US equities extended their remarkable rally in May. By month-end, the S&P 500 had recorded its ninth consecutive weekly gain — the longest winning streak since December 2023 and only the second such occurrence this century after early 2004. Such prolonged advances are historically rare: since the end of the Second World War, this had occurred only eleven times. Momentum was particularly pronounced in the technology sector. The Nasdaq Composite gained 25% across April and May, marking its strongest consecutive two-month performance since October and November 2002. Over the same period, the S&P 500 advanced by more than 16% — its strongest two-month rise since 2020. The small-cap Russell 2000 climbed nearly 17% since the end of March and, year to date, outperformed all three major US indices (S&P 500: +10.7%; Nasdaq Composite: +16.1%; Dow Jones Industrial Average: +6.2%).
European equity markets also moved higher in April and May, albeit with less momentum than the exceptionally strong US rally. The pan-European Stoxx 600 gained 7.3% over the two months and was up 5.6% year to date. The Swiss Leader Index advanced 6.2% over the same period but remained a relative laggard, with gains of only 0.8% since the start of the year.
Regionally, equity markets in South Korea (KOSPI: +101%), Taiwan (+54%) and Japan (Nikkei 225: +32%) led global performance year to date.
In bond markets, the rise in yields lost momentum during the second half of May. The yield on 10-year US Treasuries ended the month at 4.46%, after reaching an intra-month high of 4.68% (end-2025: 4.15%). Long-term yields in Europe and Japan also eased modestly into month-end. German 10-year Bund yields fell back below 3% to close at 2.93%. Japanese government bond yields stood at 2.66%, having briefly exceeded 2.80% during the month, their highest level in almost three decades. The yield on 10-year Swiss Confederation bonds declined to 0.39%, after temporarily approaching 0.60%.
The more constructive risk backdrop was also reflected in credit markets. Credit spreads continued to narrow on both sides of the Atlantic and ended the month at 272 basis points for high-yield corporate bonds. Year to date, high-yield bonds slightly outperformed investment-grade credit.
Commodity markets also saw a noticeable decline in volatility. Brent crude fell to USD 93 per barrel from more than USD 120 at the end of April. Despite the correction, prices remained 53% higher year to date. Copper extended its upward trend and was up more than 12% since the start of the year. Gold eased modestly but continued to post gains of more than 5% year to date.
In foreign exchange markets, the New Zealand dollar stood out in recent weeks with resilient performance against most major currencies.
EUR/CHF continued its gradual decline and ended the month at CHF 0.911 (end-2025: 0.931), leaving the euro down 2.2% against the Swiss franc since the start of the year. USD/CHF was little changed during the month and closed at CHF 0.782 (end-2025: 0.793), equivalent to a 1.4% depreciation of the US dollar against the franc year to date.
Meanwhile, EUR/USD remained trapped within a narrow trading range. Since the beginning of the year, the pair traded between USD 1.14 and USD 1.20. More recently, volatility compressed further: since the end of March, the range narrowed from USD 1.15 to 1.18 to just USD 1.16 to 1.17 by month-end.
In the United States, GDP expanded at an annualised rate of 1.6% in the first quarter. The initial estimate had pointed to growth of 2.0%. Despite the downward revision, economic activity remained materially stronger than in the weak preceding quarter (Q4 2025: +0.5%). Growth is currently expected to reaccelerate to 3.8% in the second quarter (Atlanta Fed GDPNow, as of 28 May 2026), pushing recession concerns into the background for the time being.
Inflation developments have been less encouraging. US inflation data for March and April pointed to a renewed acceleration in price pressures. Driven by external supply shocks — most notably higher energy prices amid geopolitical tensions — both headline and core inflation moved higher again. Headline inflation rose to 3.8% in April, the highest level since May 2023, following readings of 3.3% in March and 2.4% in February. Core inflation (excluding food and energy) also increased to 2.8%, after standing at 2.6% and 2.5% in the previous two months.
The euro area economy expanded only modestly in the first quarter. Quarter-on-quarter growth reached 0.1% on a seasonally adjusted basis, equivalent to around 0.4% annualised. At the same time, purchasing managers’ indices (PMIs) pointed to renewed softness and suggested that economic activity could slip back into contraction in the second quarter.
Inflation dynamics in the euro area, by contrast, surprised to the upside. Headline inflation increased to 3.0% in April, marking the highest reading since September 2023 (March: 2.6%). Core inflation excluding food and energy edged lower to 2.2% (March: 2.3%). Across the major economies, inflation stood at 3.5% in Spain, 2.9% in Germany, 2.8% in Italy and 2.5% in France.
Expectations for central bank policy have also shifted over the course of 2026. What began the year as expectations of a synchronised easing cycle has increasingly given way to expectations of moderate rate increases. Markets are currently pricing the greatest upside risk to policy rates in New Zealand, the euro area and Japan. By contrast, little additional tightening is expected in Switzerland, the United States and Australia. The UK and Canada occupy the middle ground, with one additional 25 basis point increase currently priced in by year-end.
Investor attention is now turning to the Federal Reserve’s policy decision on 17 June, the first under the leadership of Kevin Warsh. Markets currently expect rates to remain unchanged. The ECB meets earlier, on 11 June, where a rate increase is anticipated. The Swiss National Bank and the Bank of England follow on 18 June, with no policy changes currently expected.
Attention, however, is likely to focus less on the decision itself than on Kevin Warsh’s communication. In recent years, he has repeatedly criticised the Fed’s policy approach — in particular the sharp expansion of its balance sheet. His objective is likely to be a gradual reduction of the balance sheet, thereby creating additional room for future rate cuts.
At the same time, we expect him to place greater emphasis on economic growth and supply-side dynamics. The intention would be not only to support the economy’s productive capacity but also to address inflation pressures that, in recent years, have often originated on the supply side.
For the coming quarters, we continue to expect a Goldilocks scenario characterised by solid growth and easing inflation. Provided the Federal Reserve refrains from further rate increases, the conditions for a constructive equity market environment should remain broadly intact. Regionally, we continue to favour the US over Europe. Admittedly, many equity markets are now trading close to or at record highs. Yet positioning in futures markets does not currently point to excessive exuberance. While the multi-billion-dollar IPO pipeline in the coming months (SpaceX, Anthropic, OpenAI and others), together with the second year of the US presidential cycle, warrants a degree of caution, we remain cautiously optimistic overall.
Within sovereign bonds, we continue to favour intermediate maturities and view the asset class primarily through the lens of diversification. At the same time, we do not expect a reduction in the Fed’s balance sheet to trigger a material rise in long-term yields, not least because this may coincide with regulatory easing for banks.
Within corporate credit, we continue to favour investment-grade over high-yield bonds, as credit spreads remain close to historical lows. Short-dated emerging market bonds issued by commodity-rich economies appear worthy of consideration. In private credit, we remain selective.
We maintain our strategic allocation to gold. Following a period of consolidation, the medium-term uptrend is likely to regain momentum. Gold also remains a potential stabiliser during periods of elevated market volatility. In commodities, we expect oil prices to soften further in the near term, while remaining constructive on copper.
In foreign exchange markets, we continue to expect a firm Swiss franc against both the euro and the US dollar. Commodity-linked currencies such as the Canadian, Australian and New Zealand dollars may retain additional upside potential given still-cautious market positioning. This applies in particular to the Japanese yen, which continues to trade materially below purchasing power parity and retains safe-haven characteristics during periods of heightened market volatility.
For EUR/USD, we expect a gradual move higher in the coming weeks, particularly if the ECB proceeds with further tightening while the Fed firmly pushes back against speculation of additional rate increases.