May 2026 Market Recap: Record Highs, IPO Buzz, Inflation Pressures, and a New Fed Chair
- Chris Harris, CFP® , FMVA
- Jun 3
- 7 min read
May has come and gone in the blink of an eye. With warmer weather arriving, school letting out, and summer activities ramping up, life seems to get a little more chaotic this time of year. The same could be said for the financial markets. May proved to be another eventful month for investors, filled with persistent inflation concerns, rising interest rates, geopolitical uncertainty, and a changing of the guard at the Federal Reserve. Yet despite all of those headwinds, it was also a rewarding month for investors, as major stock market indices climbed to new all-time highs while the bond market continued to wrestle with inflation pressures and elevated yields.
The S&P 500 rose above 7,500 for the first time, buoyed by continued strength in technology stocks. Meanwhile, long-term interest rates climbed to levels not seen in nearly two decades before pulling back later in the month as oil prices eased. Hopes surrounding a potential peace deal in Iran also lent support to markets, though the outlook remains fluid.
May also brought the first leadership change at the Federal Reserve since 2018, as Kevin Warsh was sworn in as the new Fed Chair. Although such transitions naturally invite questions about the future direction of monetary policy, history demonstrates that markets and the broader economy have performed well under a variety of Fed leaders. For long-term investors, the recent rally in equities is an encouraging sign, though maintaining a balanced portfolio remains essential for navigating all phases of the market cycle.
Key Market and Economic Drivers in May
• The S&P 500, Nasdaq, and Dow Jones Industrial Average posted monthly gains of 5.1%, 8.4%, and 2.8%, respectively. All three major U.S. indices closed the month at new all-time highs.
• Market volatility, as measured by the CBOE VIX index, declined over the course of the month, finishing May at 15.32.
• International developed markets returned 2.6% based on the MSCI EAFE Index in U.S. dollar terms, while emerging markets returned 9.5% based on the MSCI EM Index.
• The 30-year Treasury yield reached 5.18%, its highest point in nearly two decades, before finishing the month below 5%. The 10-year Treasury yield rose to 4.4%. The Bloomberg U.S. Aggregate Bond Index returned 0.3% for the month.
• Oil prices declined, with Brent crude closing at approximately $92 per barrel and WTI at $88.
• Gold ended the month slightly lower at $4,539 per ounce. The U.S. Dollar Index stood at 98.94, also down only slightly.
• First quarter real GDP was revised lower from 2.0% quarter-over-quarter to 1.6%. April inflation showed headline CPI at 3.8% year-over-year and core CPI at 2.8%.
Long-term interest rates climbed before pulling back later in the month
Among the most notable developments in May was the sharp movement in interest rates. The 30-year U.S. Treasury yield hit its highest level in nearly two decades before settling back below 5%.1 Both the 10-year and 2-year yields also moved higher as expectations grew that interest rates would remain elevated for an extended period. Markets now anticipate that the Fed will raise rates once by mid-2027 in response to ongoing inflation concerns.
This rate movement was driven in part by Consumer Price Index and Producer Price Index reports that exceeded expectations, largely due to energy prices. Rising inflation tends to push interest rates higher, as investors seek greater compensation when the purchasing power of each dollar is eroding. Some economists have raised concerns that if fuel prices remain elevated, inflation could broaden across a wider range of goods. Gasoline prices have come down slightly to around $4.30 per gallon on average nationally, though this remains about $1.50 higher than levels seen before the war in Iran.2
Higher interest rates carry meaningful implications across the economy and financial markets, particularly when they reflect inflationary pressures. For consumers, higher rates translate directly into increased borrowing costs, including personal loans and mortgage rates. Businesses also face higher costs when financing their operations or funding growth initiatives.
For financial markets, higher rates reduce the present value of future cash flows, which can weigh on asset prices today. On the other hand, elevated yields mean that bonds are now offering more meaningful income than they have in years, which can be a positive development for diversified portfolios going forward.
That said, it is worth maintaining perspective. Markets have swung in both directions multiple times this year as expectations around a potential peace deal have shifted, and the situation continues to evolve. Interest rates have also been notoriously difficult to forecast over recent years. While they remain elevated today, they are still well below the levels many had feared when inflation was running hotter and the Fed was actively hiking rates.
Equity markets extended their record-setting run
Despite headwinds from higher interest rates, the stock market continued its record-setting pace. The S&P 500 surpassed 7,500 in May for the first time, and through the end of the month, there had been 22 all-time highs recorded this year.3 The Magnificent 7 and other large technology stocks have continued to be a driving force, though the breadth of the rally has been wider than in some prior years.
This strong market environment has generated considerable interest in anticipated IPOs from companies such as SpaceX, Anthropic, OpenAI, and others. These companies have grown largely through private investment, reflecting a broader trend over the past two decades toward staying private for longer. While near-term stock price moves following a public offering tend to attract significant attention, the more meaningful long-term benefit of IPOs is that they expand the investment universe for all investors. Looking at today's largest technology companies, it is their decades-long performance after going public, not the IPO itself, that has been most significant.
The frequency with which major indices reach new all-time highs is not unusual during a bull market. Historically, markets have trended upward over long periods, meaning they naturally spend much of their time at or near record levels. What matters more than any single index level is whether the underlying fundamentals remain sound. Corporate earnings have continued to grow at a healthy pace, with consensus estimates pointing to further gains in the year ahead.4
Robust earnings growth has helped keep valuations relatively stable even as markets have set new records. The S&P 500 price-to-earnings ratio is hovering around 20.9x, within the range seen over the past several years. At the same time, these valuations remain well above long-term historical averages. While elevated valuations do not necessarily predict near-term market direction, they are an important consideration in constructing portfolios for the long run. Maintaining diversification across sectors, market capitalizations, and investment styles can help investors manage risk while still participating in ongoing market trends.
Kevin Warsh takes the helm at the Federal Reserve
Kevin Warsh was sworn in as the new Chair of the Federal Reserve in May, succeeding Jerome Powell. Warsh previously served on the Fed's Board of Governors during the 2008 global financial crisis, and markets broadly view him as a familiar figure with substantial experience in monetary policy and financial markets.
Fed leadership transitions are intentionally infrequent, so they naturally prompt questions about the policy outlook in the years ahead. Warsh is widely regarded as a reformer, which can introduce additional uncertainty regarding how monetary policy will be conducted under his leadership. In his recent Senate testimony, Warsh emphasized that monetary policy independence is essential and that policymakers must act in the nation's interest. He has also signaled a preference for a more focused central bank, with views that have historically leaned toward vigilance on inflation risks.
Regardless of what institutional reforms Warsh may pursue, policymakers clearly face a challenging backdrop. The overall economy remains healthy, but inflation has picked up in recent months while labor market signals have been mixed. Conditions that would normally call for lower rates to support hiring are at odds with conditions that would argue for tighter policy to address inflation. This difficult balancing act has caused markets to shift from pricing in further rate cuts to anticipating at least one rate hike.
For investors, history offers reassurance that the economy has expanded across the tenures of many different Fed chairs, regardless of the political environment or policy approach in place. Earnings growth, productivity, demographics, and innovation remain the most important drivers of long-run returns. Leadership changes at the Fed can introduce short-term uncertainty, but they rarely alter these underlying long-term fundamentals.
Thank you for your continued trust.
References
3. Clearnomics research based on Standard & Poor's index data
4. Clearnomics research based on LSEG earnings data
Index Descriptions
S&P 500
The Standard & Poor's 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
Dow Jones
The Dow Jones Industrial Average is comprised of 30 stocks that are major factors in their industries and widely held by individuals and institutional investors.
NASDAQ
The NASDAQ Composite Index measures all NASDAQ domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index.
MSCI Emerging Markets Index
The MSCI EM (Emerging Markets) Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of the emerging market countries of the Americas, Europe, the Middle East, Africa and Asia. The MSCI EM Index consists of the following emerging market country indices: Brazil, Chile, Colombia, Mexico, Peru, Czech Republic, Egypt, Greece, Hungary, Poland, Qatar, Russia, South Africa, Turkey, United Arab Emirates, China, India, Indonesia, Korea, Malaysia, Philippines, Taiwan, and Thailand.
MSCI EAFE Index
The MSCI EAFE Index is a free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the US & Canada. The MSCI EAFE Index consists of the following developed country indices: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland and the UK.
Bloomberg US Aggregate Bond Index
The Bloomberg U.S. Aggregate Bond Index is an index of the U.S. investment-grade fixed-rate bond market, including both government and corporate bonds.
The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Examples are for illustrative purposes only. All investing involves risk of loss including the possible loss of all amounts invested.
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