Global Asset Allocation Team Market Update – May 2026
Investor sentiment thrived in April even in the wake of an erratic geopolitical backdrop that has stoked fears of stagflation. Markets were whipsawed as investors digested a plethora of headlines around the Middle East conflict that has reshaped the outlook for energy prices, inflation, and growth. However, optimism around the artificial intelligence (AI) trade and a wave of upbeat earnings results in the megacap tech space drove stock markets to record highs. Still, the prolonged closure of the Strait of Hormuz has upended global energy flows and ushered in an energy crisis that has stoked fears about demand destruction and a hit to global growth.
Global equity markets (+10.0%) soared higher in April. The S&P 500 (+10.4%) capped its best monthly return since November 2020. However, gains were narrow – with the so-called Magnificent 7 group of stocks (+14.9%) driving much of the gain – while the equal weighted index was up just 5.9%. The S&P/TSX (+3.6%) underperformed amid relatively subdued returns in the heavyweight gold (-6.0%) and energy (+1.9%) sectors. That offset a respectable gain in the financials (+10.1%) space. Elsewhere, the MSCI EAFE (+7.0%) had a decent month, while the MSCI gauge of emerging market stocks (+14.5%) led the global charge – powered higher by a rally in Asian chipmaker stocks.
Fixed income markets barely budged. Global bond yields pushed higher following a wave of hawkish-leaning rhetoric from central banks. Indeed, persistent Middle East tensions and the blockade of the critical waterway spurred a rally in oil prices that has exacerbated inflation fears. Traders recalibrated their expectations for monetary policy in response and have all but abandoned their wagers for Federal Reserve rate cuts this year and have begun pricing in the chances of a rate hike in 2027 – while markets are currently pricing-in over two rate hikes from the Bank of Canada by year-end. For the month, both the Bloomberg US Aggregate Bond Index and the FTSE Canada Bond Universe rose just 0.1%.
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