What happens after the hero becomes exhausted, but Sauron also becomes exhausted a card or two later without defeating the hero?
If I understand correctly the hero gets to reshuffle his cards back into his lifepool, but does that mean Sauron gets to move his leftmost marker one step on? In my mind he should because the hero is effectively resting.
Tried to get clarification in the rules, but I'm not sure if I'm just missing it.
So both are still alive? Hero definately doesn't get a reshuffle, don't know where you got that idea from. Reshuffling cards back to the Rest Pool happens only upon resting or when specifically instructed to do so (mainly via encounters) or if you are defeated, in which case all cards are shuffled back to the Life Pool. Second, Sauron's marker doesn't move, since the Hero wasn't defeated. If the enemy was a monster, it is discarded, if a Minion, it remains, with the damage accumulated. Regardless of monster/minion, Sauron gets to add influence in the amount of the Wisdom of the enemy. If the combat took place in the Travel Step, the Hero's turn also ends (unless Hero is Thalin).