June monthly investment update - Reflections on May 2026

May activity in investment markets was centred around two key themes - strong equity performance contrasted against rising economic risks. Market gains were underpinned, in the month, by robust quarterly earnings, particularly in the US technology sector.

During the month, the continuing AI investment boom saw three memory chip manufacturers each reach eye watering market values of $1 trillion, and over. SK Hynix joined Samsung Electronics and Micron Technology in reaching this AI-driven milestone.

We’ve mentioned before about the red flag being raised around a possible AI-inflated bubble in markets (similar to the 1990’s dotcom bubble). Could it be on the horizon? The narrative does seem to be gaining momentum. Some investors are now worried that the scale of spending in the sector may fail to provide adequate returns simply due to the sheer amount of money being invested in AI tech – not all of them, of course, will be winners.

Major stock markets (including the US and UK) hit all-time highs during the month, thanks to strong company earnings, and that AI investment, which spans infrastructure stocks (such as semiconductors). Investor sentiment (something we have remarked on often), remained strong during the month. Despite a backdrop of continuing geopolitical upheaval, that hardened resilience is enduring (for now, at least).

US/Iran peace negotiations on a slow burn

In another effort to bring an end to the Middle East conflict, President Trump announced that a ‘memorandum of understanding’ was being largely negotiated between the US and Iran to reopen the beleaguered Strait of Hormuz. However, it seems the two sides could not agree on a number of other issues, which included: Iran’s nuclear ambitions, Israel’s war in Lebanon, and the small issue of frozen funds – billions of dollars of Iranian oil revenues, to be precise, that Iran wants back, currently held in foreign banks.

The President later announced he was "not satisfied" with the terms of a deal yet and said he had instructed his administration not to rush into one. He also reiterated that the US blockade on Iranian ships (situated in the Gulf of Oman, just beyond the Strait of Hormuz), would remain in place. That is, until an agreement is reached, certified, and signed by both sides. Disappointedly, at the end of May, military strikes by both sides were news headlines yet again - potentially violating an already fragile ceasefire.

Ripple effect of ‘critical’ waterway closure

We are now all painfully aware of just how important the Strait of Hormuz is to the global economy as the knock-on effects (including the latest energy crisis) continues to affect households, consumers and businesses globally, though in very different ways. In the month, the UK’s energy regulator, Ofgem announced that households’ energy prices will rise by 13% a year in July, for gas and electricity - a direct consequence of the ongoing conflict in the Middle East.

World trade also continues to be significantly affected as fertilisers and other commodities (essentials needed to support global manufacturing) are heavily reliant on a fully operational and free-flowing waterway in the Strait. Some vessels that would normally carry these types of cargoes through the area are having to reroute, with others stuck out at sea in the region, unable to move. So concerned was the United Nations about the global economic outlook, it cut its forecast for growth during the month, citing the Middle East crisis for reigniting inflationary pressures and heightening uncertainty.

Central banks stuck in a quagmire

Central banks currently find themselves in a difficult position of balancing what could be another potential wave of inflationary pressures, against the need to keep interest rates low to help grow their respective economies. As we look forward, all eyes are now on the banks’ June meetings: At the Bank of England there is some speculation of a possible rate rise, whilst the jury is also out on the US Federal Reserve’s next move – not least because new Fed Chairman, Kevin Warsh, has taken over from Jerome Powell.

The European Central Bank (ECB), however, looks more likely to raise interest rates in June as Christine Largarde (the ECB’s President), has certainly hinted of her concerns on short-term rising inflation. Overall, it’s a very different outlook to what investors were anticipating at the beginning of the year. Back then, they were happily pricing in 2026 central bank rate cuts.

Bond markets feel the heat of high inflation forecasts

Bond investors were spooked in the month by high inflation readings triggered by the Middle East conflict stoking energy prices - the price of Brent (crude oil) rose to $112 during May. It was always going to be the case that the longer the conflict went on for, the more oil prices would get squeezed as the pool of reserves available to buy, gets increasingly smaller.

Analysts wasted no time in forecasting that Brent Crude oil, for example, could average $90.44 per barrel in 2026. The reason being that even if the war was to end today, it could take much longer to return to pre-war prices because of the damage to oil infrastructure, and delayed oil production caused by the conflict. Elevated prices could, therefore, be around for some time to come and may filter through into future inflation readings.

Persistent inflation has, of course, been the biggest driver of surging bond yields this year so far, and investors (during May) continued to demand higher yields to compensate for inflation risk. Yields did pull back slightly towards the end of the month on renewed hopes of a US/Iran peace deal, despite the earlier mentioned military strikes. However, volatility still persists, and bond investors are now pricing in a ‘higher for longer’ inflation scenario - lest we forget the peak rate of inflation of 11.1% in October 2022.

Global equities remain resilient, despite macro risks

It’s worth remembering investment markets are largely forward thinking - historically regarding geopolitical chaos as more of a short-term risk (and a driver of market volatility), rather than long-term returns. Markets have long become accustomed to pricing ‘de-escalation’ into their forecasts, meaning they look through intensely difficult events (without trivialising them, of course), and see light at the end of many a dark tunnel: Cast your mind back to the financial crisis of 2008/9, the Covid pandemic of 2020, and, more recently, the cost of living crisis of 2022/23 – all significant events that investment markets recovered from, over time.

What was evident during the month of May, was the re-emergence of a trend which we saw most notably back in 2024, where investment markets were, and now are, increasingly reliant on the activity from AI/mega-cap technology companies to keep them afloat. We mentioned earlier that AI investment was one of the standout performers for May. It’s fair to say that the technology sector is one of the main drivers of market confidence, right now!