Monthly Income monthly commentary - Review of May 2026

US equities delivered solid gains, supported by continued strength in growth sectors. The MSCI USA Index rose 6.1% in sterling terms, with technology and AI‑related companies once again leading the market, although with clear selectivity and questions remaining over capital expenditure plans. Economic data remained resilient, reinforcing expectations that growth can continue without triggering a material deterioration in inflation. As a result, investor confidence improved, despite some mid-month volatility in bond markets.

European equities also advanced, though performance was more moderate than in the US. The MSCI Europe ex UK Index returned 4.5% over the month. Markets benefited from the global risk-on backdrop and easing inflation concerns, although gains were tempered by ongoing uncertainty around growth momentum and interest rates. Within the region, growth stocks outperformed, reflecting a broader global trend.

The UK lagged other developed markets, with the MSCI UK Index delivering a more modest return of 0.5%. The market’s heavier exposure to energy and healthcare stocks weighed on performance. Domestic factors also remained in focus, including political uncertainty and sensitivity to interest rate expectations. However, returns remained positive, supported by the consumer and basic materials sectors.

Japanese equities continued their strong run, rising 5.8% in sterling terms. As an energy importer, the market benefited from signs of the Middle East conflict easing, as well as signs of improving economic momentum and positive earnings announcements. Japan’s exposure to global growth and cyclical sectors positioned it well to take advantage of improving sentiment.

Emerging markets were among the best performers in May, with the MSCI Emerging Markets Index gaining 10.6%. Strength was driven largely by Korea and Taiwan, technology-focused markets that benefited from the continued enthusiasm around artificial intelligence and related hardware. However elsewhere performance was weaker, as a slow Chinese consumer economy continued to provide headwinds.

Fixed income markets experienced a mixed but ultimately positive month. Yields rose to multi-year highs earlier in May before declining as oil prices fell and inflation concerns moderated. UK gilts delivered a return of around 2.0%, while sterling corporate bonds also gained close to 2.0%. Global bonds were more subdued, with the Bloomberg Global Aggregate (GBP hedged) returning 0.6%. Credit markets held up well, supported by the improved risk backdrop and ongoing demand for income.