May 2026
Market Commentary
April Sell in May? Not This Year.
Long-term market observers often pay attention to market adages. A popular one is “sell in May and go away.”
Investors who may have followed that advice this year would have missed a strong month for equities. The S&P 500 Index gained 5.26% in May, driven by solid corporate earnings and continued investor optimism. While both growth and value stocks posted gains, performance varied across sectors. Of the eleven S&P 500 sectors, three had positive returns for the month. The standout sector was Information Technology, up almost 16% for the month, while Consumer Discretionary and Health Care delivered positive returns. For long-term investors, remaining invested proved to be the right strategy.
Earnings Lead Equity Rally
The combination of record-breaking earnings, revenue and margin growth fueled May’s market rally, AI & AI-related stocks led the surge propelled by their explosive earnings growth but keep in mind several other Sectors including financials, materials, and industrials also enjoyed double-digit earnings growth lending support to other market sectors.
Additionally, the significant drop in Brent crude oil prices in May also helped support the equity rally, with prices falling $18/barrel to close at $92 at month-end. Tensions in the Middle East appeared to moderate, giving investors hope that a resolution to the conflict was imminent. In the end, all three major U.S. indices closed in record territory.
Change in Leadership & Rate Expectations
The Federal Open Market Committee (FOMC) did not meet in May, but the Federal Reserve remained a key focus for investors as Kevin Warsh was appointed Chairman, replacing Jerome Powell. Given the inflation backdrop and some weakness in the labor market, he may have a challenging job steering the economy on a successful path forward. The Fed’s preferred inflation gauge, the Personal Consumption Expenditures (PCE) Index, came in hotter than expected. This data, along with other metrics on inflation, reinforced expectations that any reduction in the Fed Funds Rate may be delayed until the latter part of 2026. Some market participants believe the Fed will not cut rates this year and are instead expecting a potential increase in the Fed Funds Rate.
Offsetting inflation concerns is the resilience of the U.S. consumer, whose spending continues to support economic growth. However, some pricing pressure is starting to impact spending patterns, as costs for energy and other household necessities continue to increase.
Bond Market Jitters
Interest rates rose as inflation fears reemerged.
Higher inflation expectations contributed to a more skittish bond market. Higher inflation expectations dashed rate cut expectations pushing the shorter end of the yield curve higher while the longer end of the curve already focused on flonger-term fiscal and deficit-related risks added the risk of unanchored inflation expectations causing longer end rates to rise too.
As a result, yields rose across the curve, with the ten-year Treasury closing at 4.45%. This dynamic also led to higher mortgage rates, leading to reduced mortgage applications and slower-than-expected home purchases during what is typically one of the busiest seasons for home buying.
As we enter June, the VIX, a measure of stock market volatility, remains surprisingly subdued despite ongoing geopolitical, economic and political uncertainties.
While “sell in May and go away” makes for a catchy rhyme, we continue to believe that successful investing is rooted in diversification, prudent risk management and maintaining a long-term view. At Cape Cod 5, these principles remain central to our portfolio construction and ongoing oversight of client assets.
Perhaps a more fitting adage for today’s market environment is: “Time in the market, not market timing.”
And for New England sports fans, May ended on a positive note as the Red Sox carried momentum into June. Hope springs eternal!
As always, if you have any questions or would like to speak with our advisors, reach out to us. We’re here for you.
These facts and opinions are provided by the Cape Cod 5 Trust and Asset Management Department. The information presented has been compiled from sources believed to be reliable and accurate, but we do not warrant its accuracy or completeness and will not be liable for any loss or damage caused by reliance thereon. Investments are NOT A DEPOSIT, NOT FDIC INSURED, NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY, NOT GUARANTEED BY THE FINANCIAL INSTITUTION AND MAY GO DOWN IN VALUE.
