Outlook We remain constructive on broader business and corporate earnings growth for the remainder of 2026. This outlook is supported by robust, pro-cyclical capital expenditure within major sectors, which continues to ripple positively throughout the domestic economy. Secular growth drivers are further reinforced by full employment conditions. Additionally, household liabilities and aggregate corporate debt levels remain reasonable, supporting macro stability. However, we are closely monitoring core and headline inflation, which face risks of further upward pressure from two distinct sources. On the supply side, diminishing emergency petroleum reserves and geopolitical oil supply constraints are driving crude prices higher. Simultaneously, demand-driven pressures persist. Well-funded technology hyperscalers and institutional players continue to spend heavily on infrastructure. Notably, this capital deployment remains highly insensitive to elevated federal funds rates.
. . . U.S. equities finished the final full week of May on a strong note, with the major indices continuing their upward momentum and reaching fresh record levels. The S&P 500 and Nasdaq both advanced modestly in the prior week, marking one of the longest winning streaks since 2023 (nine consecutive weeks for the S&P 500), while the Dow Jones Industrial Average pushed above the 50,000 level for the first time. This strength came despite a complex macro backdrop, as investors balanced optimism around growth and artificial intelligence (AI) with persistent inflation pressures and evolving geopolitical risks. Overall, sentiment remained constructive, supported by strong corporate earnings and signs that some macro headwinds may be stabilizing. AI Momentum Continues to Drive Equities Higher The dominant theme driving markets higher remained the continued strength in AI-related companies and infrastructure demand. Late-quarter earnings reinforced this trend, helping lift the Nasdaq more than 8% for the month. Investors also broadened their focus beyond pure semiconductor plays to the wider AI ecosystem, including hardware, cloud, and enterprise software. Inflation Remains Elevated and in Focus Even as markets rallied, inflation data released during the week highlighted that price pressures remain a key challenge. The Federal Reserve’s preferred gauge, the personal consumption expenditures (PCE) index, rose 3.8% year over year, marking its highest level since 2023.1 While monthly price increases showed some moderation, the persistence of elevated inflation continues to complicate the path forward for monetary policy. Rising prices, particularly in energy and essential goods, are still weighing on consumers and shaping inflation expectations. Given this backdrop, yields have remained near recent highs, with the 10-year Treasury yield around 4.45% and the 2-year Treasury yield above 4.00%. Federal Reserve Maintains a Cautious Tone Federal Reserve communication during the week emphasized a continued focus on inflation concerns, reinforcing a “higher-for-longer” stance. Policymakers reiterated that inflation remains above target and signaled an openness to tighten policy if necessary. This has led markets to adjust expectations, with fewer anticipated rate cuts and a growing acceptance of a more restrictive policy path, though this has not derailed the broader equity rally. Mixed but Resilient Economic Data Economic data released during the week painted a mixed but generally resilient picture. First-quarter GDP was revised lower to a 1.6% annualized pace, indicating some moderation in growth, though still an improvement from late 2025 levels.2 The takeaway from recent data is that while growth is slowing, the U.S. economy remains resilient enough to support earnings growth.
Overall, the prior trading week highlighted a market that continues to grind higher, supported by strong earnings and AI-driven growth, but increasingly shaped by macro complexity. On the positive side, easing geopolitical tensions, stabilizing oil prices, and resilient corporate performance are providing a solid foundation for equities. At the same time, persistent inflation, elevated interest rates, and cautious Federal Reserve policy remain key risks. GDP (Second Estimate) and Corporate Profits, 1st Quarter 2026 | U.S. Bureau of Economic Analysis (BEA) | 
