By Maksym Misichenko · ZeroHedge ·
What AI agents think about this news
The panel consensus is bearish, warning of a market rally built on fragile geopolitical rumors and AI hype, with real risks of a rapid unwind due to high inflation and geopolitical instability.
Risk: Rapid unwind of the rally due to forced deleveraging or a policy surprise
Opportunity: None identified
This analysis is generated by the StockScreener pipeline — four leading LLMs (Claude, GPT, Gemini, Grok) receive identical prompts with built-in anti-hallucination guards. Read methodology →
A Three-Part Story: These Were The Best And Worst Performing Assets In February
The Middle East continued to dominate market attention in May, as constant, daily, recurring hopes and media leaks and trial balloons for some kind of US-Iran deal meant that Brent crude oil fell -19.3%, marking its biggest monthly decline since March 2020 as the pandemic lockdowns began. Those hopes for an end to the conflict meant that fears about stagflation eased dramatically, which pushed yields lower and supported risk assets as well. Indeed, the S&P 500 was up another +5.3% in total return terms to a new record, with chip stocks doing particularly well as excitement around AI returned. For instance, the Philadelphia semiconductor index rose another +22.2% in May, taking its YTD gains to a record +81.5% (in 2000 Semis got there faster but... well, you know the story).
And in South Korea, the KOSPI was up another +28.5% in May, taking its own YTD gains to +102.4%. Admittedly, it wasn’t all good news, and sovereign bond yields briefly hit multi-year highs towards mid-May. But as hopes for a US-Iran deal rose, bonds also recovered into month-end as oil and inflation concerns fell back again.
Before we get into the details, a quick summary from Deutsche Bank's Henry Allen how for markets, May played out like a three-part story:
The first part started strongly, as an Axios report on May 6 said the US and Iran were close to a one-page memo to end the war (it's almost a month later and the two sides still haven't agreed on any memo). Oil prices fell sharply, with Brent crude down from $114/bbl on May 4 to $100/bbl on May 7. So stagflation fears eased considerably, particularly as the US jobs report featured another upside surprise for payrolls.
The second part was more pessimistic, as Trump posted that Iran’s proposal was “TOTALLY UNACCEPTABLE!” So that raised fears of an escalation, whilst a strong US core CPI print added to concern about more persistent inflation, particularly with the Strait of Hormuz still blocked.
This period saw bond yields hit multi-year highs in several countries. On May 19, the 30yr Treasury yield closed at a post-2007 high of 5.18%, 10yr bund yields hit a post-2011 high of 3.19%, and Japan’s 10yr yield hit a post-1997 high of 2.78%.
The third part saw optimism return, as multiple reports suggested a US-Iran deal was again close. In fact, oil prices ended the month at a one-month low, the S&P 500 posted 7 consecutive gains, and the 10yr Treasury yield fell for 7 consecutive sessions for the first time in over a year. So the full numbers pointed to a decent performance overall.
While events in Iran continued to dominate attention, the other big story in May was the return of AI excitement, with chip stocks massively outperforming. For instance, the Philly semiconductor index was up another +22.2%, and the KOSPI was up +26.2% in USD total return terms. That took their YTD gains to +82% and +94% respectively, after just 5 months of the year. In fact, in local currency terms, the KOSPI is up more than +100% YTD. So, despite all the geopolitical volatility this year, the AI story is still center stage for financial assets.
With that in mind, here is a high-level macro overview of the month that was.
Markets got May off to a strong start, with oil prices coming down as hopes grew for an end to the conflict. Most notably, Axios reported on May 6 that the US and Iran were close to a one-page memo that would end the war and set a framework for more nuclear negotiations. So that raised hopes that the war might soon be over, and Brent crude oil fell from $114.44/bbl on May 4th, to $100.06/bbl on May 7. Then shortly after on May 8, there was then fresh support from strong US data, as the jobs report for April surprised on the upside. That included a +115k increase in payrolls, which on the current series of revisions is the first time since 2024 that payrolls have been above +100k in consecutive months.
But despite that optimistic start, sentiment began to turn again towards the middle of the month. That was primarily driven by geopolitical developments, as Trump posted on May 10 that the proposal from Iran was “TOTALLY UNACCEPTABLE!” That raised fears of a fresh escalation, and Trump said on May 11 that “the ceasefire is on massive life support”. So with no sign of a peace deal and the Strait of Hormuz still blocked, oil prices began to recover again. Moreover, Trump openly speculated about an escalation, saying on May 19 that “I hope we don’t have to do the war, but we may have to give them another big hit”.
For markets, matters weren’t helped in this period by a strong US core CPI print on May 12, which raised fears about more persistent inflation, particularly as oil prices kept moving higher as well. Indeed, on May 18, the 6-month Brent future closed at $92.76/bbl, which was its highest level since the conflict began. So investors were pricing in a more protracted period of high oil prices that extended to the end of the year.
That backdrop meant that bond yields reached new highs in multiple countries. For instance, there were several records set on May 19, as the 30yr Treasury yield closed at a post-2007 high of 5.18%, the 10yr bund yield closed a post-2011 high of 3.19%, and Japan’s 10yr yield closed at a post-1997 high of 2.78%.
Meanwhile in the UK, a few days earlier on May 15, the 10yr gilt yield had also hit a post-2008 high of 5.17%. That came as speculation mounted around PM Keir Starmer’s position after the governing Labour Party lost seats in the local elections. In turn, that triggered multiple ministerial resignations, including Health Secretary Wes Streeting. Shortly after, a by-election was then called after an MP stood down, and Greater Manchester Mayor Andy Burnham announced he’d be standing for Parliament. That initially saw gilts lose ground, as Burnham had previously said that the UK shouldn’t be “in hock” to the bond markets, and had suggested that defence spending should be considered outside the fiscal rules. However, Burnham later ruled out changing the fiscal rules, which led to a clear rally for gilts. So coupled with easing fears of stagflation, the 10yr gilt yield actually fell -20bps over May as a whole, closing at 4.81%.
But even though sovereign bond yields hit multi-year highs in the middle of the month, more positive sentiment returned towards the end of May. That was driven - again - by multiple reports suggesting that a US-Iran deal might be moving closer. For instance on May 27, Iran’s state TV reported on an unofficial draft for an interim peace deal, raising hopes that the Strait of Hormuz would reopen. Then on May 28, an Axios report said that a deal had been reached on a 60-day memorandum of understanding to extend the ceasefire, with negotiations also starting over Iran’s nuclear program. And a similar message was then reported by other outlets. So that led to a decent fall in oil prices towards month end, meaning Brent crude ultimately closed at $92.05/bbl, its lowest level in over a month. And markets more broadly ended the month very strongly, with the S&P 500 up 7 days in a row, whilst the 10yr Treasury yield also fell for 7 consecutive sessions for the first time in over a year.
Which assets saw the biggest gains in May?
Equities: It was generally a strong month for equities, as hopes rose for some kind of US-Iran deal. In total return terms, the S&P 500 was up +5.3%, the STOXX 600 rose +3.2%, and Japan’s Nikkei was up +11.9%. Meanwhile, South Korea’s KOSPI surged another +28.5%, taking its YTD gains to +102.4%.
Sovereign bonds: As fears of stagflation receded, sovereign bonds advanced, particularly in Europe. So Euro sovereigns were up +1.1% in total return terms, and gilts rose +2.0%. US Treasuries saw a smaller advance as investors brought forward expectations for Fed rate hikes, but they were still up +0.1% in total return terms.
Which assets saw the biggest losses in May?
Oil: The prospect of a US-Iran deal meant Brent crude fell -19.3% in May, marking its biggest monthly decline since March 2020 when the pandemic lockdowns began.
Gold: With real yields moving higher and fears about inflation receding, gold prices fell back for a third consecutive month, falling -1.7% to $4,540/oz.
Bitcoin: it was a dismal month for the crypto currency which swung higher in April, defying the initial post-war gloom in gold and other anti-fiat assets, but then erased almost all April gains, to trade down almost 4%.
Finally, here is a visual recap of the best performing assets in May (in domestic and USD terms).
... and YTD.
Tyler Durden
Mon, 06/01/2026 - 22:35
Four leading AI models discuss this article
"Semiconductor valuations have decoupled from fundamentals on speculative AI excitement while geopolitical de-escalation hopes have repeatedly failed to materialize, creating downside risk if either narrative breaks."
This article is internally contradictory and poorly dated. It claims to cover February but discusses May 2026 events—a red flag for credibility. More critically: the semiconductor rally (+81.5% YTD, +22.2% in May alone) and KOSPI surge (+102% YTD) rest entirely on AI hype and geopolitical de-escalation hopes that haven't materialized. The article itself admits the US-Iran deal repeatedly failed to close. Bond yields hit post-2007/2011 highs mid-month, signaling real inflation concerns the article downplays. Valuations at these levels require either sustained AI productivity gains or continued multiple expansion—neither guaranteed.
If the AI productivity story is real and semiconductors are genuinely supply-constrained through 2026, current valuations could prove conservative; meanwhile, if US-Iran tensions do ease durably, oil stays sub-$95/bbl and stagflation fears vanish, supporting both equities and bonds simultaneously.
"May's equity gains rest on fragile, repeatedly reversed deal rumors rather than durable fundamentals."
The article portrays May as a relief rally driven by repeated US-Iran deal rumors that cut Brent 19.3% and lifted the S&P 500 5.3% plus semis 22.2%. Yet the three-part flip-flops (Axios leaks, Trump rejection, renewed optimism) reveal pricing based on unconfirmed headlines rather than fundamentals. KOSPI's +102% YTD and 30-year Treasury yields hitting 5.18% highlight how quickly stagflation fears can return if oil rebounds or core CPI stays hot. Missing context includes the Strait of Hormuz still blocked and no actual memo signed after a month of speculation.
The AI trade's structural momentum, evidenced by Philadelphia semis already at +81.5% YTD after just five months, could sustain equity gains even if geopolitical rumors fade.
"The current equity rally is overly dependent on the success of volatile geopolitical negotiations, leaving markets highly vulnerable to a sudden reversal in energy prices."
The market's obsession with a 'one-page memo' between the US and Iran is a dangerous exercise in hopium. While the S&P 500's 5.3% rally and the KOSPI's 28.5% surge reflect a massive rotation back into high-beta tech and AI-exposed assets, this is built on the fragile assumption that geopolitical risk in the Strait of Hormuz is permanently abating. Investors are ignoring the second-order effects of these 'deals': if the conflict doesn't resolve, the repricing of energy risk will be violent. We are seeing a classic liquidity-driven melt-up that ignores the structural inflationary pressures signaled by the mid-month spike in 30yr Treasury yields to 5.18%.
If the US-Iran deal is actually substantive, the combination of lower energy costs and cooling inflation could trigger a 'Goldilocks' environment that justifies these record-breaking equity multiples.
"May's gains look fragile and potentially reversable if inflation remains persistent or geopolitical risks resurface, not a durable re-rating of risk assets."
The article frames May as a risk-on story driven by hopes for a US-Iran deal and AI enthusiasm, with oil declines and tech led gains. The strongest counterread is that this rally rests on fragile, rumor-driven narratives rather than durable fundamentals: yields peaked mid-month amid inflation fears, geopolitics remained unsettled, and momentum in semis/EM may be crowded and vulnerable to a policy surprise or a sharper inflation rebound. Liquidity and option dynamics could have exacerbated moves, meaning a meaningful unwind is plausible if the Iran path stalls or real yields stay elevated. Caution warranted around extrapolating from a few high-beta winners.
If Iran talks regain momentum or inflation proves to be tamer than feared, the rally could extend; the article underplays momentum drivers and liquidity effects that could sustain gains longer than skeptics expect.
"Geopolitical noise masks the true tail risk: crowded positioning in high-beta assets with thin exit liquidity if fundamentals or leverage break."
Everyone's correctly skeptical of geopolitical rumor-pricing, but we're underweighting liquidity mechanics. ChatGPT flags option dynamics; nobody's quantified the actual positioning. If semis are +81.5% YTD on $2T+ in AI capex commitments (real, not rumor-driven), a pullback requires either earnings disappointment or forced deleveraging—not just Iran deal failure. The real risk isn't the rally itself; it's *how fast* it unwinds if either catalyst hits. That asymmetry matters more than whether the deal closes.
"AI capex is more rate-sensitive and revisable than assumed, linking yields directly to faster deleveraging risk."
Claude treats the $2T AI capex as locked-in support for semis, yet most commitments are multi-year and can be slowed if 30-year yields remain above 5% and compress margins. This directly ties the liquidity mechanics he flags to the inflation signal from the mid-month yield spike, raising the odds of forced deleveraging even without an Iran-deal failure. The speed of any unwind hinges on that rate sensitivity more than positioning alone.
"The combination of high long-term yields and gamma-driven hedging creates a systemic liquidity trap that makes the AI trade vulnerable to a violent, non-linear unwind."
Grok, you're missing the duration risk inherent in those multi-year capex commitments. If 30-year yields stay at 5.18%, the hurdle rate for these AI projects skyrockets, effectively forcing a capital allocation pivot long before earnings disappoint. Claude, your focus on liquidity is correct, but you're ignoring the 'gamma trap'—if volatility spikes and dealers are forced to hedge, the unwind won't be a gradual deleveraging; it will be a liquidity vacuum that crushes high-beta tech regardless of fundamental AI demand.
"Gamma-trap liquidity vacuum is overstated; AI capex financing is adaptable and unwinds likely gradual unless real yields/inflation shock, not simply gamma hedging."
Gemini, the gamma-trap idea presumes a naked, instantaneous hedging unwind. In practice, AI capex is financed via multiple channels (secured lending, project finance, securitizations) and can be adjusted over multi-year cycles; a liquidity vacuum is not guaranteed. The risk of a rapid shocks-only unwind hinges more on real yields and inflation dynamics than on option gamma. So, the gamma concern may be overstated relative to the yield/inflation risk in play.
The panel consensus is bearish, warning of a market rally built on fragile geopolitical rumors and AI hype, with real risks of a rapid unwind due to high inflation and geopolitical instability.
None identified
Rapid unwind of the rally due to forced deleveraging or a policy surprise