Please see the below article from Tatton Investment Management discussing softer markets, May asset returns and housing affordability pressures, received this morning – 08/06/2026.
Markets decelerate
A mostly quiet week ended with a jolt, after May’s stronger-than-expected US jobs report sent bond yields higher and equity markets lower. Investors had been rotating out of tech, but the jobs number shifted focus to potential rate rises, rather than growth. The US session accelerated downwards with the S&P 500 lower on the day by 2.6%. Subsequently Asian stocks are sharply lower, with South Korea’s KOSPI down a stunning 8%.
Leading up to the weakness, the AI-led rally had already been running out of steam. Micron shares dropped 7% on Thursday after Broadcom’s weak sales projections, a reminder that chipmaking remains a cyclical business. Alphabet’s $80bn equity raising plan triggered a sell-off in the ‘Magnificent Seven’. With trillion-dollar US tech IPOs looming, investors fear there might be too much equity issuance for the market to swallow. Last year’s debt issuance was one thing, but equity issuance demands fresh capital of a different dimension, potentially from sales elsewhere. That also explains last week’s rotation.
The Trump administration’s “Section 301” tariffs, supposedly targeting forced labour violations, allow the US to reclaim the revenues it will lose when the 10% universal tariff expires. They therefore won’t move prices and probably won’t engender reciprocal tariffs, but other forms of protectionism are already planned. China will restrict outbound tech investment from next month (just ahead of blockbuster IPOs), we suspect partly to redirect its savings pile inwards.
Liquidity could tighten further if new Fed chair Warsh pushes forward his plan to reduce central bank liquidity provision. His plan is to shift the burden of money creation back on to bank lending – which could improve growth, but is bad news for asset valuations (particularly for speculative assets, shown in Bitcoin’s 20% monthly fall).
The Fed won’t move at this month’s meeting – though it could send a hawkish signal, given labour market strength. The same is true for the BoE, but the ECB and the BoJ are likely to hike. Warsh’s balance sheet reduction will likely come up at his Jackson Hole address in August. Markets will watch the conference closer than usual.
May asset returns review
Global stocks shrugged off Middle East concerns to rise 6% in sterling terms last month, while bonds – after a wild ride down, managed to edge up 0.6% by the end of the month.
Much was expected of the Trump-Xi summit in mid-May, but it produced little substance. It did at least quell fears that the US-Iran conflict is really a proxy war against China. Markets’ geopolitical concerns eased further after a US-Iran ceasefire extension. There’s still no clear path to resolving the energy crisis, but oil finished just over $90 per barrel, 16.8% lower in sterling terms.
Inflation fears weren’t just about oil. Copper, lithium and microchip prices all jumped sharply — a knock-on from the AI infrastructure boom. However, flat iron prices suggest companies are stockpiling datacentre materials without yet building them. That chip-buying frenzy propelled US tech stocks (+9.3%) and emerging markets (+10.6%), the latter dominated by TSMC, Samsung and SK Hynix. Markets without big tech presence lagged: Europe and the UK gained 4.3% and 0.7% respectively.
Core inflation came in softer than feared towards month-end, due to weaker than expected consumption. That calmed bond markets after a sharp mid-month spike in yields — driven, oddly, by long-term real yields, which suggests investors are worried about government borrowing, not just near-term inflation.
UK gilts were at the centre of that panic. 10-year yields briefly touching 5.2% amid Labour leadership drama, but we maintain that gilts’ inflation sensitivity is more about imbalanced issuance than politics per se. That sensitivity meant that gilts were actually the best performing bonds through the month – up 1.8%. They fall hardest when markets panic and recover sharpest when calm returns. Fiscal fears have receded rather than disappeared. That goes for all bond markets.
Market liquidity could tighten from here. Planned US tech IPOs will require an estimated $210bn in fresh equity investment this year, and fund managers started putting capital aside last month.
Affordability weighs down house prices
Canada’s tumbling house prices are emblematic of the affordability problem facing developed market housing. From a peak in early 2022, Canadian house prices have dropped around 20%, and more than 30% in some cities.
Even so, homes remain deeply unaffordable: ownership costs still eat up 88.4% of household income, according to Canadian bank RBC. Tellingly, a majority of Canadians — including homeowners — want prices to fall further.
Canada’s rate cuts haven’t helped much. Interest rates have fallen to 2.25%, but cheaper mortgages alone can’t fix a structural affordability problem decades in the making. Supply is part of the story too — not just the quantity of homes, but their quality — prompting the government to cut sales taxes and development costs to encourage building.
Lighter regulation can help, but the main problem for housebuilders is an inability to sell. We see this in the UK, where dealmaking fell last year despite new homes coming on the market. Housebuilder Vistry’s share price has collapsed this year, thanks to higher costs from the US-Iran war and weaker demand. Savills now forecasts a 2% fall in UK prices this year, having predicted a 2% rise before the war. Even in the resilient US, house prices aren’t keeping up with inflation.
Developed market housing reached peak unaffordability after the pandemic, and price-to-wage ratios have been slowly falling since. Absent a recession (and we haven’t had a real one for nearly two decades), prices can’t fall sharply; they just stagnate while wages slowly catch up.
For buyers, the gains are incremental. For sellers, it feels like loss. As an investment, property valuations remain stretched, offering returns that simply don’t justify the price tag. With higher returns available elsewhere, you can’t keep stretching valuations forever.
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Marcus Blenkinsop
8th June 2026