LCI Monthly – Markets in May 2026

Executive Summary

May extended April’s rally, but with a calmer macro backdrop and even more extreme leadership. The MSCI World added +4.6% in USD as the geopolitical clouds that hung over April began to lift: oil fell back below USD 100 a barrel as a credible US–Iran negotiation took shape, removing the energy-driven inflation scare from the front of investors’ minds. Attention returned squarely to the AI capital-expenditure cycle, where the leadership narrowed further. South Korea (+37.5% in local currency) delivered a second consecutive blow-out month, and the global IT sector (+17.5% in USD) once again dominated. The offsetting story was a sharp reversal in the previous winners and defensives alike: Energy (−5.9%) and Utilities (−5.2%) fell with the oil price, while several non-AI emerging markets – Indonesia, Brazil and China – posted clear losses. Fixed-income returns were uniformly positive but very small, as a hotter-than-expected US inflation print kept the Fed firmly on hold.

Equity Markets – Regional Performance

1-month returns in local currency

The standout, again, was South Korea (+37.5%), following April’s +33.9%. The KOSPI remains an almost pure AI memory-chip trade: Samsung Electronics and SK Hynix together reached a record 42.2% of the index in May. The surge pushed Korea’s total market capitalisation to roughly USD 5 trillion, overtaking India to become the world’s sixth-largest equity market. The same theme lifted Japan (+6.6%), helped by its semiconductor-equipment names and a still-soft yen, and the US (+5.3%), where the S&P 500 logged its 22nd record high of the year on the back of an exceptional earnings season. India (−0.5%), by contrast, gave back ground as capital rotated toward the Korean and Taiwanese chip complex, and China (−3.9%) fell on persistent property-sector and growth concerns.

Europe

Europe – A steady second tier. The Eurozone (+4.5%) was led by Italy (+4.1%) and Germany (+3.7%), both benefiting from cyclical and industrial exposure, while Switzerland (+3.5%) held up better than in April but still trailed the AI-driven markets given its defensive Nestlé–Roche–Novartis core. Spain (+3.1%) and France (+2.5%) were middling, and the United Kingdom (+0.8%) was once again the developed-market laggard, its defensive and energy tilt leaving it largely outside the AI rally.

North America

The US (+5.3%) led again, with the S&P 500 logging its 22nd record high of the year on the back of an exceptional earnings season: Q1 earnings grew around 30% year-on-year – driven by technology but broad-based at roughly 20% even excluding it – with 84% of S&P 500 companies beating EPS estimates. Canada (+2.3%) lagged, held back by its commodity and energy exposure as oil retreated.

Latin America

Latin America – The clear soft spot outside Asia. Brazil (−7.7%) was the worst performer in the region, hit by currency pressure and local political uncertainty despite an undemanding valuation (P/E 10.8, EY 9.2%), while Mexico (+2.7%) bucked the trend.

Asia-Pacific

The standout across all markets was South Korea (+37.5%), following April’s +33.9%. The KOSPI remains an almost pure AI memory-chip trade: Samsung Electronics and SK Hynix together reached a record 42.2% of the index in May. The surge pushed Korea’s total market capitalisation to roughly USD 5 trillion, overtaking India to become the world’s sixth-largest equity market. Japan (+6.6%) also rose, helped by its semiconductor-equipment names and a still-soft yen. By contrast, India (−0.5%) gave back ground as capital rotated toward the Korean and Taiwanese chip complex, China (−3.9%) fell on persistent property-sector and growth concerns, and Indonesia (−9.8%) was the single worst market in the universe for a second straight month, on continued outflows from non-AI emerging markets and weak commodity exposure. Australia (+0.9%) was muted, weighed down by its bank- and resources-heavy composition and the fall in commodity prices.

Equity Markets – Sector Performance

1-month returns in USD

Sector dispersion was, if anything, more extreme than in April. IT (+17.5%) stood alone at the top, lifted by another wave of hyperscaler capex commitments and memory-chip strength. After IT, the leadership thinned out sharply: Materials (+3.2%) and Consumer Cyclicals (+3.0%) were the only other meaningful gainers, with Health Care (+1.9%) recovering some of April’s weakness and Financials (+0.5%) and Industrials (≈0.0%) roughly flat.

The losers told the macro story. Energy (−5.9%) was the worst sector as crude fell back below USD 100 on the prospect of Middle East de-escalation, fully reversing April’s war premium. Utilities (−5.2%) and Consumer Staples (−2.1%) – the classic bond-proxy defensives – fell as investors rotated out of safety, and Communication Services (−0.4%) slipped despite the broader tech strength.

Valuations remain stretched at the top: IT now trades at 36.3× forward earnings and Consumer Cyclicals at 33.2×, against just 14.7× for Financials. The concentration that is driving the returns – a handful of chip and AI-infrastructure names – is also where the valuation risk is now most acute.

Fixed Income

The dominant macro signal was a US April CPI print of 3.8% year-on-year – the fastest pace since early 2023 – which reinforced expectations that the Federal Reserve will stay on hold, with the next cut now seen towards late 2026 or into 2027.

USD Bonds

US Treasuries returned +0.1% (YTM 4.3%) as the sticky inflation print capped any rally at the long end. Credit edged ahead: Corporate IG USD +0.7% (YTM 5.2%) and High-Yield USD +0.5% (YTM 6.9%).

EUR Bonds

Returns were uniformly small and positive: Eurozone government bonds +0.5% (YTM 3.2%), EUR Corporate IG +0.2% (YTM 3.6%) and EUR High-Yield +0.4% (YTM 5.3%), with the ECB comfortably on hold.

Emerging Market Debt (USD)

Emerging-market debt in USD edged higher: EM Sovereign +0.7% and EM Corporate +0.4%, with YTMs of 5.8% and 5.9% respectively, supported by the softer oil price and the broadly risk-on tone.

The takeaway is unchanged from April: with sovereign duration offering only modest carry, credit – particularly EM and high-yield carry – remains the better-paid leg of fixed income, even if May’s total returns were marginal everywhere.

Outlook

June begins with equity markets at record highs, leadership concentrated in a handful of AI and memory-chip names, and volatility low. The constructive macro shift in May – oil lower, a tentative US–Iran de-escalation – removes one tail risk, but introduces another in its place: with US inflation re-accelerating to 3.8%, the path to Fed easing has lengthened, not shortened. The two catalysts to watch are (i) whether the US–Iran negotiation holds and oil stays contained, and (ii) the durability of the AI-capex earnings cycle, on which an increasingly narrow market now depends.

La Côte Invest SA – Monthly Markets Commentary, May 2026.

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