May 2026 Market Recap
Last Month in the Markets: May 1– 29, 2026
What Happened in May?
Just prior to the start of May, the Bank of Canada, the U.S. Federal Reserve, and the European Central Bank all held interest rates steady as rising inflation, driven by higher energy prices, began to take hold. Markets, along with President Trump, had been hoping for rate reductions, as higher interest rates typically slow equity market growth. However, that was not the case last month.
Instead, optimism surrounding a potential de-escalation or resolution of hostilities in the Middle East pushed North American equity indexes higher. During the final two weeks of May, oil prices fell by 17%, while major equity indexes reached new record highs. Despite rising inflation and slowing economic growth, the prospect of an end to the conflict provided a positive catalyst for equities. Strong quarterly earnings from S&P 500 constituents also helped drive markets higher.
Gold and oil moved in opposite directions as negotiations aimed at ending the Middle East conflict progressed. The prospect of increased oil shipments through the Strait of Hormuz caused benchmark oil prices to fall by approximately $18 per barrel over the final two weeks of the month.
Events that influenced markets in May included:
1. May 8 – Strong Earnings Growth Supported the S&P 500
Much of the S&P 500’s recent strength can be attributed to a robust earnings season. Approximately 89% of companies had reported results by early May, with 84% delivering positive earnings-per-share surprises and 80% exceeding revenue expectations.
Compared to the same period a year ago, the blended earnings growth rate reached 27.7%, representing the strongest quarterly earnings growth in nearly five years.
2. May 8 – U.S. Employment Increased While Canadian Jobs Declined
U.S. nonfarm employment rose by 115,000 jobs in April, while the unemployment rate remained unchanged at 4.3%. It marked only the second consecutive monthly increase over the past year. Job gains were concentrated in health care, transportation and warehousing, and retail trade, while federal government employment continued to decline.
In Canada, employment fell by 18,000 jobs in April, and the employment rate declined by 0.1 percentage points to 60.5%. Although 14,000 jobs were added in March, the economy has lost a net total of 112,000 jobs so far in 2026. The unemployment rate increased to 6.9% from 6.7%. Full-time employment fell by 47,000 positions, while part-time employment rose by 29,000.
3. May 12 – U.S. Inflation Increased Nearly 4% Year Over Year
After rising 0.9% in March, the U.S. Consumer Price Index (CPI) increased by a further 0.6% in April. Nearly half of the monthly increase was attributed to rising energy prices.
Over the previous 12 months, headline inflation increased by 3.8%, up from 3.3% in March. Energy prices rose 17.9% year over year, while food prices increased by 3.2%.
4. May 13 – Bank of Canada Highlighted Risks from Tariffs and Conflict
The Bank of Canada’s Summary of Deliberations from its April 29 interest rate decision emphasized the economic risks posed by tariffs and the ongoing conflict in the Middle East.
The Bank indicated that these factors could contribute to higher inflation while slowing economic growth and employment. Policymakers noted that Canada’s outlook for growth and inflation remained highly dependent on the future path of tariffs and oil prices.
5. May 13 – U.S. Producer Inflation Continued to Rise
The U.S. Producer Price Index (PPI), which measures wholesale inflation, increased by 1.4% in April, following a 0.7% increase in March.
On a year-over-year basis, producer prices rose by 6.0%, marking the largest increase since December 2022.
6. May 19 – Canadian Inflation Moved Further Above Target
Canada’s Consumer Price Index increased by 2.8% year over year in April, up from 2.4% in March.
Energy prices, which rose 19.2% over the previous year, accounted for much of the increase. In addition, the impact of the removal of the federal consumer carbon tax no longer reduced annual inflation calculations as it had during the previous year.
Excluding gasoline, CPI increased by 2.0% in April, down from 2.2% in March.
7. May 20 – Federal Reserve Minutes Suggested Rates Could Remain Higher for Longer
Minutes from the Federal Reserve’s April 29 policy meeting revealed that committee members discussed maintaining current interest rate levels for longer than previously anticipated.
Some participants also suggested that additional rate increases could be warranted if inflation remains above the Federal Reserve’s 2% target. Despite the prospect of a more restrictive monetary policy, equity markets continued to perform well.
8. May 21 – The Magnificent Seven Continued to Drive S&P 500 Performance
A significant portion of the S&P 500’s earnings growth was generated by the “Magnificent Seven” companies: Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla.
These companies reported first-quarter earnings growth of 63.2%, compared with 17.4% for the remaining 493 companies in the index. Although they represent approximately 35% of the S&P 500’s market capitalization, they continue to have an outsized influence on overall index performance.
9. May 28 – U.S. Consumer Inflation Increased Again
The Personal Consumption Expenditures (PCE) Price Index, the Federal Reserve’s preferred measure of inflation, continued to show upward pressure.
In April, headline PCE rose 0.4%, while Core PCE, which excludes food and energy, increased by 0.2%. Compared with one year earlier, headline PCE rose 3.8%, while Core PCE increased 3.3%.
This marked the highest annual inflation reading since November 2023.
10. May 28 – U.S. Economic Growth Slowed Following Revision
The advance estimate for first-quarter U.S. Gross Domestic Product (GDP) was revised downward, showing annualized growth of 1.6%.
The revision reflected weaker-than-expected economic activity and reinforced concerns about slowing growth.
11. May 29 – Canadian GDP Disappointed
Canada narrowly avoided meeting the technical definition of a recession, which is typically defined as two consecutive quarters of declining economic growth.
In the first quarter of 2026, Canadian GDP contracted by 0.1%. This followed a 1.0% annualized contraction in the fourth quarter of 2025, underscoring the challenges facing the Canadian economy.
What’s ahead for June and beyond?
The next interest rate decisions from the Bank of Canada and the U.S. Federal Reserve are scheduled for June 10 and June 17, respectively. The Federal Reserve will also release its Summary of Economic Projections, including the closely watched “dot plot,” which outlines committee members’ forecasts for future interest rates.
Current market expectations suggest that inflation will remain above central bank targets, delaying any reductions in interest rates. Elevated energy prices are expected to continue filtering through the economy, contributing to inflationary pressures. Should oil prices remain high, central banks may be forced to consider further rate increases rather than cuts.
While this has not yet occurred, sustained inflation and higher interest rates will eventually place pressure on equity valuations or slow their upward trajectory.
Investors should continue to monitor developments related to the U.S.–Iran conflict and its impact on global oil prices, inflation, and interest rates. On June 1, Iran suspended negotiations with the United States, citing ceasefire violations and Israel’s continued military actions in Lebanon. Iran has also vowed to fully block the Strait of Hormuz. Following this announcement, oil prices rose by 7%. Further negotiations are unlikely to be straightforward and may contribute to continued market volatility.
