too broad-based to dismiss as noise.

Fixed income

Fixed income in 2026 has been a tale of two worlds, and April drew the dividing line with unusual clarity. Government bonds remain caught between central banks that wish to ease and an oil-driven inflation shock that will not let them. Credit markets, by contrast, where robust corporate earnings and broadening risk appetite have kept spreads compressed, continued to reward investors who held their nerve.

For holders of UK gilts, April offered little comfort. The ten-year yield rose from 4.94% to approximately 5.06% over the month, delivering modestly negative total returns as coupon income only partially offset the capital decline. The Bank of England held the bank rate at 3.75%, the Monetary Policy Committee voting eight to one to hold, acknowledging that CPI inflation has risen to 3.3% and is likely to go higher. The dilemma is precise: the economy is weakening, yet the bank cannot cut rates without risking entrenching the very inflation it is trying to contain.

US Treasuries told a quieter story. The ten-year yield moved just two basis points to 4.40% over the month, leaving total dollar returns barely positive. For sterling investors, a 0.78% strengthening of the pound against the dollar effectively erased the modest coupon pick-up on unhedged positions. The comparative observation is worth making plainly: ten-year gilts currently yield approximately 0.66% more than equivalent US Treasuries, a premium available domestically and without currency risk.

US investment grade credit benefited from the return of risk appetite, with option-adjusted spreads holding near generational tights of approximately 80 basis points and all-in yields of 5.00% to 5.50% offering the most attractive carry available since before the global financial crisis. April delivered modest positive total returns in sterling terms for global investment grade investors. Sterling investment grade found the going harder: rising underlying gilt yields offset the benefit of spread compression, leaving sterling corporate bond holders with a modestly negative total return for the month and slightly negative figures year to date, with income providing only partial compensation for the yield rise seen since January.

High yield has been the standout asset class within fixed income this year, and April continued that narrative. The US high yield market rose 1.70% in dollar terms, with the ICE BofA option-adjusted spread falling 42 basis points to 283 basis points and the yield-to-worst dropping to 7.02%. Lower-quality issuers led the recovery as investors reached for the most beaten-down paper in an improving sentiment environment. For sterling investors, currency movements trimmed the return to approximately 0.9% in GBP terms, but the direction was unambiguously positive. Default rates remain contained, US corporate earnings growth is running above 20%, and the 7% carry on offer provides a substantial income buffer against any modest spread widening from here.

Of all fixed income asset classes, blended emerging market debt has had the most compelling year, and April was its most significant recovery chapter. The J.P. Morgan EMBI+ hard currency index closed the month with a year-to-date GBP return of approximately 4% to 5%, recovering March losses and more. The structural backdrop remains supportive: emerging markets central banks retain real yields among the most attractive available globally, credit rating upgrades are running at roughly two to one over downgrades, and a modestly weakening dollar adds a further tailwind for local currency returns. The principal risk is familiar: a prolonged Hormuz closure would disproportionately affect energy-importing emerging economies, and the asset class has priced in a significant degree of conflict resolution. Should that resolution prove elusive, some of the year's gains could reverse quickly.

The dominant dynamic for fixed income in 2026 remains the collision between the monetary easing that economies need and the oil-driven inflation that central banks cannot ignore. Duration risk must be owned with open eyes and rewarded with patience. The income available in high yield and emerging market debt compensates well for that uncertainty. In gilts and sterling investment grade, yields are now genuinely attractive for long-term investors. The path to realising those returns may yet require navigating further volatility. The destination, however, has rarely looked more clearly worth the journey.

Ask us anything

Q: Markets have just had their best month in years, yet nothing in the real world feels resolved. Should I be adding risk or taking profits?

A: The instinct that something doesn't quite add up is not anxiety talking. It's good judgement. April 2026 was extraordinary by any historical measure: the S&P 500 posted its strongest monthly return since November 2020, the Nikkei crossed 60,000 for the first time in its history, and emerging markets erased weeks of war-driven losses in a matter of days. Yet the Strait of Hormuz remains closed, Brent crude sits above $110 per barrel, and ceasefire negotiations have produced more false dawns than conclusions. The gap between what markets are pricing in and what is actually happening is wide enough to give any thoughtful investor pause.
The April rally was not irrational exuberance. Corporate America delivered its strongest earnings growth since late 2021, with 84% of S&P 500 companies beating expectations and blended earnings growth running at 27.1% year on year. Artificial intelligence capital expenditure is accelerating rather than stalling, and in Japan and across emerging markets a similar story unfolded: earnings were growing, valuations outside the United States remained genuinely modest, and the structural investment cases built over the prior eighteen months were being validated by the numbers. Markets were not ignoring the geopolitical backdrop. They were weighing it against an earnings backdrop of considerable strength and concluding, at least provisionally, that the latter outweighed the former. That is not naivety. It's how equity markets have historically behaved in precisely these circumstances.

The warnings from ExxonMobil, Chevron and ConocoPhillips deserve more than passing attention. The world is drawing down commercial stockpiles and strategic reserves at a pace that cannot be sustained indefinitely. If the Hormuz closure persists for another two to three months without resolution, the energy shock that has so far been absorbed relatively gracefully could transmit into the broader economy in ways that corporate earnings have not yet priced. Meanwhile, the central banks that were expected to be cutting rates are instead paralysed between a weakening growth outlook and an inflation problem driven by forces outside their control. The Bank of England held at 3.75% in April with one member already voting for a rise, as CPI reached 3.3%. It's also worth noting that the equity rally was narrower than headline numbers suggested: the equal-weighted S&P 500 rose less than 6% in April while the cap-weighted version gained 10.4%, meaning the largest technology companies drove the bulk of the return.

The honest answer is that framing the decision as a binary choice is precisely how investors make mistakes at important turning points. Those who added at the March lows were well rewarded; those who sold in panic and waited for clarity largely missed the April recovery. That is the enduring lesson of market timing, and April 2026 has written it in large letters once again.
The more useful questions are these. What does your portfolio actually own, and is it positioned for the scenarios that seem most plausible? Is your fixed income allocation providing genuine income, diversification and optionality, or simply holding duration risk without adequate compensation? Are your equity holdings diversified across regions and styles in a way that doesn't leave you dependent on a single market outcome? Do you have exposure to the structural themes of artificial intelligence, defence, energy transition and emerging market debt that appear likely to endure regardless of whether a ceasefire arrives in May or September?

The case for a professionally managed multi-asset approach is not a comfortable-weather argument. It's made most forcefully in months like March and April 2026, when the range of plausible outcomes is unusually wide and the correlation between asset classes unusually unstable. A skilled team doesn't ask a binary question. It asks simultaneously: which equities look attractive relative to their growth prospects? Where on the yield curve does duration risk offer sufficient reward? How should the portfolio respond if the Hormuz strait reopens quickly versus remaining closed through the third quarter?

The multi-asset structure also provides something easy to undervalue in a rising market and impossible to replace in a falling one: the discipline to rebalance systematically without emotional interference. When equities rose sharply in April and gilts delivered a slightly negative return, a professionally managed multi-asset fund was already trimming equity exposure towards its target weight and adding fixed income at attractive yields, not because of a view on next month's geopolitical outcome, but because the process demands it. That discipline, consistently applied over time, is one of the most reliable sources of long-term return the investment industry has identified.

The question you're really asking is not whether to add risk or take profits. It's whether you have a process you trust to navigate this for you, whatever comes next. If the answer is yes, the decision has already been made, and made well.

If there's a question you would like to pose to our team, please reply to this email or write to [email protected].

Four key takeaways from April 2026:

• Equity markets staged a historic recovery; sterling strength against the dollar and a softer yen modestly reduced returns for UK investors in US and Japanese equities, while European returns were largely unaffected by currency.
• The Strait of Hormuz remains restricted to commercial shipping and the world's oil buffers are nearly exhausted.
• Gilts are now yielding 5% - the most attractive level in fifteen years - but the Bank of England is not yet able to cut.
• The balance of global market power is quietly shifting away from the United States.

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