Monthly Market Summary

• U.S. stocks had a strong May. The S&P 500 — an index that tracks 500 of America’s largest companies — rose 5.3% and reached several new record highs. Almost all of that gain came from technology stocks, which jumped 16.0%. In fact, only 3 of the market’s 11 industry groups rose at all. The other 8 fell, with energy, utility, and household-goods companies dropping the most.
• Bonds gained a little, too, even though interest rates jumped in the middle of the month. The broad U.S. bond market returned 0.3%. Bonds issued by companies did slightly better, returning between 0.5% and 0.7%.
• Stocks outside the U.S. rose as well. Those in emerging markets — developing economies such as India and Brazil — gained 9.7% and beat the U.S. market. Stocks in other developed countries rose a more modest 3.2%.

Stocks Hit New Highs as Global Tensions Ease

May was a strong month for the stock market. Most of the major U.S. stock indexes — including the S&P 500, the technology-heavy Nasdaq, the Dow Jones, and the small-company Russell 2000 — reached new record highs. Even so, the gains were heavily concentrated in technology. The technology group rose 16% and was the only one of the market’s 11 industry groups to beat the S&P 500; the other 10 lagged behind, and 8 of them actually lost ground. Fast-growing companies again outpaced slower, steadier ones (up about 7% versus 3%). This is the year’s big story: companies tied to artificial intelligence (AI) keep pulling ahead of more traditional businesses.

Bonds edged higher as well, with the broad U.S. bond market returning 0.3%. That small gain is notable, because interest rates spiked in the middle of the month. The yield on the 30-year U.S. Treasury bond climbed above 5% for the first time since 2007, and the 10-year Treasury reached its highest level in a year. (When yields rise, it generally costs more to borrow money.) What pushed rates up? Two reports showed that inflation — the pace at which prices rise — came in hotter than expected, and higher oil prices tied to the Middle East conflict added to the pressure. As a result, investors now believe it is more likely than not that the Federal Reserve will raise interest rates at its December 2026 meeting. That is a notable change from earlier this year, when most expected the Fed to cut rates. In short, the market is preparing for interest rates to stay higher for longer than once thought.

This Year’s Two Big Forces: World Events & Artificial Intelligence

Two big forces have shaped the markets this year. The first is world events — namely, conflict overseas. Earlier worries about trade and tariffs have given way to military conflict in the Middle East, which has disrupted the world’s oil supply. The Strait of Hormuz — a narrow shipping lane that carries about 20% of the world’s oil — has been largely closed since the conflict began in late February, drawing down global oil supplies. Oil prices reached four-year highs earlier this year but have held up better than many feared. In May there was some relief, as talks between the U.S. and Iran made progress and investors began to expect that the Strait could reopen. A key measure of U.S. oil prices ended the month below $90 a barrel, down about 16.5%. Even so, the situation is far from settled: even a successful deal would take months to return oil shipments to normal. What happens next in the Middle East will shape energy prices, inflation, and the broader market.

The second force is the enormous buildout of artificial intelligence. Companies are spending hundreds of billions of dollars on the physical foundation that AI needs — data centers, computer chips, and the power plants to run them. This year alone, the largest technology companies are expected to spend more than $600 billion, most of it on AI. All that spending is helping the economy grow and is starting to lift company profits. It is also causing big shifts: shortages of certain technology parts, and rapid growth for companies that are reshaping their products for the AI era. This wave of spending is a major reason technology stocks have pulled so far ahead of the rest of the market.

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Important Disclosures

This commentary is provided for informational and educational purposes only and should not be considered personalized investment, tax, or legal advice. The views expressed are based on current market conditions and are subject to change without notice.

Any forward-looking statements reflect expectations as of the date of this publication and involve risks and uncertainties. Actual results may differ materially due to changes in market conditions, economic factors, interest rates, inflation, government policy, or other unforeseen events.

Past performance is not indicative of future results. Market returns can vary significantly from year to year, and investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in all market environments.

References to specific asset classes, sectors, or investment themes are for illustrative purposes only and do not constitute a recommendation to buy or sell any security. Diversification does not ensure a profit or protect against losses during market declines.

Interest rate changes, inflation trends, and economic conditions can affect both equity and fixed-income investments. Bond values may fluctuate as interest rates change, and corporate bonds carry credit risk related to the financial health of the issuing company.

This material should not be relied upon as a sole basis for making investment decisions. Investors should consider their individual goals, risk tolerance, and financial circumstances and consult with their financial advisor before making any investment decisions.