We started last week with breaking news of a peace deal agreement in place between the US and Iran. The deal is said to be officially signed on Friday, but a week seems to be an unusually long time in politics.
After more than 100 days since the war started, it’s a welcome relief. The inflationary pressures caused by the war and the uncertainty as to how long it would last, has made this environment understandably tricky for central banks.
The 14-point Memorandum of understanding (MoU) is viewed by many Americans as a strategic defeat for the US, with critics arguing that the only “achievement” of the ceasefire is the opening of the Strait of Hormuz, which was open before the war started but now Americans have to pay Iran to do so.
Market responses
Markets however shrugged off the critics and responded immediately: oil prices have fallen sharply, developed market bond yields have eased and equity markets have rallied as investors unwind part of the energy and recession risk premium that built up through the conflict. At the same time, the agreement remains a framework rather than a final settlement. The fate of Iran’s nuclear programme has been deferred to further negotiations during a 60-day ceasefire window; Israel has not signed up to the pact; and shipping companies remain cautious while the Strait is cleared and practical navigation arrangements are confirmed.
For investors, this means tail risks have fallen meaningfully, but they have not disappeared. The immediate market impulse is relief, yet the durability of this rally will depend on whether oil flows normalize sustainably, whether Lebanon is stabilized, and whether the diplomatic process holds once harder issues such as sanctions relief and nuclear oversight move into focus.
Global equity markets have embraced the relief trade. In the United States, the S&P 500 is up around 1.5% and the Nasdaq roughly 2.3% intraday, with investors responding to two related developments: a lower oil price, which reduces inflation pressure, and a decline in bond yields, which supports the valuation of growth sectors such as technology and semiconductors.
New record high
Europe has seen one of the clearest benefits from the deal. The STOXX Europe 600 has moved to a new record high, while the DAX and CAC 40 have rallied strongly. This is consistent with Europe’s underperformance during the conflict, when investors worried that higher imported energy costs would worsen the inflation-growth trade-off. Cheaper oil therefore matters disproportionately for Europe, and the move has especially helped autos, airlines, travel and leisure and banks.
Japan has been a standout. The Nikkei 225 surged roughly 5% to a fresh record high, reflecting the combination of lower oil prices, easing inflation pressure and a renewed bid for cyclical and technology-linked shares. South Korea has also rallied sharply.
In South Africa, the FTSE/JSE All Share has climbed to around 115,960, with the move supported by improved global risk sentiment, a firmer Rand and very strong gains in precious-metals counters. The large underperformer locally has been Sasol, which is naturally sensitive to the sharp decline in oil.
GLOBAL MARKET UPDATE
The S&P 500 rose 5.23% in USD terms during May, marking a second consecutive month of strong positive returns. The rally was driven by improving risk sentiment, supported by optimism around a potential resolution to the Iran conflict, which contributed to a 17.46% decline in oil prices over the month.
Emerging markets (+9.69%) outperformed developed markets (+4.55%), with both benefiting from continued enthusiasm around the semiconductor trade and a recovery in software stocks. The MSCI World Information Technology Index gained 15.96%, making it the best-performing sector in May. Within technology, Software & Services rose 15.98%, supported by improving sentiment following several positive company-specific data points and earnings updates.
At the country level, South Korea was the standout performer, with the MSCI Korea Index advancing 35.29%, while Taiwan gained 16.53%, reflecting their significant exposure to the semiconductor supply chain. From a factor perspective, Momentum (+7.76%) and Growth (+6.99%) outperformed Quality (+3.71%) and Value (+2.27%), as investors rotated back into higher-growth areas of the market.
US Macroeconomic data
In May, US macroeconomic data continued to point to a resilient economy despite emerging inflationary pressures. The US added 172,000 jobs during the month, well ahead of expectations, while the unemployment rate remained unchanged at 4.3%, highlighting the continued strength of the labour market. Wage growth remained modest, with average hourly earnings increasing 0.3% month-on-month and 3.4% year-on-year, suggesting a gradual easing in labour market tightness within an ongoing low-hire, low-fire environment. Inflation, however, accelerated during the month, with headline CPI rising to 4.2% year-on-year, driven largely by higher energy prices, although underlying core inflation remained relatively contained at 2.9%.
In the absence of an FOMC meeting during May, market attention remained focused on evolving central bank expectations and leadership developments at the Federal Reserve. Following the April meeting, the Fed maintained its data-dependent stance, with policymakers continuing to emphasise the need for greater confidence that inflation is moving sustainably towards target before considering policy easing. Markets also digested the transition to new Federal Reserve Chair Kevin Warsh, who formally assumed the role during the month, while expectations for near-term rate cuts diminished in response to stronger-than-expected economic data and persistent inflation pressures.
Elsewhere, major central banks largely remained on hold, although policymakers at the European Central Bank signalled increased vigilance towards inflation risks stemming from higher energy prices and geopolitical tensions, while the Bank of England maintained a cautious stance amid a challenging balance between sticky inflation and subdued growth.
LOCAL MARKET UPDATE
South African financial markets delivered a mixed performance in May, with the FTSE/JSE All Share Index down by approximately 0.5% in ZAR terms over the month, reflecting a more challenging environment for South African equities despite an otherwise supportive domestic backdrop. Weakness was seen in selected resource and index heavyweight shares.
South African bonds delivered a solid performance in May as easing political uncertainty, progress on the national budget process and a supportive domestic inflation backdrop helped improve investor sentiment. Headline consumer inflation increased to 4.0% year-on-year in April, up from 3.1% in March, but remained within the SARB’s tolerance range, supporting attractive real yields. While global bond markets remained sensitive to higher-for-longer interest rate expectations in the United States, South African fixed income benefited from attractive real yields and renewed foreign investor interest, contributing to a modest decline in longer-dated government bond yields over the month.
The SARB raised the repo rate by 25 basis points at its May meeting, taking the policy rate from 6.75% to 7.00%, in response to rising inflation risks from higher oil prices, Middle East tensions and rand weakness. The decision was not unanimous, with four MPC members voting for the increase and two preferring to keep rates unchanged, highlighting a more cautious and divided policy backdrop. While domestic inflation remained contained, the SARB signalled that external risks had increased and that future policy decisions would remain data dependent.
Listed property delivered a more measured performance over the month, with the FTSE/JSE SA Listed Property Index rising by approximately 0.6% in ZAR terms. The sector outperformed equities, which declined by 0.3%, and delivered a return broadly in line with cash, but underperformed bonds, which rose by 2.9%. Performance remained supported by improving income fundamentals, healthier balance sheets and easing refinancing concerns, although listed property continued to be sensitive to bond yields, global risk appetite and shifting expectations around the interest-rate path. At a stock level, returns were mixed, with results, corporate activity and balance-sheet progress driving meaningful dispersion across counters.
SECTOR RETURNS
Global equities extended their recovery in May, building on April’s strong rebound as markets began pricing in a gradual de-escalation of geopolitical tensions in the Middle East. The MSCI World Index returned 4.6% for the month, with gains broad-based across major regions. US equities led developed markets, advancing 5.3%, while Europe returned 2.8% and Developed Asia Pacific 3.8%. Emerging markets continued to outperform, with the MSCI Emerging Markets Index returning 9.7% for the month, following the remarkable 14.7% gain recorded in April. Investor sentiment improved on growing confidence that a diplomatic resolution between the US and Iran remains achievable, although oil prices held firm in the USD 90-100 per barrel range as conditions around the Strait of Hormuz remain largely disrupted.
South African equities delivered more muted returns relative to broader emerging markets. In rand terms, the JSE Capped ALSI declined 0.3% for the month, with performance diverging across sectors. Financials provided a modest positive contribution, gaining 0.9%, while industrials and resources retreated, falling 0.7% and 1.0% respectively. Weakness in precious metals, a persistent feature of the past quarter, continued to weigh on the local market. The MSCI South Africa Index gained 2.5% in US dollar terms, with the difference between rand and dollar returns reflecting currency moves over the period.
ASSET ALLOCATION VIEWS
Summary:
Details:
Global Equities
Current (Average)
May saw continued leadership from AI-related stocks, alongside a strong recovery in software companies, a segment that had previously lagged the broader market. The MSCI World Information Technology Index gained 15.96%, making it the best-performing sector during the month. Within technology, Software & Services rose 15.98%, supported by improving sentiment following several positive company-specific developments and earnings updates. In contrast, the remaining sectors delivered a mixed performance, with returns ranging from low single-digit gains to low- and mid-single-digit declines. Energy was the weakest-performing sector, falling 5.79% as oil prices declined on expectations of a de-escalation of the Iran conflict and a potential easing of geopolitical tensions in the Middle East.
Trend (Average)
At the index level, valuations remain elevated relative to long-term averages, while earnings growth expectations are still robust despite disruptions to global energy markets and supply chains, persistent inflation, and the risk of interest-rate hikes. However, this growth remains concentrated in cyclical areas such as semiconductors, materials, and energy, raising questions about the durability of the earnings base. Even so, the current environment continues to offer selective opportunities for bottom-up investors. Capital has been heavily concentrated in a narrow set of growth themes, leaving several less-favoured market segments trading at more reasonable valuations relative to their long-term earnings potential.
SA Equities
Current (Average)
Global markets rebounded in May as diplomatic progress on the Iran conflict lifted sentiment, with the MSCI World gaining 4.4% and MSCI EM 9.5%, despite conditions in the Strait of Hormuz remaining largely unchanged. Locally, the JSE underperformed, slipping 0.5% and marginally extending its year-to-date decline (-1.0%). Food Producers were the notable laggard, caught between pricing deflation and rising input costs, while Basic Materials (-1.3%) weakened on softer commodity prices. Telecoms (+4.4%) continued their run of resilient growth across African operations, with Banks (+1.6%) and Consumer Discretionary (+1.2%) also advancing. Conditions in the Strait of Hormuz remain largely unchanged, and until there is greater clarity on oil supply, inflation and rate expectations will be difficult to anchor, keeping pressure on the more rate-sensitive parts of the market.
Trend (Good)
We remain overweight domestic SA Inc. equities on a risk-adjusted basis, with our valuation work supporting selective exposure to Banks, Industrials, and Retailers. Against a backdrop of gradual macro improvement and easing geopolitical tensions, we see attractive medium-term returns across these sectors. Within commodities, Gold and PGM counters have continued to pull back, and we are actively assessing the relative opportunity this presents against other parts of the market.
Global Bonds
Current (Concern)
Elevated geopolitical risk continues as of the Strait of Hormuz remains shut and no inroads have been made through multiple rounds of negotiations. With the oil price elevated, the trajectory of global inflation and path of interest rates have been upended. Bonds have sold off and could continue to come under pressure the longer the supply of oil remains offline.
Trend (Average)
Over the longer term, the outlook remains largely intact: Sticky inflation, stable labour dynamics, rising growth forecasts and questions over Fed independence in 2026, should keep yields elevated with the long-end most vulnerable to these pressures. A prolonged war in the Middle East will keep oil prices elevated and inflation concerns front of mind, causing volatility for yields at the short-end. The longer the conflict lasts, the more pronounced the feed through effects of a high oil price will be on the physical economy.
SA Bonds
Current (Concern)
Local bonds remained volatile across May as the global risk off environment continued despite a fragile ceasefire in the Middle East. Front-end bonds are seeing most of the pain as the market reassess the interest rate path in light of a prolonged oil price shock. Growing uncertainty and rising inflation risks are negative for local bonds over the short term and may led to evidence of demand destruction, which would test medium term economic assumptions. One greenshoot is that local fiscal and macroeconomic indicators are reletively robust, global risks are in the driving seat.
Trend (Average)
Despite the recent sell off in local bonds, positive structural elements remain in place. Fiscal dynamics have improved and sovereign finances appear to be robust enough to weather global risks. The reform outlook is gaining credibility and has already led to multiple rating upgrades. The meaningful pull back in yields has provided for some opportunity at the front end of the curve, but longer out the curve appears fairly valued on our metrics, moving back from overstretch levels that we saw in February.
Global Cash
Current (Good)
Over the near term, cash is the area providing the best protection against volatility. One can still generate a real return from cash, and any inflationary impulses would be combated with interest rate hikes from central banks, making cash more appealing on relative basis.
Trend (Average)
On a three-year horizon, our valuation points to better opportunities in bonds across the curve versus what could be received for cash. However, volatility is likely to persist over the medium-term with debates about labour market weakness and rising inflation pressures creating uncertainty for where interest rates may settle. We have seen markets price in higher policy rates among all DM regions.
SA Cash
Current (Good)
The materialisation of geopolitical risk will likely keep the SARB cautious. The MPC hiked rates by 25bps in May, with the Repo Rate up to 7.0%. The market is pricing a further three 25bps of hikes within the next year. Real rates remain elevated and current cash rates on offer are well above the inflation rate of 4.0%, therefore investors can still earn a healthy real return without taking on risk.
Trend (Average)
As inflation expectations move credibly lower over the medium, the SARB will become less restrictive and real rates will narrow, causing cash to become less competitive relative to other assets. It remains to be seen whether current geopolitical risks will be prolonged and to what extent the consequences stemming from elevated oil prices will filter into our longer term interest rate assumptions and cash valuations.
SA Property
Current (Average)
The sector offers an attractive prospective return profile, with the model portfolio implying a 1-year total shareholder return of approximately 24%, comprising a 7.6% income yield and 16.4% capital return. However, the capital return component remains sensitive to bond yields, refinancing costs and risk sentiment, particularly if inflation re-accelerates or geopolitical developments keep rates higher for longer. Against this backdrop, valuation work supports a selective approach, favouring companies with visible earnings and distribution growth, resilient balance sheets, disciplined capital allocation and stronger property fundamentals.
Trend (Average)
The listed property opportunity set remains attractive but uneven, with returns likely to be driven by stock-specific execution rather than broad sector momentum. Locally, upside remains in dominant retail, convenience and township retail, well-located logistics assets and stronger regional nodes, while offshore expansion should be rewarded where it is disciplined, earnings-accretive and aligned with existing capabilities. Medium term, we remain constructive on the sector’s income and growth prospects, while mindful of risks from bond yield volatility, refinancing costs, currency movements and ongoing geopolitical uncertainty.
PLEXUS WEALTH FUND PERFORMANCE
Against this backdrop, the Plexus Wealth range of funds delivered the following performance for May 2026:
Plexus Wealth BCI Conservative Fund:
+1.00% for May
+2.96% for the year to date
+12.73% over the past 12 months.
Plexus Wealth BCI Balanced Fund:
Flat for May
-0.44% for the year to date
+11.26% over the past 12 months.
Plexus Wealth BCI Property Fund:
+1.65% for May
+2.96% for the year to date (ranked 2nd in the country)
+29.61% over the past 12 months.
Looking ahead, market participants will be watching for signs that the global AI-driven rally can broaden beyond a handful of mega caps. Equity valuations in developed markets have become stretched; the forward price-to-earnings ratio on the S&P 500 now sits well above its long-term average, and any disappointment in earnings or progress on AI adoption could lead to volatility. Emerging markets, by contrast, may continue to benefit from lower valuations and structural opportunities in technology supply chains.
GOT A QUESTION?
If you would like to discuss how current market conditions may affect your portfolio, we will be happy to chat with you. Please contact your Plexus Wealth financial advisor to arrange a meeting.