Market Recap: May 2026

Market commentary

• The U.S. economy remains resilient, pointing to a mid-cycle slowdown — not a recession — supported by strong profits, low jobless claims, and steady growth.
• Consumer spending continues to outpace income, pushing the savings rate down to 2.6%, an unsustainable trend that suggests slower consumption ahead.
• Business investment — especially in AI and capital expenditures — remains strong, helping support overall economic activity.
• Labor market conditions remain stable, with low jobless claims and moderate hiring helping sustain economic resilience.
• Housing activity has softened amid declining sales, affordability pressures from higher mortgage rates, and rising inventory, though prices have begun to stabilize.

Select economic and market data

Equities

• Despite narrow leadership and a growing gap between winners and losers, equity markets remained strong in May, with major indices finishing at or near record highs.
• Gains were driven mainly by AI, technology, and semiconductor stocks — without which the broader market would have been flat or negative.

Fixed income

• Treasury yields are rising, which improves income, but it also increases the risk of price declines if inflation and fiscal pressures push rates even higher.
• The Fed’s tone has grown increasingly hawkish, with futures markets now implying about a 50% chance of a rate hike by year-end.

Strategic outlook

• Near-term caution toward equities is advisable, given heightened risks from geopolitical instability, trade uncertainty, and the potential for renewed inflationary pressures alongside an economic slowdown.
• Near-average expected returns projected for fixed income with the Fed on pause and rates reflective of economic conditions.
• Above-average volatility is likely given central bank involvement and geopolitical uncertainty.