May saw markets build on April’s rebound rather than stall. Equities pushed higher across most major regions, led once again by the US, and the bond market turned from a source of pain into modest support as gilt yields eased. Behind both moves sat a sharp fall in the oil price which took some of the heat out of the rate-hike fears that had built through the spring.
Equities: US Leads, FTSE Lags Again
The US stayed clearly in front. The S&P 500 rose around 5% in May to a record close of 7,580, its ninth straight weekly gain and longest winning run since 2023, while the Nasdaq’s 8% gain made it the strongest of the major US benchmarks. The Dow closed above 51,000 for the first time. Two forces drove the month: growing optimism that the US-Iran ceasefire would hold, and a renewed surge in artificial intelligence stocks, with technology and AI-linked names doing almost all of the heavy lifting.
Europe advanced more modestly, supported by falling energy prices and hopes that the ceasefire would hold. The UK repeated a familiar pattern of lagging behind. The FTSE 100 rose just 0.6%, a second consecutive monthly gain but a muted one by global standards, and remained roughly 4% below the record levels above 10,900 it traded at before the conflict. Its heavy weighting toward energy made for a volatile month, with BP and Shell swinging on each twist in the oil price rather than moving in one direction. Domestic political uncertainty added to the unease, after Labour suffered setbacks in May’s local elections. The net effect was an index that again trailed both Wall Street and its European peers.
Fixed Income: Gilt Yields Step Back from the Brink
April had been a difficult month for bonds, with the 10-year gilt yield breaking above 5% as markets priced in the risk of further inflation and even rate rises. May was volatile but ended on a calmer note. Yields actually spiked again mid-month, with the 10 year touching around 5.1%, as Labour’s poor local election results triggered calls for the Prime Minister to resign and unsettled the bond market. They then eased back to around 4.85% by late month, a fall of roughly 30 basis points and the biggest weekly drop since late 2023, as the political pressure receded and oil fell. As bond prices move inversely to yields, that late retreat meant stronger prices on existing holdings.
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