Equities advanced in May despite ongoing geopolitical tensions, with gains driven largely by continued enthusiasm for artificial intelligence. Technology stocks, particularly semiconductor and software companies, were the primary driver of returns, though developed international markets saw broader participation across sectors. Emerging market performance was also heavily supported by technology.
Fixed income markets faced challenges during the month as Treasury yields moved higher and expectations for interest rate cuts continued to fade. Strong economic data, persistent inflation pressures, and a more cautious stance from Federal Reserve policymakers contributed to a volatile interest-rate environment. Even so, most fixed income sectors delivered modest positive returns, with corporate credit outperforming many other areas of the bond market.
Real assets generally trailed broader equity markets during the month, although many categories remain strong for the year. Real estate and infrastructure experienced modest declines, while commodities were pressured by falling oil prices. In contrast, industrial metals and clean energy-related investments performed well, supported by growing demand for infrastructure and power generation linked to the expansion of AI technologies.
Looking forward, markets continue to face heightened geopolitical and inflation-related risks, particularly from disruptions to global energy supplies and concerns over government deficits.
Equities
Global equities rose 5.2% in May despite ongoing geopolitical tensions and uncertainty around the flow of energy resources. Corporate earnings remained resilient, particularly in the U.S., but the common driver of broad market strength was continued exuberance around the AI trade. The result was another favorable month for momentum, growth, and high beta stocks with minimal market breadth as technology (+17.9%) was the only sector to outperform the broader global market.
In U.S. equities, the IT sector represented more than 35% of the Russell 3000 Index (+5.1%) at the end of May, with semiconductors and semiconductor equipment accounting for nearly half that weight. Within this industry, megacap holdings Nvidia (+5.8%) and Broadcom (+7.0%) continued to advance, but it was positions such as Micron Technology (+87.8%)—which recently surpassed a $1 trillion market cap—and Advanced Micro Devices (+45.6%) that enjoyed the strongest surge.
May also saw a resurgence for software names that had been subject to concerns related to AI disruption. Microsoft (+10.7%) rebounded after poor performance through the first four months of the year, while Oracle (+39.9%) and Palo Alto Networks (+57.1%) were other notable contributors.
Aggregate U.S. performance ex-IT was near flat, with gains in healthcare (+2.7%) and consumer discretionary (+2.3%) offsetting declines from defensive sectors including utilities (−4.7%) and consumer staples (−3.3%) as well as energy (−6.1%), which has retreated the past couple of months due to declining oil prices.
Returns abroad followed a similar trend, although impacts varied. In developed non-U.S. equities (+3.1%), IT (+17.9%) was the best performing sector, but it failed to provide the same lift to the MSCI EAFE as occurred domestically, as IT comprises only 10% of the benchmark. The MSCI EAFE did see broader market participation than other regions, with consumer discretionary, communication services, and materials all rising 6% or greater during the month.
Conversely, emerging market (+9.7%) returns were buoyoed almost entirely by tech (+28.8%) returns. The IT sector has grown to nearly 40% of the MSCI EM Index on the back of strong returns of Korea-based semiconductor giants Samsung (+41.5%) and SK Hynix (+78.6%). With the exception of IT, industrials (+0.9%), and real estate (+1.9%), all other sectors in the MSCI EM Index closed the month lower.
Looking ahead, investor attention has begun to turn toward newcomers to the public market. SpaceX had its IPO June 12th at an initial valuation approaching $2 trillion, while Anthropic and OpenAI are expected to start trading later this year.
Fixed Income
Fixed income faced a challenging backdrop in May, as Treasury yields moved higher and rate volatility remained elevated. While the 10-year Treasury yield rose a modest 5 basis points to end the month at 4.44%, it climbed as high as 4.66% in mid-May, reflecting evolving expectations for monetary policy, inflation concerns, and broader fiscal dynamics.
As the month progressed, markets increasingly priced out the 50 basis points of easing expected at the start of the year and began assigning greater probability to a potential rate hike by the December 2026 FOMC meeting. This repricing was supported by resilient economic data, including an April Nonfarm Payrolls report that surprised to the upside with payroll growth of 115,000 jobs.
Meanwhile, inflation remained firmly above the Federal Reserve’s target. Headline CPI rose 3.8% year-over-year in April, while rising energy prices and the unresolved conflict in Iran reinforced concerns that inflation could remain elevated. These concerns were echoed in the April FOMC minutes, which revealed a more hawkish tone among policymakers and highlighted the possibility of tightening should inflation remain elevated.
Despite higher Treasury yields during the month, fixed income returns were generally positive, with the Bloomberg U.S. Aggregate Index gaining 0.3%. Within Treasuries, the 1-3 year, 5-10 year, and long Treasury segments returned 0.1%, −0.1%, and 0.5%, respectively.
Returns across securitized sectors were relatively muted, with agency MBS, ABS, and CMBS returning 0.3%, 0.2%, and 0.1%, respectively.
Credit sectors generally delivered the strongest returns in May. Investment-grade corporates returned 0.8% as spreads tightened by 6 basis points during the month. High yield corporates returned 0.5% as spreads tightened by 11 basis points, while bank loans also generated positive returns of 0.5%.
Real Assets
Real assets generally lagged broader markets in May, but have largely delivered strong absolute performance on a YTD basis. Global REITs ticked down 0.9%, while U.S. REITs were little changed (−0.2% MTD/+14.1% YTD).
Global infrastructure (−2.4% MTD) pulled back during the month, as global rates climbed and supply chain issues persisted around the Strait of Hormuz.
After continued volatility, oil repriced lower in late May on what the market viewed as progressing peace talks between the U.S. and Iran. Brent Crude finished the month at $91 a barrel, down 17.5%. The Henry Hub natural gas index, which is largely insulated from global gas markets, was up 24.7%, primarily due to early season cooling demand. The decline in energy prices weighed on the broader Bloomberg Commodity Index (−3.6%). Industrial metal futures (+5.1%) were a bright spot due to rising copper prices. Metals and mining equities gained 5.7%.
Clean energy equities jumped 14.1%, continuing their large upswing since early 2025. The recent gains have been aided by increased market sentiment around AI-related companies, with hyperscalers continuing to pay a premium for long-term power contracts. Combined with the rise in global oil and gas prices, clean energy equities continue to attract investor and operator interest. ⬛
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