The Bigger Picture - May 2026

April confirmed what markets had begun to suspect: the global macro backdrop has changed. Higher geopolitical risk is now structurally entrenched. Markets have quickly adjusted to this unfortunate new reality across all asset classes. Geopolitical risk has reasserted itself as a primary driver of energy prices, inflation expectations, and capital flows. Investors still anchored to the old world of low inflation, cheap money, and frictionless globalisation risk being structurally mispositioned.

Oil is at the heart of it all. Investors are gradually coming to terms with energy markets influencing the global macro outlook significantly more than in recent years. There’s also a growing awareness that this is likely to be a multi-year dynamic rather than a short-term shift.

It doesn’t mean we all need to be oil experts, but we do need to be ready for the impacts of potentially higher and more volatile oil prices.

The timing of this evolution matters. We’ve long known that the Strait of Hormuz is one of the world’s most critical energy chokepoints with the potential to significantly disrupt global supply. Now it’s essentially dysfunctional at a time when Australian inflation was already running at 3.7% in the year ending February 2026, and well above the RBA’s 2–3% target range.

Whether the RBA and other central bankers respond with higher rates is yet to be seen, although based on what happened in the 1970s, there’s a rising risk that they do.

This translates into an unusually fragile macro backdrop that remains vulnerable to further oil supply shocks and subsequent rate rises. The longer the Strait of Hormuz is effectively closed, the higher the risk of prolonged global and local stagflation.

So, how should investors navigate this unusually chaotic macro environment?

The name of the investment game for successful investors has always been resilience. Recent events have reinforced that.

As per the famous expression: you only discover who’s swimming naked when the tide goes out. April’s volatility exposed those investors who’ve not made resilience a core long-term goal. Many were calling for a larger selloff at the very moment markets rebounded, and thus sold at exactly the wrong moment.

Sentiment data illustrates this dynamic. Despite the recent rebound, US investors remain unusually bearish. At 43%, negative sentiment is not only elevated relative to the 31% long-term average, but consistent with levels historically associated with underinvestment during market recoveries. This implies that a meaningful cohort of investors remain on the sidelines awaiting a more attractive reentry point.

The problem is markets rarely accommodate investors’ expectations. They often move in the exact opposite direction to what the majority are positioned for. Hence, timing short-term market direction tends to be costly.

The optimal portfolios for this environment are intentionally resilient.

Their owners allocate to real assets and global growth with a long-term horizon, keep their income sources diversified, and rebalance when drift becomes meaningful. And importantly, they are diversified by macro outlook in recognition of the fact that the world has become less predictable.

Whether or not resilience was a primary goal of yours prior to recent volatility, maybe this is your opportunity to recalibrate in that direction before the next round of chaos.

If that chimes with you, be aware that whilst access to investing has become easier in recent years, more choice doesn’t correlate with better outcomes. In fact, it often creates clutter, overconfidence, and performance chasing, all of which are arch-nemeses of positive investment outcomes.

With more than 10,000 managed investment products available to Australian investors, having a robust process is the only way to find the right products for your needs. Investors who understand their target allocation and know how to compare fund strategies with an eye on overlap, fees, and behavioural triggers are far more likely to successfully compound their returns through robust portfolios.

Achieving this means truly committing to a long-term investment plan consistent with your goals and risk profile. And it means not reacting to the type of short-term market movements we’ve witnessed in recent weeks.

Hard as it is to do, controlling your emotions when other investors aren’t is the secret to improving your performance. It’s arguably the most persistent source of excess return available to individual investors.

The easiest way to achieve this is to commit to regular automatic monthly investing into high-quality funds and ETFs aligned with your investment plan. The key is to minimise the number of decisions you need to make in enacting this plan, and to keep investing each and every month, regardless of how the herd is behaving.

Stop checking your portfolio on a daily basis, and relax in the knowledge that it can now compound over the long-term without its greatest enemy sabotaging its trajectory: your emotions.

The bigger picture in May is about heeding the implications of a more volatile macro environment. It’s also about looking in the mirror. It’s time to stay true to your process and goals, while focusing more on resilience in an uncertain world.

Popular April articles you may have missed:

From FX Shocks to US Bias: The Biggest Global Equity Fund Risks to Manage’ to the words ‘global growth

Want an extra 1.5% return?’ to the words ‘source of excess return

Disclaimer: This article is prepared by Simon Turner. It is for educational purposes only. While all reasonable care has been taken by the author in the preparation of this information, the author and InvestmentMarkets (Aust) Pty. Ltd. as publisher take no responsibility for any actions taken based on information contained herein or for any errors or omissions within it. Interested parties should seek independent professional advice prior to acting on any information presented. Please note past performance is not a reliable indicator of future performance.