Insights

May 2026 Monthly Market Review

June 3, 2026 · The Faith Foundation Team

May extended April’s rally, with U.S. equity markets reaching fresh record highs even as the underlying conflict in the Middle East showed signs of hardening rather than resolving.

U.S Overview

May extended April’s rally, with U.S. equity markets reaching fresh record highs even as the underlying conflict in the Middle East showed signs of hardening rather than resolving. Investors looked past these risks to focus on resilient earnings — particularly across large-cap technology and broader AI-related stocks. This U.S. equity strength remained the largest single contributor to gains across our investment portfolios.

Our portfolios participated in the continued advance, though we remain cautious about the durability of this rally. The persistent disconnect between record-high asset prices and a real economy contending with high oil prices, elevated inflation, and ongoing geopolitical risk warrants close attention. The economic consequences of current U.S. foreign policy continue to weigh on consumers and businesses even as financial markets press higher.

On May 13th, the Senate confirmed Kevin Warsh as the next Fed Chair in a 54-45 vote — the most divisive Fed chair confirmation in history — with Warsh taking office on May 15 as Jerome Powell’s chair term expired. In a break with longstanding tradition, Powell announced he will remain on the Board of Governors rather than departing the Fed entirely, ensuring continuity on the rate-setting committee. The Fed’s “higher for longer” posture continued to weigh on the fixed-income portions of our portfolios — a key reason our Conservative portfolios, with their larger bond allocations, captured a smaller share of May’s upside than our Moderate or Aggressive options.

International Overview 

International developed markets diverged sharply in May, with Asia surging to fresh records while Europe lagged. Europe’s STOXX 600 posted only modest gains for the month and remains down since the Iran conflict began, weighed by the continent’s greater exposure to elevated energy costs and weaker industrial momentum. The European Central Bank kept its key deposit rate at 2%, but officials signaled growing concern that energy-driven inflation could prove more persistent than initially expected.

In Asia, markets showed a strong recovery. Japan’s Nikkei 225 surged past 65,000 for the first time in its history, closing the month with a year-to-date gain of roughly 29%, making it among the best-performing major indices in the world for 2026. South Korea’s Kospi delivered an even more remarkable performance, posting its strongest monthly gain since January 1998 — up nearly 31%. This was largely driven by Samsung Electronics, which briefly crossed $1 trillion in market capitalization. Despite Asia’s heavy reliance on Middle Eastern oil imports, investors looked past the conflict to focus on AI investments. This unusual strength meaningfully boosted the international equity allocations of both our Diversified portfolios and our Fossil Free portfolios.

Emerging markets posted strong gains in May, led by technology-heavy markets that have ridden the global AI narrative; the MSCI Emerging Markets Index extended its year-to-date advance into double digits. Equity benchmarks broadly added to monthly gains.

What does this mean for you?

May’s results extended April’s strong recovery, with our portfolios benefiting from a second consecutive month of broad equity gains. The strength in U.S. and Asian equity markets — particularly the extraordinary rallies in Japan, Korea, and Taiwan — was the primary contributor to the international portion of our portfolio returns.

The fixed income component of our portfolios continued to face headwinds, with longer-dated Treasury yields holding in an elevated range as persistent inflation concerns and uncertainty around the Warsh-led Fed’s policy trajectory kept pressure on bond prices. Two consecutive months of strong equity gains reinforce a core lesson: staying invested through market turbulence allows our portfolios to participate fully in the recovery.

What we are monitoring  

U.S.-Iran Military Conflict: The U.S.-Iran conflict is the most significant driver of sentiment in the market and economy as whole. The diplomatic standoff has settled into an uneasy structure in May: the formal ceasefire technically holds, but the U.S. naval blockade of Iranian ports has been extended indefinitely, and Iran has retained the ability to selectively close or condition traffic through the Strait of Hormuz. Brent crude climbed back to roughly $120 per barrel by month-end — up nearly 50% from pre-conflict levels. While markets have so far looked through the deteriorating fundamentals to focus on AI-driven earnings, the situation remains fragile and the longer-term path is uncertain. The damage incurred by oil and gas infrastructure in nations like Qatar will likely take years to repair, leaving global oil capacity diminished for the foreseeable future. We continue to monitor whether equity markets can sustain their record-setting pace if energy-driven inflation proves persistent.

Thank you for your continued trust and support. It is our privilege to serve as stewards of your financial assets.

Sincerely,

The Faith Foundation Team