Your May 2026 market update: stock markets reach new highs despite global uncertainty

This is part of our monthly series. Catch up on last month’s summary here: Your April 2026 market update: markets rally but inflation fears linger

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If you had followed the age-old mantra to ‘sell in May and go away’, you might’ve been disappointed. There’s been no summer slowdown so far in 2026, as markets have continued to rise.

After a series of stock market record highs in April, it feels highly surprising that we’re talking about the same again for May. Yet, that’s exactly where we are.

May’s a reminder of just how separate the stock market and the economy really can be.

Using the US as an example, energy prices are rising as a result of the conflict in Iran. That’s reflected at the petrol pump and in the inflation figures. 

In turn, consumer confidence is falling, with just under half of Americans saying they’re pessimistic about the economy.

Yet, markets continue to rise, as corporate profits soar amid the Artificial Intelligence (AI) buildout.

The US market is by no means the be-all-and-end-all of global investments. But it’s a picture we’re seeing across the board.

Find out what happened to markets in May.

The headlines: record highs on record highs

Off the back of all-time highs in April, some of the world’s biggest stock market indices recorded new peaks in May.

The S&P 500 reached yet another all-time high on 29 May. That’s despite just three of the 11 sectors included within it achieving returns. 

Crucially, tech stocks drove gains, as the US market benefited from enthusiasm for the AI rally.

We might’ve expected to see Nvidia’s earnings report contribute to this. The company posted impressive revenue and net income figures, but investors were initially underwhelmed. In fact, the company’s shares even briefly dipped after the announcement.

Despite the S&P 500’s ultimately good performance, you can hardly see it in our graph of May’s returns. That’s because Asian markets outperformed it this month.

Taiwan overtook India to become the world’s fifth-biggest stock market. That came from the immense performance of Taiwan Semiconductor Manufacturing Company (TSMC). 

Similarly, Korea’s KOSPI index pushed to 100% so far in 2026 (that’s not a typo - the index has doubled in value year-to-date). That’s been driven by huge interest in chip stocks, such as SK Hynix and Samsung, as companies race to build AI infrastructure and products.

Together, this pushed the MSCI Asia Ex-Japan to new highs.

Japan’s Nikkei 225 also performed well, reaching a new market high on 27 May. Like in Korea, the AI expansion relies on equipment and components that many of Japan’s biggest companies produce, driving growth. 

Less can be said for the UK and Europe. The FTSE 350 recorded a 0.81% rise this month, with a few factors that might’ve contributed to flat performance. The most obvious candidate to look at is the political uncertainty around UK Prime Minister Keir Starmer.

Investment markets dislike uncertainty, so it’s not a surprise that stocks didn’t respond favourably. But the reaction was even stronger in bond markets (find out more below).

European stocks fared a bit better, with the MSCI Europe Ex-UK rising by 3.06%. However, Europe relies heavily on imported energy - in 2024, 57% of European Union (EU) energy was imported. 

As a result, the region is exposed to energy disruption like the kind we’ve seen since the start of the conflict in the Middle East.

The war in Iran reaches the 3-month mark

While stock markets are booming, the war in Iran continues to be the undercurrent of the growth we saw throughout May.  

Having started on 28 February, the Middle East conflict has now been going on for three months.

The White House said that a positive deal is almost complete, with Vice-President JD Vance saying on 29 May that it was “very close”.

However, negotiations have repeatedly broken down over the course of the war. So, there’s no guarantee that this round will be successful.

As the war’s continued, so has volatility in energy markets. Around one-fifth of global oil and gas usually travels through the Strait of Hormuz. But Iran has restricted this vital waterway in response to the US's military operations.

This has pushed up global energy prices, with concerns that it’ll take inflation with it, a trend that appears to have already begun. 

In the US, the headline rate increased from 3.3% to 3.8% as rising energy prices have started to push up the cost of living. 

Inflation actually dipped in the UK, falling from 3.3% to 2.9%. But the UK energy regulator, Ofgem, has confirmed that the Energy Price Cap will rise from 1 July. 

The price cap sets the maximum price per unit of energy that companies can charge. It’s decided by the state of the energy market at the time. So, with prices raised as a result of the Middle East conflict, the cap has increased too. 

Ofgem has confirmed that the typical household will see its bills increase by 13%. As a result, it won’t be a surprise if this drives a rise in inflation later in the year.

So far, stock markets are unbothered by the prospect of rising inflation. But if it continues, we could see it affect businesses and consumer spending, both of which can cause markets to dip.

Stocks may be rising but bond markets are wobbling

Although stock markets kept climbing, less can be said for the bond markets. 

Bonds are essentially loans that investors can make to companies and governments. They’re a hugely important tool for raising money to complete projects.

Many pensions also invest in bonds. Historically, they’ve offered a lower-risk option compared to investing in stocks and shares. Plus, they pay regular fixed interest - the ‘coupon’ - to the holder.

However, bond prices have struggled this month, particularly in the UK and US. This isn’t just a problem if you hold bonds, either - according to Reuters, borrowing costs could start to drag on stocks and pull them down too. 

There are a couple of key reasons why bond markets are falling.

Inflation and interest rates

Typically, central banks raise interest rates when inflation is climbing to try and control it. Before the war in Iran, the expectation was that inflation would come under control and banks could begin cutting rates.

Instead, rising inflation has forced banks to reconsider. Now, the markets are pricing in at least one rate rise this year.

This matters to bonds, because the interest they pay is linked to this central rate. That means older bonds with a lower rate of interest become less valuable when rates rise.

We’ve seen this start to play out already. 

In the US, 30-year Treasury yields - that’s a measure of a bond’s return relative to its price - hit their highest level in 19 years.

Political uncertainty

The other key factor in the bond market dipping is the political uncertainty we’ve seen in the UK.

Keir Starmer’s premiership was very much in question in May. In fact, there’ve been several challenges to the Prime Minister’s leadership throughout the month. 

In particular, the news that Mayor of Greater Manchester, Andy Burnham, may run for the leadership spooked bond markets, with the:

• 10-year yield climbing past 5.17%, the highest since the global financial crisis; and
• 30-year yield reaching 5.84%, the highest level in 28 years.

Investors will no doubt be keeping a close eye on what happens to both interest rates and bond prices over the coming weeks. 

While these price movements might seem worrying, they’re also a reminder of the value of diversification and long-term investing.

Price swings like this can be temporary. So, it’s often worth staying calm and taking a step back before you make any changes.

Likewise, diversifying your investments across different types of assets can help reduce the risk of all your holdings losing value at once. 

For example, although the UK and US bond markets have been uncertain, stock markets around the world have been growing.

So, choosing various types of investments in different regions and sectors can be useful. You could offset those temporary dips in value with gains from elsewhere, giving you the chance to keep growing your money over time.   

Risk warning

As always with investments, your capital is at risk. Past performance is not an indicator of future performance. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.