May 2026 Market Highlights

May 2026 Market Highlights

Global equity markets retreated in the first half of May and then reversed course and pushed higher. U.S. equities posted their ninth straight week of gains as enthusiasm for AI stocks and the possibility of a U.S.-Iran agreement to reopen the Strait of Hormuz boosted investor optimism. Oil fell, with Brent crude futures, the international benchmark, sliding 11% in the last week of May and 19% for the month, the biggest monthly drop since March 2020. The S&P 500 and Nasdaq ended the month at record highs. The S&P/TSX also notched gains but trailed the S&P 500 both in May and YTD.

For the month, the S&P/TSX Composite Index rose 2.52%, the S&P 500 Index gained 5.23%, and the Nasdaq Index soared 8.43%. Globally, the MSCI World Index advanced 4.75% and the MSCI EAFE Index rose 3.69%. In the U.K., the FTSE 100 Index added 0.73% while Germany’s DAX Index gained 3.34%. In Asia, Japan’s Nikkei 225 rose 11.88% but the MSCI China Index fell -3.17%. The FTSE Canada Universe Bond Index rose 1.36% and while Gold dropped -1.45% and Brent crude fell -16.86%.

Monthly Developments

Data released in May gave mixed signals about the state of the Canadian economy.

GDP in Q1 unexpectedly fell by 0.1%, on an annualized basis, according to Statistics Canada and the decline came on the heels of a contraction in Q4, 2025. Back-to-back declines are technically defined as a recession, and the last time Canada experienced two consecutive quarters of negative growth was in 2020 during the COVID-19 pandemic.

The unemployment rate hit a six-month high of 6.9% in April as the economy shed 18,000 jobs. While 67,000 jobs have been added since April 2025, a total of 112,000 jobs have been lost since the start of 2026. Yet corporations reported $209.9 billion in operating profit during Q1, a $4.1 billion gain from Q4, 2025, according to Statistics Canada. Financial services, oil, gold and copper all contributed to the growth while the auto and forestry sectors remained under pressure from tariffs.

Strong earnings at the big six banks surpassed analysts’ estimates and all except CIBC boosted their quarterly dividends. Canadian bank shares have climbed 16% in 2026, doubling the year-to-date 8% gain of the S&P/TSX Composite Index.

Commodities helped drive an estimated 4.6% jump in manufacturing shipments in April from March, according to a preliminary estimate from Statistics Canada. It was a third straight month of higher sales. The biggest contributor in April was the petroleum and coal segment again as energy prices remained elevated due to the US-Israel-Iran war. The sector helped drive a 3% gain in March. Final numbers for April will be released in mid-June.

Retail sales rose 0.9% in March, but almost all the increase was due to higher gas prices instead of stronger demand. While sales totals for gasoline surged 12.4% actual volume fell as Canadians bought less gas but paid more for it. Overall retail volumes fell 0.7% in March. Core retail sales, which strip out fuel and auto dealers, ticked down 0.1%. Building material and garden equipment dealers led the decline, falling 2.9%.

Higher gas prices pushed the annual rate of inflation up to 2.8% per cent in April, up from 2.4% in March. Statistics Canada noted that the suspension of the federal fuel excise tax in mid-April month helped cool some of the inflationary pressure from energy costs. The suspension, which trims an estimated 10 cents from a litre of regular gas and four cents per litre of diesel, is set to expire in early September.

In the U.S., the second estimate from the U.S. Bureau of Economic Analysis of Q1, 2026 GDP revised growth downwards to an annual rate of 1.6% from an earlier estimate of 2%. The decline was primarily due to lower data for investment and consumer spending. Q4, 2025 GDP grew by 0.5%.

Yet as the Q1 earnings season progressed during May, S&P 500 companies posted strong results, with an estimated blended (year-over-year) growth rate of 28.6%. If that figure holds as the final number, Q1 will be the highest earnings growth rate since Q4 2021 (32.0%).

U.S. manufacturing activity picked up in May, according to a preliminary estimate by S&P Global, with its Purchasing Managers Index (PMI) flash reading coming in at 55.3 for the month, up from 54.5 in April. It was the highest reading since May 2022, and data indicated businesses boosted inventories to protect against possible shortages and accelerating prices sparked by the war.

The ISM services index slipped to 53.6 in April from 54.0 in March, indicating slower growth in the all-important service sector. While still in expansion softness showed up in new orders. The prices paid index remained elevated at 70.7, highlighting that cost pressures remain strong even as growth moderates.

Total nonfarm payroll employment edged up by 115,000 in April, and the unemployment rate was unchanged at 4.3%, according to the U.S. Bureau of Labor Statistics. Jobs were added in health care, transportation and warehousing, and retail trade. Federal government jobs continued to decline. Inflation rose in April, with the Consumer Price Index up 0.6% from March, in line with expectations. On an annual basis, CPI jumped 3.8%, the fastest rate of growth in three years, according to the Bureau.

And according to minutes of the April U.S. Federal Reserve policy meeting released in the third week of May, a rate hike may be on the horizon: “A majority of participants highlighted…that some policy firming would likely become appropriate if inflation were to continue to run persistently above 2%”. Inflation has run above the Fed’s 2% goal for more than five years but has been gradually easing for much of that time. The impact of the Iran war has raised the possibility that downward trend may stall or even reverse. The Fed held rates in April, and its next policy meeting will be on June 16.

Bond markets reflected inflation concerns during the month, with the yield on the U.S. 30-year note hitting 5.18% in mid-May, its highest point since 2007, before dropping back by month end as expectations rose for a reopening of the Strait of Hormuz.

U.S. retail sales rose in April by 0.5% for a third consecutive monthly gain. The increase indicates some consumer resilience despite higher gas prices, but the strength may have been underpinned by higher than usual tax refunds.

In the UK economic growth in Q1 was up 0.6% from Q4, 2025, in line with expectations. Household spending and government consumption were key contributors. UK inflation was 2.8%, annualized, in April, down from 3.3% in March, but still above the Bank of England's 2% target. However, inflation is expected to rise in the coming months due to the evolving economic fallout from the war. The unemployment rate ticked up to 5.0% from 4.9%.

In Japan, mixed data suggested some resilience, with GDP growing at an annualized pace of 2.1% in Q1 while inflation eased to 1.4% on an annual basis, reflecting in part government energy subsidies. Growth was lifted by exports and improved private consumption. Data releases from China in May indicated slowing economic activity, with momentum weakening across both demand and production.

In Australia, the Reserve Bank of Australia raised its key interest rate to 4.35% early in May, its third straight increase and aligning with its close attention to inflation despite softening growth.

What can we expect now?

Investment markets will likely remain highly attuned to progress, or lack thereof, towards reopening the Strait of Hormuz and the prospect of lower energy costs resulting from that. The on again, off again nature of U.S.-Iran negotiations, punctuated by military strikes, drove some volatility in May and served to further cloud the outlook for the duration and scope of inflationary pressures and the impact of them on the direction of interest rates. Yet corporate profits in the U.S. and Canada have remained resilient and earnings are foundational for long term equity valuations. For Canadian investors, the uncertain future of trade negotiations with the U.S. remains a key factor in the broader national economic picture going forward. As we enter the final month of the first half of 2026 the U.S. political calendar could have growing relevance in those trade discussions as Canada is the largest export market for 34 states.

Thank you for your continued support. Please contact us with any questions or thoughts about your current investment goals.

Regards,

Glenn McClelland

Note:
All index performance is in Canadian dollars.

IMPORTANT DISCLAIMERS
The information in this letter is derived from various sources, including CI Global Asset Management, CRA, Bloomberg, National Post, Globe and Mail, Wall Street Journal, Bloomberg, Reuters, Investment Executive, Advisor.ca, MarketWatch, Toronto Sun, The Guardian, MSN.ca and Statistics Canada at various dates. This material is provided for general information and is subject to change without notice. Before acting on any of the above, please contact me for individual financial advice based on your personal circumstances. Certain statements contained in this communication are based in whole or in part on information provided by third parties and CI Global Asset Management has taken reasonable steps to ensure their accuracy. Market conditions may change which may impact the information contained in this document.