Markets finished May on a strong footing as easing geopolitical tensions, falling oil prices and continued confidence in corporate earnings helped support risk sentiment across global asset classes. While inflation remained elevated and US growth data softened, investors largely looked through the macro headwinds. Instead, attention remained firmly focused on resilient earnings, artificial intelligence investment and signs that tensions surrounding the Strait of Hormuz may be easing following progress in US-Iran negotiations.
Markets pushed further into record territory last week before momentum finally began to show signs of strain as rising bond yields, renewed inflation concerns and geopolitical uncertainty triggered a sharp late-week reversal across risk assets. The S&P 500, Nasdaq and Dow Jones Industrial Average all climbed to fresh all-time highs during the week, supported by resilient corporate earnings, continued enthusiasm surrounding artificial intelligence investment and generally stronger-than-expected US economic data.
Gold remains one of the market’s most closely watched defensive assets, particularly during periods of inflation uncertainty, geopolitical tension and shifting central-bank expectations. One of the most important drivers behind gold prices is the direction of real yields. As investors reassess inflation-adjusted returns in bond markets, the balance between holding yield-generating assets and defensive assets like gold becomes increasingly important.
Higher interest rates are no longer just affecting consumers and housing markets. They are increasingly becoming a corporate balance-sheet story. During the ultra-low-rate environment of 2020 and 2021, many companies borrowed heavily to lock in historically cheap financing. Now, much of that debt is approaching maturity at a time when borrowing costs remain significantly higher.
Markets moved into a more cautious phase last week as persistent inflation, rising sovereign yields and renewed energy volatility challenged the softer “goldilocks” narrative that had supported risk appetite through April and early May. While economic activity remained relatively resilient across major economies, stronger-than-expected US inflation data and surging oil prices forced investors to reassess the likelihood of near-term policy easing. The result was a broad repricing across bonds, currencies and equity sectors, with markets increasingly focused on inflation persistence rather than growth optimism alone.
