June 2, 2026

After much activity in the previous months, May was a chance for markets to catch their breath. Rather than delivering concentrated returns in any one direction, May rewarded a diversified portfolio. Domestic equities returned +4.95% and +7.47% as tracked by the S&P 500 index and the NASDAQ Composite Index respectively. Emerging market internationals returned +9.62% as tracked by the MSCI Emerging Markets Index, and developed internationals returned +2.83% as tracked by the MSCI EAFE Index. Tracked by the Bloomberg U.S. Aggregate Total Return Value Unhedged Index, debt markets closed the month +0.20%. This year, markets have weathered meaningful volatility and still delivered. This really highlights the value of a diversified portfolio, which obviously won’t eliminate uncertainty, but navigates it well.

Fixed income had nearly flat performance for most of the month, but it isn’t all too surprising given the current “higher-for-longer” rate environment. It would be difficult to discuss this current rate picture without mentioning a material change in the leadership at the Federal Reserve. Kevin Warsh, the former Fed Governor and widely respected voice on monetary policy, was confirmed by the senate on May 13th and he took office as chairman of the board less than two weeks later.¹ Warsh has historically been associated with a more hawkish policy, but future outcomes remain uncertain. Market participants are currently pricing in no rate action until April of 2027, where the expectation is a hike instead of a cut, according to Bloomberg’s World Interest Rate Probability function (WIRP) as of May 28, 2026. With Warsh having just taken office, and policy transitions at the Fed tending to move slowly and deliberately it could take some time to see the effects that come under a new chair.

In domestic equities, the leadership concentration story remains at the top. This ongoing narrative is highlighted by the return dispersion in NASDAQ and the S&P 500. Much of this gap comes down to sector composition, which is carrying more weight than usual in the current environment.² NASDAQ has a heavier concentration in mega-cap technology and growth-oriented names, while the S&P 500 allocations are more diversified across sectors. NASDAQ’s concentration here obviously cuts both ways. While it may benefit the returns in the index now, if other sectors begin to outperform or technology takes a hit then the S&P 500’s more diversified approach would be better suited.

A similar composition story plays out when looking at international equity dispersion. Developed markets, as tracked by the MSCI EAFE Index, tend to be weighted toward financials, industrials, and consumer staples. This is because these sectors reflect the more mature economic profiles of those regions. Emerging markets, by contrast, are typically higher-risk, higher-growth economies and the sector composition offering significant technology exposure reflects that. [3] The MSCI Emerging Markets Index carries approximately 37% exposure to information technology.³ With tech performing strongly, that composition has been a significant driver of emerging market outperformance. Currency dynamics have further widened that gap because developed markets are generally less sensitive to dollar strength than emerging markets.

The old market adage, “sell in May and go away”, was not particularly useful this year as positive returns were generated across asset classes, and the narrative of 2026 continued to develop. That said, there are no shortage of variables ready to reshape what is to come throughout the rest of 2026. Geopolitical developments, tariff policy, the Federal Reserve's next move, and equity sector leadership all remain relevant. Fortunately, as has been demonstrated repeatedly this year, a well-diversified portfolio is designed precisely for an environment like this one.

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