Monthly Review – May 2026
OUR PERSPECTIVE
“The market is the most efficient mechanism anywhere in the world for transferring wealth from impatient people to patient people.” ~ Warren Buffett
Markets entered May with no shortage of reasons to worry. Valuations remain elevated, geopolitical risks are obvious, tariffs have complicated the inflation outlook, and the AI rally continues to attract comparisons with previous episodes of speculative excess. Yet the most important market signal is often the simplest one: price.
Despite the noise, equity markets continued to make new all-time highs. That does not mean risk has disappeared. It does, however, suggest that momentum, liquidity and earnings expectations remain stronger than the prevailing narrative implies. When markets absorb bad news and continue to rise, investors should at least consider the possibility that the underlying fundamentals are better than the headlines. Investors also need to remember that risk is not limited to being invested. There is an opportunity cost to remaining on the sidelines while markets compound higher, particularly when cash returns are increasingly vulnerable to inflation and policy-driven nominal growth.
Indeed, the economic data supports a more constructive interpretation. The May ISM Manufacturing survey showed continued expansion, with New Orders strengthening further. New orders matter because they are a forward-looking indicator of corporate demand, production and future revenue growth. At the same time, U.S. business formation remains elevated, suggesting that entrepreneurial activity, risk appetite and private-sector dynamism remain intact. These are not the usual characteristics of an economy rolling over into recession.
This matters because today’s market optimism is not built solely on lower interest-rate expectations. It is also being supported by nominal growth. In a world of fiscal dominance, larger deficits, industrial policy, energy investment and AI infrastructure spending, inflation may remain higher and more volatile than investors became accustomed to during the monetary era. That is a central argument of our Fiscal Age thesis, which readers can download from our website.
Moderately higher inflation can be uncomfortable for central banks, but it can also inflate nominal revenues, support corporate pricing power, drive new investment and sustain earnings growth. The danger comes when inflation becomes disorderly, compressing margins and forcing bond yields higher. For now, markets appear to be discounting the more benign version: resilient demand, rising nominal GDP and continued AI-led capital investment.
The coming wave of private-market AI and space-related IPOs, including companies such as Anthropic and SpaceX, may further reinforce retail enthusiasm. Meanwhile, many valuation-sensitive and non-U.S. institutional investors remain reluctant participants in the AI rally. If those investors are ultimately forced back into the market by improving fundamentals and rising prices, their current caution may become tomorrow’s source of demand.
The market might seem expensive. But expensive is not the same as fragile. For now, price, liquidity and growth continue to argue that the cycle is not yet exhausted.
Opportunity cost is the value of the next best alternative forgone when making a decision. In investing, it is the return sacrificed by holding one asset, such as cash, instead of another that may rise in value.
Market Review
Deflationary Boom Assets
(Equities, Corporate Bonds, EMD)
Risk assets rallied strongly in May, led by equities, credit and emerging market debt. The Bloomberg World Equity Index returned 5.19% (USD), with growth materially outperforming value, rising 6.81% (USD) versus 1.85% (USD). The strongest leadership came from technology and AI-linked markets, with the Nasdaq Composite up 8.43%, the Magnificent 7 up 6.64% and Asia ex-Japan equities up 9.69% (USD), driven mainly tech-leadership in Taiwan and South Korea. Emerging markets also performed well, rising 8.52% (USD), supported by a weaker U.S. dollar, improved risk appetite and continued enthusiasm around AI supply chains. China and India lagged, falling -0.94% (USD) and -0.17% (USD) respectively. Corporate bonds and EMD also delivered positive returns, helped by resilient growth, tight credit spreads and strong liquidity conditions.
Deflationary Bust Assets
(Government Bonds)
Government bonds produced modest positive returns, although performance remained constrained by sticky inflation, elevated fiscal supply and continued uncertainty around central bank policy. U.S. Treasuries rose 0.11%, while the broader U.S. Aggregate Bond Index gained 0.34%. UK Gilts performed better, returning 1.97%, and Euro government bonds returned 1.12%. Falling oil prices helped ease near-term inflation fears, but the broader bond market remained cautious, particularly as U.S. economic data continued to point towards underlying resilience rather than recession.
Inflationary Boom Assets
(Commodities & Managed Futures)
Inflationary boom assets were mixed. Industrial commodities performed well, with copper rising 5.34% and industrial metals up 4.81%, supported by stronger manufacturing demand, AI infrastructure spending and improving global growth expectations. However, energy was weak: Brent crude fell 19.26% and the Bloomberg Energy Spot Index declined 11.10%, as markets reassessed the geopolitical risk premium following the March shock. Managed futures were broadly flat, with the SG CTA Index up 0.28% and SG Trend up 0.25%, reflecting less persistent cross-asset trends during the month.
Inflationary Bust Assets
(Precious Metals & Inflation-Linked Bonds)
Precious metals consolidated after a strong prior run. Gold declined 1.68%, although it remains up 38.03% over one year, highlighting its continued role as a hedge against fiscal dominance, geopolitical risk and currency debasement. Inflation-linked bonds were positive, with U.S. TIPS up 0.21%, UK linkers up 1.30% and Euro inflation-linked bonds up 0.56%. Inflation expectations remain supported by tariffs, energy-security concerns and fiscal policy, but May’s decline in oil prices reduced immediate pressure.
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Important information
Shard Capital Partners LLP is a limited liability partnership, registered in England with registration number OC360394. Shard Capital Partners LLP Registered office: Floor 3, 36-38 Cornhill, London, EC3V 3NG. Shard Capital Partners LLP is authorised and regulated by the Financial Conduct Authority in the United Kingdom, reference number 538762.
This document is provided for information purposes only and is intend for confidential and sole use by the recipient. It is not to be reproduced, copied or made available to others. The information set out in this document does not constitute investment advice or a personal recommendation. The views expressed in this document are not intended as an offer or a solicitation, to purchase or sell any security or other financial instrument, credit or lending product or to engage in any investment activity.
Past performance is not a guide to future performance. It is important that you understand that with investments, your capital is at risk. The value of investments, as well as the income derived from them, can go down as well as up and investors may get back less than the original amount invested. It is your responsibility to ensure that you make an informed decision about whether to invest with us, based on your particular objectives. If you are still unsure if investing is right for you, please seek independent advice.
The information and opinions expressed within this document are the views of (the company) and are based on information we believe to be reliable, but we do not represent that they are accurate or complete, and they should not be relied upon as such. Any information provided is given in good faith but is subject to change without notice.
No liability is accepted whatsoever by (the company) or its employees and associated companies for any direct or consequential loss arising from this document.
Disclaimer:
This document is provided for information purposes only and is intend for confidential and sole use by the recipient. It is not to be reproduced, copied or made available to others. The information set out in this document does not constitute investment advice or a personal recommendation. The views expressed in this document are not intended as an offer or a solicitation, to purchase or sell any security or other financial instrument, credit or lending product or to engage in any investment activity.
Past performance is not a guide to future performance. It is important that you understand that with investments, your capital is at risk. The value of investments, as well as the income derived from them, can go down as well as up and investors may get back less than the original amount invested. It is your responsibility to ensure that you make an informed decision about whether to invest with us, based on your particular objectives. If you are still unsure if investing is right for you, please seek independent advice.
The information and opinions expressed within this document are the views of (the company) and are based on information we believe to be reliable, but we do not represent that they are accurate or complete, and they should not be relied upon as such. Any information provided is given in good faith but is subject to change without notice.
No liability is accepted whatsoever by (the company) or its employees and associated companies for any direct or consequential loss arising from this document.