May 29, 2026

Key takeaways

• Equity markets moved higher in May, led by companies with strong earnings momentum and direct exposure to the AI investment cycle.
• AI remained the dominant driver of returns, but participation broadened beyond mega-cap technology, with emerging market stocks leading in May and year-to-date.
• Inflation uncertainty increased through the month, making the path for interest rates less clear and pushing bond yields higher.

May was another positive month for equity markets, further extending this year’s gains. Investors continued to favour companies with the clearest earnings momentum, particularly those tied to the Artificial Intelligence (AI) investment cycle. The long-term return on AI spending remains an important debate. Earlier in the year, concern over rising capital spending weighed on many AI-related stocks. For now, however, demand for compute continues to exceed available supply, supporting strong pricing and solid earnings growth across many AI-related businesses.

Strong performance from more companies tied to the AI theme

While AI remained the dominant market theme in May, the companies benefiting from the AI investment cycle continued to broaden. Earlier in the cycle, returns were concentrated in a small number of United States (US) mega-cap technology companies. More recently, investors have rewarded a wider group of businesses tied to the physical buildout of AI, including semiconductors, memory, networking, power infrastructure, cooling and hardware manufacturing.

This is an important distinction. Market leadership has narrowed because AI is driving a large share of returns, but the AI opportunity itself has broadened beyond the largest technology platforms. This has also supported emerging market equities, which led global markets in May and remain among the strongest performers year-to-date. Many emerging market companies are central to the global AI supply chain through semiconductor manufacturing, memory production and technology hardware. As AI investment moves from software and models into physical infrastructure, more of the economic benefit is flowing to regions and companies that supply the components needed to support the buildout.

For investors, the key point is that AI exposure is no longer only about owning the largest US technology companies. The buildout is creating opportunities across regions, industries and parts of the supply chain.

Higher bond yields challenge the rally

Inflation moved back into focus in May. While equity markets continued to rise, investors became less confident that inflation would ease smoothly or that central banks would be able to lower interest rates in the near term. That uncertainty pushed bond yields higher, creating a more challenging backdrop for parts of the market that are sensitive to interest rates.

The important point is not simply that yields rose. It is that the market became less certain about the path ahead. When inflation is uncertain, interest rates are harder to predict, and investors demand more compensation to own longer-term bonds. This weighed on areas such as utilities, real estate and housing-related stocks, while companies with stronger earnings momentum and clearer growth drivers continued to attract capital. In other words, higher yields did not stop the rally, but they made the market more selective.

Bottom line

May was a positive month for markets, but the message beneath the surface was more nuanced than the headline returns suggest. AI remains the dominant driver of equity performance, and the opportunity set is broadening as the buildout expands across semiconductors, power, infrastructure and emerging market supply chains.

At the same time, inflation uncertainty and higher bond yields are making markets more selective. Looking ahead, we still see opportunities, particularly in companies benefiting from strong earnings growth and the AI investment cycle, but higher yields and narrower leadership argue for balance, selectivity and portfolios built for a wide range of market outcomes.

This material, including any attachments, is provided for informational purposes only and is not intended as investment, legal, accounting, or tax advice. It has been prepared without regard to individual financial circumstances or objectives, and readers should consult independent professionals, as applicable. All views, opinions, estimates and projections contained in this material constitute Connor, Clark & Lunn Private Capital Ltd. (“CC&L Private Capital”)’s judgment as of the date of publication and are subject to change without notice. Certain information contained herein is based on information obtained from third-party sources that CC&L Private Capital considers to be reliable. Past performance is not indicative of future results, future returns are not guaranteed, and loss of capital may occur. This material is intended for the use of the recipient only and no matter contained herein may be separately used, disseminated, distributed, reproduced or copied by any means, in whole or in part without express prior written of CC&L Private Capital. This is not an offer to sell or a solicitation to buy any securities and should not be construed as a sales communication.