European and UK Equity Capital Markets Review May 2026

• Following a weak start to March as the Middle East conflict knocked markets globally, a ceasefire and hopes of a negotiated settlement helped equity markets rally strongly in April and May although stagflation fears continue given the move in oil and broader commodity prices. Europe’s higher exposure to the energy crisis versus the US has continued to see it underperform in May, with the FTSE All Share up 0.7% and Stoxx 600 up 2.8% on the month, whilst the S&P 500 closed up 5.1% and the Nasdaq up 8.4%. As the conflict and closure of the Strait of Hormuz continues, the supply shock effects will continue to work their way through the system, with inflationary pressures beginning to show up in the latest economic data.
  
  
• The Middle East conflict has continued to dominate headlines – hopes for a ceasefire has aided sentiment, however talks between US and Iran remain fragile. Economists continue to see a near-term resolution to the conflict as the base case, which includes a reopening of the Strait of Hormuz and a gradual decline in wholesale energy prices. However, should the ceasefire and the blockade of the Strait continue for longer, resulting in a further spike in energy prices and/or shortages as we hit a potential pinch point in the summer, markets are likely to react negatively. Of course, the worst-case scenario is a return to military action, which would deepen the macroeconomic consequences.
  
  
• Prior to the conflict, markets were expecting rate cuts in the UK and the US but that has clearly pivoted since on concerns of an inflation spike, although the very initial market reaction was arguably extreme. In the UK, markets were initially pricing in 1%pt of rate hikes over the course of 2026 for example but considering that the relatively ‘loose’ UK labour market stands to limit second-round it is not surprising that expectations have recalibrated since, now pricing in one-to-two 25bp hikes. Investec’s Economists expect rates to be on hold for 2026 in the UK and US, and two rate hikes in the Eurozone. In late May, bond yields fell from their highs but remain elevated relative to pre-conflict.
  
  
• Whilst oil prices have fallen from their highs, finishing last month below $100 per barrel as a credible attempt for an agreement between the US and Iran emerged, prices remained above $100 per barrel for much of May. Data in Europe and North America suggests economies remain more resilient than feared, but the inflationary pressures have begun to show up across the globe, with US CPI inflation surprising to the upside at 3.8% in April (vs 2.4% at the start of the year), and Eurozone HICP inflation climbing to 3.2% (vs 1.7% at the start of the year). In the UK, inflation surprised to the downside coming in at 2.8%, however, the biggest downward pressure came from utility bills as a function of the energy price cap, which will be recalculated in July.
  
  
• In the US technology, semiconductor and AI related stocks have been the key drivers of the US outperformance, with Dell’s results notable in the AI broadening earning story. The shares surged 33% after the laptop maker reported a first-quarter beat on both the top and bottom lines and raised its full year guidance. The AI Capex cycle has driven material earnings outperformance from those companies that supply equipment into the ‘sector’.
  
  
• Despite geopolitical tensions, ECM volumes have continued to hold up relatively well, with ECM issuance of $70.2bn for 2026 YTD, in line with the 10-year average, and significantly ahead of the comparative period in 2025. Whilst April was quieter as the Middle East conflict delayed some processes; strong equity markets aided a pickup in issuance in May. The US is expected to see strong IPO volumes this year, notably SpaceX formally launched its IPO process in May, and Anthropic and OpenAI are also expected in 2026. In the UK ECM activity has also improved relative to the prior year, with a significant pick up in the number of deals in 2026 vs 2025.
  
  
• In line with sector performance in the market, European IPO activity has been skewed to the energy, mining and defence sectors. Notable deals in May include Greek electricity provider PPC’s €4.5bn fundraise for its 2030 strategic plan with CVC and the Greek state as cornerstone investors, and CVC’s sell down of its $3.6bn stake in Spanish energy company Naturgy. UK IPO activity has been relatively subdued YTD but UzNiF, the Uzbek investment fund completed its dual listing in London.
   

• Equity markets began 2026 strongly, with European indices continuing to outperform the US. Following the outbreak of the conflict in the Middle East, global markets sold off sharply, driven by turmoil in energy markets following the closure of the Straits of Hormuz through which a material proportion of the world’s energy and chemical needs typically pass.
• In the first few months of 2026 concerns about lofty US tech equity valuations, a tech / AI ‘bubble’ given ever increasing capex into the ‘sector’, and evolving challenges in the private credit markets led to European outperformance.
• Whilst ongoing talks of a ceasefire has seen global markets recover their initial losses, US equities have reversed their early underperformance and surged ahead of global equity markets given a robust Q126 earnings season for corporate America, a higher level of energy independence inherent within the US economy (particularly relative to Europe or Asia), and a strong rebound in AI, technology and semi-conductor stocks. As such, the S&P and Nasdaq continued to make new record highs in May.
• In the UK for May the more domestically focused FTSE 250 has outperformed its more internationally exposed FTSE 100 counterpart finishing the month up 4.3% and 0.3% respectively. The FTSE AIM 100 closed down -0.2% and FTSE Small Cap up 2.7%. Elsewhere in May, the Stoxx 600 was up 2.8%, S&P 500 up 5.1%, Nasdaq up 8.4% and Russell 2000 up 4.3%.

• At the start of 2026, US Big Tech valuations came under pressure as investors grew increasingly concerned over large capex commitments and higher costs. Those investor concerns were evident in the early part of 2026 with asset allocations away from US (large cap) tech, but strong results helped restore a level of confidence in the AI thematic.
• UK equity market valuations continue to lag the US, however, adjusting for growth it is arguably fewer high-growth opportunities rather than an inability to value growth that drives the differential.
• Whilst all global indices were impacted by the Middle East conflict and a resulting drop in valuations, the market recovery over April and May has been accompanied by a robust Q126 earnings season (particularly in large cap tech & AI related segments) such that earnings multiples have not fully (re)expanded in line with the market bounce back.
• UK indices remain close to or below longer term averages and look attractive relative to other markets.

• UK March CPI inflation surprised to the downside, falling to 2.8% from 3.3%, in line with consensus expectations and a 13-month low. Core inflation fell to 2.5% from 3.1%, and below consensus expectations of 2.6%. Downward pressures came from utility bills and surprisingly from food and air fares. The utility bill effect will be reversed with the update to the energy price cap in July.
• Higher energy prices pushed up Eurozone inflation in May to 3.2% from 3.0%, whilst core increased to 2.5%. In the US, CPI inflation for April rose to 3.8% from 3.3%, with core inflation rising to 2.8% - US CPI was 2.4% at the start of 2026. The sharp pick up in the headline rate relative to the start of the year can largely be attributed to the increase in gasoline prices. These increased by 21% on the month in March, and then another 5% in April.
• The impact of higher energy prices due to the Middle East conflict began to show in March and April prints, however, regarding its ultimate effects, much depends on the length of the conflict, and the corresponding impact on not just energy prices but on food and the degree of wider second-round effects. There is also the question as to how consumers fare in the face of these price rises, especially at a time when, unlike the UK, the US household saving rate is historically low, implying a shallow rainy-day fund.
   

• At the start of the conflict in the Middle East, investors were increasingly bearish with regard to the growth of the global economy, with growth expectations falling to their lowest since March 2022 and inflation expectations reaching their highest since May 2021. However, May’s BAML survey shows investor sentiment rebounding to a 3-month high; a record rise in fund managers equity allocation and large cuts in cash levels.
• With the closure of the Strait of Hormuz ongoing, oil is still elevated at $98/barrel at the time of writing and is forecast to be at $85/barrel by the end of 2026 by those responding in May’s BAML investor survey. Long oil and long semiconductor names are the most crowded trades over May according to the survey.
• Given Europe’s exposure to the growing energy crisis and accompanying inflation shock, investor expectations for growth in the regions have reduced, with a net 32% investors expecting growth to slow over the coming months, the highest since October 2024. As a result, April and now May have seen a sharp rotation out of Europe into the US, with 51% expecting US equities to outperform Europe over the next 12 months, up from 29%.
• Although US equities attracted significant capital over the April and May, the level of bullishness on European equities outright remains fairly resilient, with a net 33% of respondents in May’s BAML survey seeing upside for the market over the coming months (little changed from last month), and the share of respondents worried about reducing equity exposure by too much, thereby missing out on a rally, is up from 21% to 46%.

IPO issuance in Europe

• US$1,684m raised from 8 IPOs in May 2026 across Europe, with an average deal size of US$211m. There were 6 IPOs greater than US$50m including Uzbek investment fund UzNIF ($692m), Danish aquaculture feed manufacturer Biomar Group ($423m), Swedish MEMS manufacturer Silex Microsystems ($216m), Spanish interior designer TSK Group (£203m), Norwegian wellboat platform Pelican Aqua ($60m) and Turkish iron and steel manufacturer Ekinciler Demir Celik ($51m).
• In 2025, there were 49 IPOs greater than US$50m, raising $17.8bn in total, with an average issue size of $363m (vs 47 IPOs in 2024, generating $17.9bn, with an average of $381m). Most core European IPOs initially traded higher post IPO, although heightened volatility since the onset of the Middle East conflict has unwound some of this performance.
• Elevated volatility in 2026 has seen shorter execution windows to allow issuers to mitigate market risk and also led some European IPO processes to be delayed.
• Despite near-term uncertainty, the European IPO pipeline remains healthier than 2025, with a number of flagship assets preparing and monitoring market conditions / execution windows. Defence, Energy Transition and Insurance remain key themes and are well represented within the pipeline.