May 2026 Market Review & Commentary

We hope this finds you in good spirits and that you had an enjoyable and reflective Memorial Day weekend. As we transition into the month of June, I would like to take a moment to extend my heartfelt gratitude to each and every one of you who has served or is currently serving in the armed forces of our great nation. Your dedication, courage, and commitment to protecting our freedoms are truly commendable and deserve recognition. Furthermore, I would like to acknowledge the invaluable support provided by your loved ones during your service.

Market Update:

May saw strong equity performance, with major indexes like the S&P 500, Nasdaq 100, Dow Jones, and Russell 2000 reaching new all-time highs. The equal-weight S&P 500 also hit a new high, indicating broader participation, though leadership was narrow, with only the technology sector outperforming the S&P 500 Index. Eight out of eleven S&P 500 sectors traded lower, and ten underperformed the index. Large-cap growth outpaced large-cap value, marking a trend reversal from Q1.

Bonds rose as well, despite a mid-month interest rate spike, with the 30-year Treasury yield surpassing 5% and the 10-year Treasury hitting a 52-week high. The increase was driven by inflation reports and geopolitical tensions, leading to higher oil prices. The market now sees over a 50% chance of a Fed rate hike by December 2026, a serious shift from earlier expectations of rate cuts. The bond market anticipates sustained high interest rates due to inflation concerns.

This Year’s Two Defining Themes: Geopolitics & Artificial Intelligence

This year, markets have been shaped by two main themes. The first is geopolitics, with trade and tariff uncertainties evolving into military conflict in the Middle East, disrupting oil supply. The Strait of Hormuz, vital for 20% of global oil supply, has been closed since February, causing oil inventories to shrink and prices to rise, though they have remained somewhat contained. In May, U.S.-Iran negotiations offered partial relief, with West Texas Intermediate crude falling below $90 per barrel. However, the future remains uncertain as restoring shipping traffic will take time, impacting energy prices, inflation, and financial markets.

The second theme is the artificial intelligence buildout. Companies are investing hundreds of billions in AI infrastructure like data centers and chips, with projected 2026 capital spending exceeding $600 billion. This investment is driving economic growth and influencing corporate earnings, with AI-linked revenue significantly boosting S&P 500 profit growth. The rapid investment is causing technology supply chain bottlenecks and significant growth as companies adapt to AI demands, explaining the tech sector's performance gap compared to traditional market areas.