Global share markets bounced back strongly in May 2026, with major indices reaching or nearing record highs as geopolitical tensions eased and investor confidence recovered. Technology and AI-driven companies led the charge, with the NASDAQ rising 8.4% and the S&P 500 up 5.3% for the month. Closer to home, the NZX 50 and ASX 200 posted more modest gains, reflecting their lower exposure to high-growth technology. Interest rates remained the key watch point globally, with central banks still navigating persistent inflation and markets increasingly pricing in a "higher for longer" rate environment.

Markets regain their composure

After a shaky start to the year, financial markets found their footing in May. Investor confidence improved as geopolitical tensions - particularly in the Middle East - showed signs of easing. While risks remain, the prospect of reduced conflict and fewer disruptions to global oil supply helped stabilise sentiment across markets.

The recovery was broad but uneven. High-growth technology and artificial intelligence (AI) remained the dominant force driving returns, while more defensive or domestically focused markets - including our own NZX 50 - lagged behind their global counterparts.

United States: AI enthusiasm fuels a strong rebound

Wall Street had a standout month. The S&P 500 rose 5.3% and the tech-heavy NASDAQ Index surged 8.4% in May, with much of that strength coming from continued investor enthusiasm for AI and long-term technology themes. Solid company earnings across major sectors also supported the share market rally.

It is worth noting, however, that a relatively small group of high-growth companies - what we term the "Magnificent 7" - continue to drive a disproportionate share of US index returns. This concentration means a handful of stocks can generate the bulk of market performance in any given month, which increases both volatility and what's known as concentration risk. Put simply, when just a few companies are doing most of the heavy lifting, a stumble from any one of them can have an outsized effect on the whole index.

On the economics side, inflation in the US remains persistent even as economic growth gradually cools. As a result, expectations for interest rate cuts have been pushed back, with markets now increasingly pricing in a prolonged period of elevated rates.

Europe and the United Kingdom: cautious optimism, with political noise

European share markets posted solid gains, with the MSCI Europe Index rising 3.2% in local currency terms. Sentiment was generally positive, though investors kept a close eye on central bank signals heading into June.

The European Central Bank (ECB) did not hold a scheduled meeting in May, but markets were pricing in the possibility of a rate move (upwards) at the June meeting.

In the United Kingdom, the Bank of England showed an expectation to hold rates steady at its June meeting. UK government bond markets (known as "Gilts") experienced some volatility during the month, driven by the global rate backdrop and political uncertainty following the governing Labour Party's loss of seats in the UK local elections. Just a reminder: bond prices tend to move inversely to yields, so when uncertainty pushes yields up, bond prices fall - and vice versa.

Japan: standout performer in Asia

Japan's Nikkei 225 Index was the headline performer in May, rising 11.4% for the month. The gain reflected a combination of strong corporate earnings, ongoing yen dynamics, and continued investor appetite for Japanese equities as part of a broader Asia reallocation story.

The MSCI World Index (which reflects the share markets across developed markets) rose 4.6% over the month, demonstrating the strength of these OECD markets more broadly.

Australia and New Zealand: solid but more subdued

Locally, share market returns were more modest - and that's largely by design. Both the NZX 50 and ASX 200 have little exposure to the kind of pure-play software and technology companies that drove the outsized gains seen in the US and Japan.

The NZX 50 rose 2.6% for the month, while the ASX 200 gained 0.75% in Australian dollar terms. These are respectable numbers in their own right, even if they look pretty modest alongside Wall Street's run.

NZ's economy continues to present a mixed picture. The labour market remains relatively stable, but forward-looking indicators suggest only modest growth ahead. Closer to home, the Reserve Bank of New Zealand (RBNZ) signalled that interest rate increases are on the way - the question now is less about whether they'll come, and more about when. That prospect adds further pressure on New Zealand households and could slow economic activity in the months ahead.

Interest rates and bonds: the "higher for longer" question

Bond markets experienced volatility through May but ended the month with modest gains. Global bonds hedged back to NZD were up 0.5%, while domestic NZ government bonds performed considerably better, returning 1.4% for the month.

Bond yields moved closely alongside oil prices and geopolitical developments during May - rising mid-month as tensions flared before easing back as the outlook improved.

In the US, strong labour market data and persistent inflation kept yields relatively elevated. Europe saw mixed outcomes as the prospect of further central bank action remained live.

What investors are watching in June

A few things will be in focus heading into June:

• Central bank decisions - the European Central Bank and Bank of England both have meetings in June, and market participants will be watching for any signals on the direction of rates
• US inflation data - any movement on US CPI will be closely watched, as it remains the key variable shaping Federal Reserve (the Fed) thinking
• Geopolitics - the Middle East situation continues to influence oil prices and broader market sentiment
• RBNZ timing - with rate hikes now firmly signalled, local investors will be watching for any indication of when the first move might land

TL;DR - May 2026 summary

• The S&P 500 rose 5.3% and the NASDAQ surged 8.4%, driven by AI and technology enthusiasm.
• Japan's Nikkei 225 was the standout performer globally, up 11.4%
• The MSCI World Index returned 4.6% for the month
• Locally, the NZX 50 gained 2.6% and the ASX 200 rose 0.75% (in A$)
• Domestic NZ government bonds returned a solid 1.4%; global bonds hedged to NZD were up 0.5%
• Interest rates remain the big unknown - markets are increasingly pricing in a "higher for longer" environment globally, and the RBNZ has signalled hikes are coming

Markets go up and down - that's the nature of investing. What May showed is that diversification across geographies and asset classes continues to do its job: even when some markets or assets are running hard and others are lagging, a well-spread portfolio helps smooth out the peaks and troughs over time. 

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