Weekly Commentary 12 May 2026
Summary
US equities rose as earnings continued to impress, with technology leading on AI-driven demand and improving sentiment helped by signs of easing US‑Iran tensions
The US labour backdrop stayed resilient, with payroll growth beating expectations and continuing claims falling, although labour force participation weakened
Hard data was firmer than expected, with construction spending and factory orders both surprising on the upside, helped in part by continued electronics and infrastructure demand
Outside the US, market returns were broadly constructive, with Japan particularly strong, while Europe was more mixed despite modest gains in some major indices
Consumer sentiment weakened sharply, with survey data pointing to a record-low reading even as realised activity remained firmer than feared
In Europe, firmer eurozone producer prices and hawkish European Central Bank commentary reinforced the risk that rate relief may be delayed if inflation does not ease sufficiently.
Market Review
Earnings strength offsets softer sentiment
Markets moved higher over the week, underpinned by a strong earnings season. In the US, equities were up by over 2%, led again by technology on the back of AI-related demand. The wider message is that investors continue to favour companies with visible growth and resilient fundamentals.
Elsewhere, returns were more mixed but still broadly constructive: German equities rose 0.2%, Italian equities were up over 2%, China and Japan both gained c.3% and Emerging Market equities surged over 6%. The UK market was an outlier, with a modest decline on the week. Risk appetite was also helped by some easing in immediate concerns around Middle East tensions, although developments in Iran and the associated impact on energy prices remain an important macro risk to watch.
The macro backdrop remains supportive, if somewhat less clean than the headline market move suggests. US payroll growth in April beat expectations and continuing claims fell, indicating that the labour market is still holding up. Construction spending and factory orders also came in ahead of expectations, reinforcing the idea that activity has not softened as sharply as many had feared. However, weaker labour force participation, softer productivity and a record low reading in consumer sentiment suggest resilience is becoming narrower beneath the surface.
From a market perspective, leadership has remained relatively concentrated. The technology sector has continued to set the pace, supported by AI-related spending and demand expectations, while more cyclical and rate-sensitive areas have been less consistent. That pattern fits a market still willing to pay for structural growth and earnings visibility, but less willing to give the benefit of the doubt where the macro outlook is more exposed. For now, stronger hard data are carrying more weight than weaker survey evidence, although the divergence between the two is worth monitoring.
Thematics – not all exposure is equal
A consistent theme in recent earnings seasons has been the strength of infrastructure-related investment supporting the build-out of AI capabilities. Infrastructure has historically been viewed as a relatively defensive sector, offering some protection when wider markets fall, yet elements of the space, notably utilities, were among the strongest performers within wider markets in 2025.
Similarly popular in 2025 were positions in precious metals, with gold, silver and others surging to new highs. Mining equities were also very strong, with some returns running to several hundreds of percentage points during the year. Elements of this strength were fundamentally driven, with precious metals serving as important industrial inputs, but geopolitical uncertainty, central bank purchases and falling interest rates also played an important role.
The behaviour of these two thematics has been notably different thus far in 2026, demonstrating the importance of active selection and monitoring within portfolios. Both gold and silver saw significant drawdowns following the emergence of the Iran-US conflict, with miners responding accordingly. This reaction stands in contrast with what might typically have been expected, as a significant escalation in geopolitical tension would often prompt a flight to safety, including into precious metals. In this instance, however, rising inflation concerns appear to have offset that relationship, with traditional safe haven assets offering less protection than investors might normally have anticipated.
The gold price and related equities are now broadly flat year-to-date despite the very strong start to the year. This sits in contrast to infrastructure-related equities, which have delivered double-digit returns year-to-date and provided, for the most part, reasonable downside protection during wider equity market sell-offs.
Infrastructure-related investments suffered heavily as interest rates rose in 2022, so one might have expected similar concerns given the inflationary expectations emerging from the conflict. However, underlying fundamentals within the space have thus far proven resilient, with the strong inflation linkage of cashflows providing investors with greater comfort around future performance. Policy-backed investment in electrification and grid expansion, together with rising expectations for AI-related power demand, has brought a sector once viewed as relatively defensive into sharper focus for a wider group of investors.
As hopes for a resolution to the conflict resurface, we are again reminded of the importance of diligence and rigour in investment decision-making and of looking beyond first-order effects. One might have expected two traditionally defensive or safe haven themes to have delivered similar performance in portfolios this year, but gold and infrastructure have diverged relative to wider global equities. While this is not unique to these particular themes, it does highlight the need to combine long-term conviction with tactical flexibility in an evolving market environment.
The Week Ahead
US macro data: Existing home sales (Monday); CPI (Tuesday) PPI (Wednesday) and Retail Sales (Thursday) will give a further read on underlying strength of the US economy. Consensus is for broadly flat home sales and month on month CPI/PPI reads, with an uptick in year-on-year CPI and weakness in core retail sales.
Oil: Crude oil inventories and OPEC monthly market report on Wednesday will give colour on the current state of the oil market.
Geopolitics: US President Trump is due to meet Xi Jinping on Wednesday – Friday this week, in the first visit to China by a US President in nearly a decade. Tariffs and the Iran war will be the likely focus of discussion, with potential for market-moving updates in both directions.
