S&P 500: May +5.15% YTD +10.73%
DOW: May +2.78% YTD +6.18%
NASDAQ: May +8.36% YTD +16.05%
Russell 2000: May +4.27% YTD +17.62%
May trading ended with software stocks reversing their downtrend dramatically. Despite fears of AI displacement in the space, software growth continues across multiple companies, many of which are utilizing in-house AI functionality. Deals continue to fuel AI CapEx, data center logistics, construction, tools and parts. Energy needs are massive for the AI buildout. Agentic AI is furthering the demand in security and broadening out the scope of what AI can do and may become.
Energy names have continued to bounce around with any news coming out of The Strait of Hormuz. The sector remains the biggest winner in 2026. Technology was up almost 17% in May and has been on a tear (+36.13%) since the start of April. Financials retreated further in May (-6.03% YTD), while Healthcare (-3.66% YTD) had a small bounce to the upside…both sectors are bringing up the rear.
Notwithstanding the geopolitical turbulence, the markets have deflected problems and have looked through the present to tomorrow’s promise. Oil instability hasn’t upset equity markets, and the CapEx spend has been digested. The rhetoric of job loss to AI has flipped to a view of job creation.
The economy has stayed resilient. The labor market has proven far stronger than predicted. The data has consistently beaten estimates. Inflation has remained above the Fed’s target. Treasury yields have moved higher in reaction. Fed Chair Warsh will preside over his first meeting next week. Most pundits see no rate cut this year and some have opined a rate hike. We believe the Fed will leave rates unchanged. Warsh has some new ideas for the Fed but those won’t be implemented so quickly out of the gate. The guidance is what is most crucial.
Historically, equity valuations are elevated. The market is trading roughly at 21x forward earnings. This multiple is palatable due to digital growth and the ability of companies to scale quickly and efficiently. Technology companies are driving the market indices.
Volatility will continue in day-to-day trading. Geopolitical risks will persist. Bonds yields are steady. More rotation will take place. Cash from profit taking in big Technology winners will move into other names and sectors. There is still almost $8 trillion in money market funds. This will get invested in equities.
Our portfolios remain invested across sectors and industries. We continue to stay U.S. centric despite growth in international investing. The U.S. is the best game in town. We remain constructive on the market.