Insights

A Steadier Month, But the Pressure Hasn't Eased

May was a more settled month for investors than the ones that preceded it. Global share markets pushed higher, the mood around the Middle East conflict shifted - at least slightly - and there were moments where it felt like things might be turning a corner.

But the underlying picture is more complicated than a single month of gains suggests.

What drove the recovery

The improvement in May came largely from a shift in sentiment. Hopes of a potential US-Iran agreement sent oil prices sharply lower during the month, which eased some of the pressure that had been building since the Strait of Hormuz disruption began. That optimism flowed through to equity markets globally.

International shares rose 4.53% for the month. Emerging markets had a particularly strong run, up 9.60%. The Australian market was more modest - up 1.15% - in part because higher interest rates continued to weigh on sentiment here at home.

On the Australian exchange, the standout performers were in materials, with iron ore holding above US$100 per tonne and lithium prices recovering. The AI infrastructure theme continued to drive select technology and small-cap names higher, as investors looked for domestic exposure to what's happening globally in data centres and capital spending.

Healthcare was the drag. CSL fell sharply and took the broader sector with it - a reminder that even the most reliable corners of the market have their difficult months.

What hasn't changed

The Strait of Hormuz remains effectively closed. Oil prices fell on hope, not resolution, and the underlying supply disruption is still in place. As long as that remains true, energy prices stay elevated, and elevated energy prices make everything harder - for consumers, for businesses, and for central banks trying to decide what to do next.

In Australia, the RBA raised the cash rate again in May, by 0.25%, bringing it to 4.35%. The Bank was clear that inflation had been running above target even before the Middle East conflict added to the pressure, and that risks remain skewed to the upside. Consumer sentiment improved marginally but remained weak. Business confidence, while slightly less negative, was still deeply pessimistic. It's a difficult backdrop.

In the US, headline inflation climbed to 4.2% in May, up from 3.8% in April, driven primarily by energy. The Federal Reserve, now under new leadership, is expected to sit on its hands for the foreseeable future - which markets are adjusting to, with varying degrees of comfort. There's also a new concern emerging: severe drought conditions across parts of the US could put pressure on agricultural commodity prices, adding another layer to an already complicated inflation story.

The longer view

When months feel noisy, the return data is a useful anchor. Over ten years to 31 May 2026, international shares have returned 13.25% annually. Emerging markets, 10.74%. Australian shares, 9.10%. These numbers exist alongside all the volatility, uncertainty, and uncomfortable headlines that investors have navigated along the way.

The shorter-term picture is more mixed - as it often is during periods of elevated rates and geopolitical disruption. But that's precisely the context that makes the longer view worth holding onto.

The honest read

May was better than March and April. But the things that made those months difficult haven't been resolved - they've just been repriced, at least temporarily.

For people approaching retirement with super balances, investment properties, and real decisions to make about when and how to stop working, the current environment is worth paying attention to. Not because anything has gone wrong, but because clarity about how your portfolio is structured - and what role each piece is playing - matters more when markets are doing this.

Volatility feels different when you're close to the point where you'll actually start drawing on what you've built. That's not an argument for reacting. It's an argument for knowing where you stand.

For the full May market update including asset class returns across one, three, five, seven and ten year timeframes, download our May monthly report here.