Monthly Market Commentary – May 2026

(As of 05/31/2026)

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The Signal

Key Movements

May was defined by several notable market developments including: an Iran-war energy shock that appeared to contribute to inflation rising toward multi-year highs, a synchronized global bond selloff that tested the 60/40 model’s foundational assumptions, and an AI-driven equity rally seemed to offset some of the macro headwinds. Late-month diplomacy and softer Personal Consumption Expenditures Price Index (PCE) offered partial relief, but the structural inflation and fiscal concerns that drove long yields to decade-plus highs did not disappear.

Equity markets defied the rate headwind. The S&P 500 gained roughly 5% on the month and the Nasdaq 100 surged more than 10%, with the latter’s trend reflecting positive momentum across multiple horizons. Emerging markets led all major equity categories with a gain of near 10%, while the equal-weighted S&P lagged cap-weighted meaningfully, suggesting that performance was concentrated in mega-cap AI names. Fixed income told a harsher story: the broad US Aggregate bond index barely closed flat, and the 10-year Treasury yield rose modestly on net, obscuring intra-month swings that briefly pushed the 30-year above 5.2%, the highest since 2007. The 10-year T-Note’s short- and medium-term trend remained clearly negative, underscoring that bond bears retain structural control despite the partial month-end rally.

Commodities diverged sharply. Energy posted a deep monthly decline of nearly 16% as peace optimism may have punctured the war premium; the short-term crude oil trend stayed negative even as medium and longer trends remained constructive. Gold’s near-term tone deteriorated as real yields rose, though its long-term trend stayed constructive. The US dollar index held a slightly constructive tone across all horizons, reflecting hawkish Fed repricing and a safe-haven demand.

Trends at a Glance (As of 5/31/2026)

Equity Futures

Contract	Short Term	Medium Term	Long Term
E-Mini Nasdaq 100	Very Positive	Very Positive	Very Positive
E-Mini S/P 500	Very Positive	Very Positive	Very Positive
Nikkei 225	Very Positive	Very Positive	Very Positive
Russell 2000	Positive	Very Positive	Very Positive
Euro Stoxx 50	Positive	Positive	Positive
Hang Seng Index	Negative	Negative	Slightly Negative

Bond Futures

Contract	Short Term	Medium Term	Long Term
Long German Bund	Positive	Slightly Negative	Negative
Long Gilt	Positive	Negative	Slightly Negative
30Y US T-Bond	Slightly Negative	Negative	Negative
10Y US T-Note	Negative	Negative	Negative
2Y US T-Note	Negative	Negative	Negative
Japanese Bond	Negative	Very Negative	Very Negative

Commodity Futures

Contract	Short Term	Medium Term	Long Term
Natural Gas	Positive	Very Positive	Very Positive
Soybeans	Slightly Negative	Positive	Positive
Wheat	Negative	Positive	Positive
Corn	Negative	Negative	Slightly Negative
Brent Crude Oil	Negative	Positive	Positive
WTI Crude Oil	Negative	Positive	Positive
Silver	Negative	Slightly Negative	Positive
Gold	Negative	Negative	Positive

Currency Futures

Contract	Short Term	Medium Term	Long Term
Australian Dollar	Slightly Positive	Very Positive	Very Positive
US Dollar Index	Slightly Positive	Slightly Positive	Slightly Positive
Swiss Franc	Slightly Positive	Neutral	Neutral
British Pound	Slightly Negative	Neutral	Slightly Positive
Euro	Negative	Slightly Negative	Slightly Negative
Japanese Yen	Negative	Negative	Very Negative
Canadian Dollar	Negative	Slightly Negative	Slightly Negative

Calculations by Kensington Asset Management.

For more information on trends, please refer to Appendix: Trend Label Methodology

Drivers

Important themes to consider

Inflation and Fed Repricing: April Consumer Price Index (CPI) accelerated to 3.8% year-over-year from 3.3% in March, with core rising to 2.8%; April Producer Price Index (PPI) surged 6.0% year-over-year, its largest 12-month advance since late 2022. These prints contributed to collapsed residual rate-cut expectations, pushing CME FedWatch pricing toward roughly even odds of at least one hike by year-end. Kevin Warsh was confirmed as Fed chair on a 51-45 vote, the closest in Fed history, adding further uncertainty. His stated opposition to Quantitative Easing (QE) and preference for balance-sheet reduction may have removed the implicit backstop that had influenced long-end term premiums for 18 years. Real average hourly earnings fell 0.3% year-over-year in April, meaning workers absorbed the price shock without compensating wage gains.

Iran War and the Strait of Hormuz: With the Strait effectively closed since the conflict began in February 28, high oil prices embedded persistent inflation expectations across the yield curve until a late-month 60-day ceasefire extension triggered a sharp relief rally: oil fell, Treasury yields retreated, and equities hit fresh records. But the durability of the deal remains to be seen, and Hormuz transit costs remained prohibitive.

AI Capex Cycle vs. Bond Market Discipline: Nvidia’s Q1 results, with second-quarter revenue guidance of $91 billion, reinforced hyperscaler spending intentions and kept equity sentiment buoyant. Goldman Sachs estimated cumulative AI capital expenditures (CapEx) at $7.6 trillion over five years, which some institutional research suggests could lift the R-star (the economy’s neutral or natural real short-term interest rate) justifying persistently higher neutral rates. Yet the same CapEx wave contributed to the bond selloff. AI infrastructure financing requires large, long-duration issuance that competes with sovereign borrowers for global capital. The 60-day correlation between S&P 500 returns and Treasury returns reached its highest level in over two decades, effectively disabling fixed income as a portfolio hedge when equity volatility rose.

Looking Forward

What we’re watching

June pivots on two developing scenarios. If the ceasefire framework solidifies and Hormuz transit resumes at scale, oil-driven inflation pressure would mechanically ease, rate-hike odds would recede, and equities could extend their upward momentum into a tenth week although outcomes remain uncertain. Conversely, if talks fracture (Tehran has demanded nuclear program preservation and full sanctions relief while Washington maintains the blockade), crude oil prices could increase again, and the Fed’s June 16–17 FOMC meeting would face pressure to signal a hike rather than an extended pause. Fed Vice Chair Jefferson described policy as ‘well positioned’ but acknowledged upside inflation risks and downside labor market risks, encapsulating the committee’s genuine two-sided dilemma.  Key catalysts include the May Employment Situation (June 5), May CPI (June 10), May PPI (June 11), and the FOMC decision (June 17). Warsh’s first formal post-meeting press conference warrants close attention for signals on balance-sheet trajectory and rate-hike tolerance.

Investor Lens

Practical framing for investors

Bonds as hedges, not safe havens: With 60-day positive equity-Treasury correlation reaching a multi-decade high in May, long bonds amplified portfolio volatility rather than dampening it. This correlation regime tends to persist when inflation is high and volatile, like in our current environment, rather than resolving quickly. Thus, fixed income exposure may be more additive at shorter maturities where cost of holding is attractive and sensitivity to further yield spikes is lower.

Equity resilience: The S&P 500 extended its winning streak to nine weeks, but the equal-weighted index materially lagged the cap-weighted benchmark. Leadership remains concentrated in a handful of mega-cap AI names. That is narrow but not obviously unstable: AI CapEx commitments remain large and Nvidia’s guidance confirmed demand visibility. The risk is a shock to the narrow leadership (via a rates spike, an earnings miss, or a geopolitical escalation) that would disproportionately affect a concentrated portfolio. Concentration is a sharp knife that cuts both ways.

Gold’s conflicting signals: Gold declined on the month as rising real yields overwhelmed the geopolitical safe-haven bid, a result that ran counter to many investors’ intuitions given the active Middle East conflict. An explanation could be that gold is a non-yielding asset whose opportunity cost rises mechanically when real rates climb, and in May the rates channel dominated. The long-term trend remains constructive and central bank accumulation has continued at scale. A ceasefire that reduces energy inflation while leaving fiscal and geopolitical uncertainty intact could allow the long-term bull thesis to reassert, but near-term direction remains seemingly tightly linked to US real yields.

Index Returns (As of 5/31/2026)

Equities

Index	1M	3M	QTD	YTD	TTM
Nasdaq 100 Index	10.58 pct	21.74 pct	27.9 pct	20.45 pct	43.09 pct
MSCI Emerging Markets Index	9.71 pct	9.47 pct	25.87 pct	25.73 pct	55.14 pct
S&P 500 Index	5.26 pct	10.52 pct	16.31 pct	11.27 pct	29.78 pct
Russell 2000 Index	4.37 pct	11.26 pct	17.11 pct	18.15 pct	43.08 pct
MSCI EAFE Index	3.18 pct	-0.3 pct	10.97 pct	9.8 pct	23.51 pct
Dow Jones Industrial Average Index	2.93 pct	4.64 pct	10.38 pct	6.86 pct	22.71 pct
MSCI World ex US Index	2.91 pct	-0.02 pct	10.62 pct	9.78 pct	24.76 pct
S&P 500 Equal Weight Index	2.68 pct	2.31 pct	8.81 pct	9.53 pct	20.43 pct

Equity Sectors

Index	1M	3M	QTD	YTD	TTM
S&P 1500 Health Care Sector Index	2.66 pct	-5.52 pct	2.51 pct	-2.43 pct	15.0 pct
S&P 1500 Consumer Discretionary Sector Index	2.33 pct	7.14 pct	13.84 pct	3.86 pct	16.22 pct
S&P 1500 Materials Sector Index	-0.11 pct	-4.19 pct	2.92 pct	12.45 pct	20.91 pct
S&P 1500 Industrials Sector Index	-0.41 pct	-1.34 pct	7.78 pct	12.85 pct	25.03 pct
S&P 1500 Real Estate Sector Index	-0.64 pct	1.29 pct	7.97 pct	10.22 pct	11.7 pct
S&P 1500 Communications Services Sector Index	-0.89 pct	8.96 pct	17.36 pct	9.29 pct	40.85 pct
S&P 1500 Financials Sector Index	-1.16 pct	0.94 pct	4.58 pct	-4.71 pct	3.77 pct
S&P 1500 Consumer Staples Sector Index	-3.37 pct	-7.58 pct	-0.3 pct	7.29 pct	2.3 pct
S&P 1500 Information Technology Sector Index	-3.37 pct	-7.58 pct	-0.3 pct	7.29 pct	2.3 pct
S&P 1500 Utilities Sector Index	-3.37 pct	-7.58 pct	-0.3 pct	7.29 pct	2.3 pct
S&P 1500 Energy Sector Index	-5.81 pct	1.12 pct	-8.34 pct	26.83 pct	43.73 pct

Bonds

Index	1M	3M	QTD	YTD	TTM
ICE BofA US Corporate Investment Grade Index	0.69 pct	-0.78 pct	1.26 pct	0.83 pct	6.19 pct
ICE BofA US Corporate High Yield Index	0.48 pct	0.97 pct	2.19 pct	1.62 pct	7.42 pct
S&P US Aggregate Bond Index	0.3 pct	-1.09 pct	0.54 pct	0.58 pct	5.16 pct

Commodities

Index	1M	3M	QTD	YTD	TTM
S&P GSCI All Metals Index (Spot)	2.44 pct	-2.11 pct	4.1 pct	10.78 pct	43.64 pct
S&P GSCI Agriculture and Livestock Index (Spot)	-4.64 pct	2.62 pct	-2.28 pct	4.65 pct	3.11 pct
S&P GSCI Commodities Index (Spot)	-9.61 pct	13.7 pct	-6.79 pct	26.63 pct	32.38 pct
S&P GSCI Energy Index (Spot)	-15.75 pct	28.57 pct	-12.45 pct	49.34 pct	45.42 pct

Rates, Credit, Volatility

Index	1M	3M	QTD	YTD	TTM
US 2Y Treasury Yield	11.0 bps	61.0 bps	20.0 bps	52.0 bps	10.0 bps
US 10Y Treasury Yield	5.0 bps	48.0 bps	15.0 bps	27.0 bps	4.0 bps
US 30Y Treasury Yield	0.0 bps	34.0 bps	10.0 bps	14.0 bps	6.0 bps
CBOE Volatility Index	-1.57 pts	-4.54 pts	-9.93 pts	0.37 pts	-3.25 pts
ICE BofA US MOVE Index	-1.85 pts	-3.16 pts	-25.83 pts	6.26 pts	-21.89 pts
Bloomberg IG OAS Index	-8.0 bps	-13.0 bps	-17.0 bps	-6.0 bps	-19.0 bps
Bloomberg HY OAS Index	-11.0 bps	-40.0 bps	-56.0 bps	-9.0 bps	-60.0 bps

Calculations by Kensington Asset Management.

Appendix

Trend Label Methodology

Trend labels summarize the directional strength of a security’s price trend across three time horizons. Six indicator groups are computed from daily Open-High-Low-Close Chart (OHLC) continuous futures prices:

Indicator Values	Description
Bollinger Bands	Price position relative to Bollinger Bands
Rolling High Low Bands	Price position relative to rolling high-low range bands
Keltner Channel Bands	Price position relative to Keltner Channels bands
Rate of Change (ROC)	Percentage change over a rolling window
Relative Strength Index (RSI)	J. Welles Wilder RSI recentered to zero (raw RSI − 50)
Exponential Moving Average (EMA) Cross Over	EMA fast/slow crossover ratio – 1

Every indicator is calculated at three distinct time horizons.

Horizon	Band Lookback	Fast EMA	Slow EMA	ATR Window
Short	25 days	5 days	20 days	40
Medium	100 days	20 days	100 days	40
Long	200 days	50 days	200 days	40

Each indicator is then normalized using a signed rank over a trailing 2,520-day (~10-year) window. The rank is computed on the absolute value of the metric, reflecting magnitude relative to history. The sign of the original value is preserved to retain direction. The resulting product is a signed rank within [−1, +1].  Band indicators are similar enough so that they are combined into a single band composite. The four components for each horizon (band composite, ROC, RSI, crossover) are averaged with equal weight to produce a single horizon score. The horizon score is bucketed into one of seven descriptive labels using fixed thresholds:

Score Range	Label
[−1.00, −0.75)	Very Negative
[−0.75, −0.25)	Negative
[−0.25, −0.05)	Slightly Negative
[−0.05, +0.05]	Neutral
(+0.05, +0.25]	Slightly Positive
(+0.25, +0.75]	Positive
(+0.75, +1.00]	Very Positive

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