Market and economic commentary
May 2026

May market overview

April showers definitely brought May flowers—at least in the markets, if not the weather. The bull market marches onward and upward as headlines proclaim “historic highs” week after week. Furthermore, this AI cycle has shown no signs of abating. The main point of resistance to watch has been the US 10-year Treasury yield, which flirted above 4.5%, before closing the month just a touch below¹. The Compass Portfolios and all the ATBIS Pools (the Funds)² closed positive. Up-to-date performance data for the Funds can be found here.

Below are index one-month total returns in Canadian dollar (CAD) terms for May 31, 2026:

Earnings and macro trajectory

The markets have given us a promising spring rally, with the S&P 500 climbing almost 20% off its seasonal lows in a cadence closely mirroring the post-Liberation Day trajectory and subsequent rally of 2025. The earnings picture of 2026 is optimistic, with the S&P 500 year-over-year Q1 growth finishing at over 28%. Iran war fears have lessened from everywhere except in the oil markets, which continue to trade at a premium, though West Texas Intermediate (WTI) has moved back down into double-digit territory as of the date of this article. We are not out of the woods yet, but there are encouraging signs that inflationary pressures are beginning to stabilize. 

The energy and inflation nexus

Oil has been, and continues to be, a powerful driver of headline inflation in our economy. While its intensity has abated over the decades, oil prices remain a contentious topic for North America’s summer driving culture. Pre-Gulf Conflict, WTI was trading in the mid-$60s; today, it sits around $90. The latest inflation data point in the US came in at 3.8% for April³. 

That inflation data point unsettled bond markets enough to push the US 10-year Treasuries over the 4.5% line for a few days, though it did not stay there. Equity markets have thus far chosen to shrug off the inflation read, continuing their steady climb. So, who has this right—equity markets or bond markets? Was it just a technical blip, or was it trying to signal something more dire? 

The Federal Reserve estimates that every $10 per barrel increase of crude oil adds 0.2% to 0.4% on the annual inflation rate. For the drivers out there, that same $10 increase translates to roughly $0.30 a gallon at the pump in the US⁴. Concerns around fiscal spending notwithstanding, when we analyze the historical data, it suggests that if the oil effects are removed, inflation falls back below the comfortable 3.0% threshold. 

The technology and IPO pipeline

For now, it is clear that the positive sentiment around earnings has carried the day. The AI trade has only grown more heated as investors prepare for highly anticipated IPOs: OpenAI, Anthropic, and SpaceX. 

The last one—SpaceX—has index providers carefully weighing the appropriate timing and allocation size for its inevitable inclusion. When it comes to Elon Musk, an asterisk is always needed for market understanding. The S&P committee made a highly debated decision to exclude Tesla from the S&P 500 for 10 years after its IPO debut despite it meeting market cap eligibility requirements. Index providers will have to decide if they are in the business of giving passive investors exposure to all stocks, or only the ones the index committee deems “good enough.” Is this a solution in search of a problem? Eventually, we believe that index providers may have to yield to investor demand, giving the market exactly what it is looking for. 

The broader outlook

While interesting, we believe these as relatively minor nuances for an investor to concern themselves about. The sky is not falling, and market sentiment continues to move in a positive direction. 

Compass Portfolios Series F1 - Returns net of fees (%)

ATBIS Pools Series F1 - Returns net of fees (%)

¹ Bloomberg; US Department of the Treasury
² Using F series returns
³ Bloomberg; US Bureau of Labor Statistics
⁴ RBC Economics