Economic Snapshot – May 2026

June 16, 2026

May continued the April momentum with strong sharemarket returns but this time a near 10% return from Emerging Markets thanks to a whopping 33% return out of Korea. The US Dollar was relatively stable as were bond yields and cash rates around the world, expect in Australia where the RBA expectedly increased by 25bps to…

This May economic snapshot article is prepared by Michael Furey, Principal of Delta Research & Advisory, on behalf of the HPartners Group.

Summary

May continued the April momentum with strong sharemarket returns but this time a near 10% return from Emerging Markets thanks to a whopping 33% return out of Korea. The US Dollar was relatively stable as were bond yields and cash rates around the world, expect in Australia where the RBA expectedly increased by 25bps to 4.35%.
As Chart 1 below shows, the “real assets” of commodities, infrastructure, and property produced mostly negative returns. This was due to weaker economics around the world, but this certainly didn’t stop the march of various sharemarkets.
The Iran War continues, despite numerous promises of ceasefires. Either way, it is effectively lost for the USA, as Iran continues to control the global energy supply via the Hormuz Strait. As mentioned last month, higher energy prices are expected to sustain for the remainder of 2026 feeding into higher inflation for Australia and the rest of the world. This higher inflation does not guarantee future higher cash rates or lower bond returns for all, but the RBA appears concerned about pre-existing higher inflation which is why it has increased cash rates 3 times already in 2026. Markets are pricing in 1 more rise by the RBA.
Our core investment message remains despite persistent downside risks from high sharemarket valuation in USA and the energy crisis. This means disciplined risk management rather than aggressive positioning changes. Shares continue to offer an attractive risk premium in specific markets, as do conservative bonds, but returns may be challenged from occasional short term volatility. Avoiding panic (selling) decisions continues to be a crucial investment issue today for long-term investors.

Chart 1

Continued risk on oil comes back, the economics all looks fine!

What Happened Last Month?

Markets & Economy

The US sharemarket has hit record highs across several valuation metrics, which unfortunately also means a record low in terms of dividend yield. This has been driven by the continued massive spend in Artifictial Intelligence-related data centres. There is definitely increasing rhetoric around a related AI “bubble” which is also fuelled by 3 of the biggest IPOs in history, SpaceX, Anthropic, and Open AI.
Whilst US sharemarkets establish their high prices, Emerging Markets were actually the best performing sub-asset class I May returning almost 10% to Australian investors. This was primarily driven by Korean and Taiwanese markets which increased a whopping 33% and 14%, respectively.
In Australia, inflation figures continued to be higher than preferred by the RBA and they increased their cash rate for the 3rd time in 2026 to 4.35%. As expected inflation is increasing across all major economies and should keep bond yields and cash rates higher than previously expected for 2026. The second issue in Australia was a budget perceived to be weak for the economy and the cash rate expectations have now reduced to only 1 more rise this year.
At this stage, unemployment appears relatively healthy in Australia and around the world. It continues to be one of the inflation drivers in Australia adding to the RBA’s challenges. The unemployment rate will be a key indicator determining economic strength and potential interest rate movements for all economies as well as the impact of artificial intelligence.

Outlook

As mentioned, markets expect only one more interest rate rise by the Reserve Bank of Australia in 2026 to a maximum of 4.6%. with bond yields around this number and early signs of a weaker economy, it appears bonds yields may be potentially stable. That said, the current energy crisis or a sharemarket sell-off could change this.
With US sharemarkets at or near record highs and record sized IPOs in the USA, there presents significant downside risks should companies not meet their high forecast growth rates. Whilst markets are generally expensive, this does not mean low returns for 2026 but longer-term expectations should be tempered and double digit returns look unlikely over the next 10 years.
Our current beliefs are that new investors should dollar cost average into sharemarkets and long-term investors should stay invested for the long-term and expect higher volatility.
We continue to believe portfolios should be underweight USA shares and high yield (junk) bonds due to near record high valuations. Markets continue to price in higher cash rates for Australia (4.60% by the end of 2026), but conservative bond portfolios both global and in Australia, are providing strong expected returns over 5%pa.
Diversification continues to be essential. Maintaining a balance between domestic and global exposures remains a prudent approach as 2026 unfolds. Rebalancing as pricing opportunities arise also continues to be appropriate for established portfolios.