Market Commentary - May 2026

May 2026

Markets Rebound Sharply as Investors Look Beyond Geopolitical Uncertainty

Global financial markets staged a powerful recovery in April, with major stock indexes climbing to new all-time highs following a volatile, risk-off March driven by the Iran war and surging oil prices. Investor sentiment improved significantly as markets stabilized late in March and accelerated higher throughout April, supported by resilient economic data, strong corporate earnings, and easing concerns surrounding Middle East tensions.

The S&P 500 gained 10.4% in April, marking its strongest monthly advance since November 2020, while the tech-heavy Nasdaq surged 15.3% amid renewed enthusiasm surrounding artificial intelligence and growth-oriented sectors. Small-cap stocks also participated strongly in the rebound, with the Russell 2000 advancing 12.2%. Overseas, international markets delivered solid gains as MSCI Emerging Markets climbed 14.5% and MSCI EAFE gained 7.1%.

A fragile U.S.-Iran ceasefire helped improve market sentiment and provided investors with reassurance that broader disruptions to global oil supplies through the Strait of Hormuz could remain contained. While geopolitical risks and elevated energy prices remained key concerns throughout the month, investors increasingly focused on improving fundamentals and stronger-than-expected earnings results.

Corporate earnings season provided additional support for equities, with first-quarter 2026 earnings broadly exceeding expectations and delivering strong double-digit growth. Economic data also remained relatively resilient despite persistent inflation pressures. The unemployment rate held steady at 4.3%, while labor market reports continued to surprise to the upside.

U.S. GDP expanded at a 2.0% annualized pace during the first quarter of 2026, improving from the sluggish 0.5% growth rate recorded in the fourth quarter. However, inflation concerns continued to build as higher fuel and energy costs tied to Middle East tensions pressured both consumers and businesses. 

Bond markets were relatively flat during April as investors adjusted to changing Federal Reserve expectations. Entering 2026, markets anticipated two interest rate cuts this year. Persistent inflation pressures have since altered that outlook, with markets now beginning to price in the possibility of an additional rate hike by year-end. The Federal Reserve held interest rates steady at its April FOMC meeting, as widely expected, while the benchmark 10-year Treasury yield edged higher to 4.40%.

May Update

Market momentum has continued into May. Through May 15, the S&P 500 and Nasdaq added another 2.8% and 5.4%, respectively, while continuing to set multiple new record highs. Small-cap and mid-cap indexes also reached fresh highs during the month. Emerging markets maintained their strength, although developed international equities, as measured by MSCI EAFE, declined modestly to begin May.

Interest rates continued moving higher amid ongoing concerns surrounding sticky inflation. The benchmark 10-year Treasury yield rose to 4.59%, while the 30-year Treasury bond yield climbed above 5% for the first time since 2007, reaching 5.12%. Headline April Consumer Price Index (CPI) inflation rose to 3.8% year-over-year, reaching a three-year high, while Producer Prices (PPI) increased 6.0%. Investors remain highly focused on inflation trends, Federal Reserve policy expectations, and the broader economic outlook.

While uncertainty surrounding the Iran ceasefire and potential disruptions to the Strait of Hormuz remains elevated, periods of volatility are likely to continue. Prolonged geopolitical tensions and sustained energy price pressures could further increase inflation expectations, weigh on economic growth, and raise recession risks over time.

Despite ongoing uncertainty, the recent market rebound serves as another reminder of the importance of maintaining discipline during periods of volatility. Diversification, patience, and a long-term investment focus remain critical components of successful portfolio management across varying market environments.

Key Takeaways for Investors

• Remain well-diversified across asset classes and market sectors

• Maintain discipline and patience during periods of volatility

• Keep focus on long-term investment objectives

• Periodically review portfolio allocations and risk tolerance

If you have questions about your portfolio or current market conditions, contact your Nelson Advisor at 800-345-7593.

~ Your Nelson Securities Team

Past Performance is No Guarantee for Future Results

This article is for informational purposes only and does not constitute investment advice.