Winning streaks and strong earnings
Equity markets continued their recovery in May, posting another month of gains and multiple record highs. The S&P 500 rose 3.3% to 7,519, extending its winning streak to eight consecutive weeks heading into Memorial Day — a remarkable run despite ongoing uncertainty around the Iran conflict. Meanwhile, the Nasdaq Composite set a new record at 26,656, and the Dow Jones Industrial reached 50,462.

Micron Technology was a standout, surging 19% on May 26 and crossing the $1 trillion market cap threshold for the first time. The catalyst was an aggressive price target increase by UBS ($535 to $1,625), which cited AI-driven demand for high-bandwidth memory chips. The stock has more than tripled year-to-date.

The CBOE Volatility Index (VIX) closed in May near 17, down from 31 in late March. While some volatility may return around the Fed meeting and Iran negotiations, investor sentiment has improved significantly. Fixed-income markets were mixed. The 10-year Treasury yield remained elevated amid persistent inflation and uncertainty over how incoming Fed Chair Kevin Warsh will handle interest rates. The Bloomberg U.S. Aggregate Bond Index posted modest gains.

Geopolitical and oil update
Iran peace negotiations remain the central market driver. Oil prices are volatile but trending lower. WTI crude fell from $102 to around $97 per barrel by the end of May; Brent crude settled near $104. National gasoline prices remain above $4 per gallon. The International Energy Agency lowered its global oil-demand forecast, signaling that higher energy prices may be slowing global economic growth. A sustained peace agreement and reopening of the Strait of Hormuz remain the clearest near-term catalysts for further market gains. However, Saudi Aramco CEO Amin Nasser warned that the oil market may not fully normalize before 2027, given the infrastructure damage and supply chain disruptions from the conflict.

Economic Data
Jobs
The April employment report showed 115,000 jobs added, down from March’s revised 185,000 but well above expectations. Unemployment held at 4.3%. Growth was led by health care (+37K), transportation and warehousing (+30K), and retail (+22K). Wage growth remained moderate, with average hourly earnings up 0.2% for the month and 3.6% year- over-year. The May report is due June 5.

Inflation
April CPI rose 0.6% month-over-month and 3.8% year-over-year, the highest annual rate since 2022. The increase was largely driven by a sharp 21.2% spike in gasoline prices in March, the largest on record. Core CPI, which excludes food and energy, rose to 2.8% year-over-year. Core inflation is concerning because it suggests energy-driven pressure may be passing through to the broader economy. May CPI will be released June 10.

Consumer sentiment
The Conference Board Consumer Confidence Index slipped slightly to 93.1 in May. The Present Situation Index declined, while Expectations ticked up to 74.4. Historically, readings below 80 signaled elevated recession risk. The University of Michigan Consumer Sentiment Index fell to a new low of 44.8. Year-ahead inflation expectations jumped to 4.7%, the largest monthly increase in over a year. The disconnect between depressed consumer sentiment and robust corporate earnings is notable.

Federal funds rate
The Fed did not meet in May. June’s FOMC meeting will be the first under new leadership, and rates are expected to hold steady at 3.5%–3.75%. Updated economic projections and the dot plot will be released, offering clearer insight into the policy outlook.

Record-setting earnings season
Q1 2026 earnings season closed with historic strength:

• S&P 500 earnings grew 19% year-over-year, the strongest since Q4 2021 and well above 13.2% expectations.
• Net profit margins reached a record 13.4%, with Information Technology at 29.1%.
• 84% of companies beat earnings estimates, above 5-year (78%) and 10-year (76%) averages.

The season highlighted a shift in how markets price AI spending. Alphabet rose 34% in April — its best monthly gain since 2004 — after strong results in cloud, advertising, and Waymo. By contrast, Meta (–9%) and Microsoft (–4%) declined after raising 2026 capex guidance, as investors increasingly demand evidence of ROI rather than rewarding scale of commitment alone.

Full-year 2026 earnings growth estimates have been revised up to 21.3%, a dramatic upgrade from the start of the year. The forward price-to-earnings (P/E) ratio is 21x, above both five- and ten-year averages, reflecting stronger earnings expectations and higher equity prices. However, Q2 guidance has turned more cautious, with companies issuing more negative than positive outlooks amid uncertainty about energy costs and the consumer environment.

Looking ahead
Our outlook for 2026 remains positive, supported by a record earnings season, resilient labor markets, improving sentiment around Iran peace talks, and long-term growth from AI infrastructure investment. We continue to expect full-year S&P 500 gains in the 10%–
14% range, driven by strong earnings. Year-to-date performance already reflects much of this growth, following the April recovery and May follow-through.

Key risks to monitor:

• Iran peace negotiations and their impact on oil prices
• Inflation trajectory, especially core CPI, as energy-driven pressures spread
• Federal Reserve policy under new Chair
• Midterm election dynamics and historically associated market volatility
• Low consumer sentiment contrasting with strong corporate earnings

Investment opportunities:

• Broadening into undervalued and underappreciated assets
• Expanding exposure to private markets
• Allocating to dividend stocks for relative stability
• Participating in the AI infrastructure buildout, supported by milestones like Micron’s $1 trillion valuation and strong demand for advanced memory chips

The current market trades at 21x forward earnings. Q1 GDP grew 2.0% annualized, rebounding from Q4 2025. Leading U.S. companies remain profitable, innovative, and well-managed, reinforcing a positive long-term outlook. Near-term catalysts for further market gains include a final Iran peace agreement and sustained lower oil prices.