Tech led the way in May.

Equities extended gains across major indices in May.  Some of the key drivers included dimming geopolitical risks around the US-Iran war, falling energy prices, and strong earnings.  Following a return of 10.49% in April (total return), SPX (the S&P 500) returned 5.26% (total return) in May.  After returning 15.66% (total return) in April, NDX (the Nasdaq-100) returned 10.58% (total return) in May.  The Russell 2000 returned 4.37% (total return) in May after a total return of 12.29% in April.  SPX & NDX remained above their 200-day moving averages in May, which we will illustrate later in this note. 

High Yield and International equities were positive in May, while Real Estate and Bitcoin were negative.  Following a return of 1.69% in April (total return), High Yield (Bloomberg US Corporate High Yield Total Return Index) returned 0.49% (total return) in May.  Following a return of 7.65% in April (total return), the MSCI EAFE Index returned 3.18% (total return) in May.  Following a return of 8.53% in April (total return), Real Estate (Dow Jones US Real Estate Capped Index) returned -1.12% (total return) in May.  Bitcoin returned -3.81% in May (Bloomberg Bitcoin Index) after returning 12.74% in April.  Additionally, both MLPs and Ethereum were lower in May.  Following a return of 3.79% in April (total return), MLPs (MerQube North America MLP & Infrastructure Total Return Index) returned -4.76% (total return) in May.  Following a return of 7.92% in April, Ethereum (CME CF ETF-USD Ref Rate) returned -10.87% in May.

During May, fixed income markets were mostly driven by the war in Iran, inflation reports, and volatile expectations of monetary policy.  Treasuries sold-off modestly across the curve for the month, and the short-end underperformed.  The 10-yr closed at 4.43% to end May, up from 4.38% at the end of April, and above the key 4.20%-4.40% technical range.  The 30-year Treasury yield ended May at 4.97%, slightly up from 4.96% at the end of April.  Credit spreads tightened in May.  Over the past several months and years, the correlation between equities and fixed income has been notably high – and likely will remain so.  Additionally, the 2/10 Treasury yield spread narrowed in May.  The 2/10’s record-long inversion came to an end in the second half of 2024.

There was no FOMC Meeting in May.  During April, the FOMC kept rates unchanged, once again, after last lowering its policy rate to a range of 3.50% – 3.75% in December.  The next Fed meeting will take place on 6/16-6/17.  Looking ahead, and as of the end of May, the market has priced-out a rate cut and has priced-in a possible hike in 2026.  The Fed continues to target 2% inflation as its goal, and incoming inflation reports will likely continue to drive the dot plot.  However, the Fed has cut rates multiple times despite inflation remaining above the 2% target.  Furthermore, the shaky employment picture will play a role in future policy.

Another notable datapoint from May was the release of April’s inflation data: CPI printed 0.6% M/M, matching the consensus.  Core CPI printed 0.4% M/M, above the 0.3% the consensus.  PPI printed 1.4% M/M, well above the 0.5% consensus.  PCE printed 0.4%, below the 0.5% consensus.  Core PCE printed 0.2%, below the 0.3% consensus.  Additionally, and according to FactSet, the trailing 12-month P/E ratio for SPX is 27.4 which is above the 5-year average (24.5), and above the 10-year average (23.4).  The forward 12-month P/E ratio for SPX is 20.1, which is above the 5-year average (19.9), and above the 10-year average (19.0).  Furthermore, per FactSet, SPX is expected to report Y/Y earnings growth of 21.9% for Q2 2026, which is above the estimate of 18.7% on 3/31/2026.  Finally, per FactSet, SPX is expected to report Y/Y revenue growth of 12.0% for Q2 2026, which is above the estimate of 9.4% on 3/31/2026

Within commodities and currencies: WTI Crude Oil fell in May by roughly 17% to close near $88/bl.  Gold fell by roughly 1.5% in May and closed out the month near $4550/oz.  Finally, the USD/DXY rallied M/M and closed out May near 98.95.  2025 was one of the weakest years for the USD in several decades, and the first five months of 2026 have registered a slightly higher dollar.

VOLATILITY UPDATE

After closing out April near 17, the VIX Index finished May near 15.30 as volatility fell with calmer geopolitical risks and rising equity markets.  The 12-month high of the VIX Index was registered on 3/9/26 at 35.30.  In 2022, the VIX averaged over 25.  In 2023, the VIX averaged near 17.  In 2024, the VIX averaged near 15.50.  And in 2025, the VIX averaged near 19.

The MOVE Index calculates the future volatility of US Treasury yields implied by current prices of options on Treasuries of various maturities.  It is thought of as “The VIX Index of the Bond Market.“  After closing out April near 72, the MOVE Index closed out May near 70.  Interest rate volatility fell with optimism around the war possibly winding down, among other factors.  The 12-month high of the MOVE Index was registered on 3/26/26 at 115.02.  Traders will continue to monitor this index to gauge potential future bond and equity volatility.  Equities tend to favor a subdued MOVE Index – and a low MOVE Index has been the story over the past 9 months.

Source: Morningstar Direct

LOOKING AHEAD

Among other factors, the market will be adjusting to and watching US-Iran war headlines, US trade policy headlines, employment data, inflation, earnings, yields, and monetary policy.  On the inflation front, May’s CPI will be released on 6/10, and PPI will be released on 6/11.  Finally, the next FOMC meeting will take place on 6/16-6/17, and the market is expecting no change.