May 2026 Market Update
A Steady Economy with Sticky Inflation
May delivered a familiar tension. The U.S. economy kept expanding, driven by resilient consumer spending and surging AI investment, yet rising energy prices tied to the U.S. Iran conflict stoked inflation, leaving the Federal Reserve in a holding pattern and deferring hopes of near term rate cuts. For long-term investors, the picture can feel contradictory, with parts of the stock market hitting record highs while entrenched rates weighed on bonds and household budgets. What follows is our monthly review of markets, the Fed, and what both mean for your investments.
Major U.S. Stock Indices
Equity markets rose in May, with tech indices and AI-exposed Asian markets among the strongest performers. Semiconductor and mega-cap growth stocks drove nearly all the upside, while value stocks, small caps, and defensives lagged.
Here’s a look at the numbers for May:
- The S&P 500 climbed 5.15%.
- The Nasdaq 100 surged 10.49%.
- The Dow Jones Industrial Average edged up 2.78%.
Growth Holds, Unevenly.
First-quarter GDP came in at late May, while unemployment held steady at 2.0% annualized before being revised down to 1.6% in 4.3%. Affluent households continued to spend freely on services and experiences while lower-income consumers were visibly stretched by fuel and food costs. AI driven investment in data centers and software surged, offsetting sluggish traditional capital spending.
A Fed With Few Good Options.
Newly minted Fed Chair Kevin Warsh, who was sworn in on May 22nd, is stepping into a Fed that’s between a rock and a hard place. Core PCE data, released in mid-May, showed that the inflation measure rose to 3.3% in April, well above the Fed’s 2% target. Additionally, markets are now pricing in a rate increase as the more likely next move. Officials would prefer to hold steady and watch inflation fade, but sticky services inflation and an energy shock have made that increasingly difficult.
A Strong Earnings Season.
With 97% of S&P 500 companies reporting actual results, 85% have reported a positive earnings per share (EPS) surprise, and 81% have reported a positive revenue surprise. During April and May, analysts increased earnings per share estimates for Q2 by 2.5%. Analysts typically cut estimates in the first two months of a quarter, making the 2.5% upgrade an encouraging signal.
The Three Variables That Matter Most.
With the Fed funds rate at 3.50% to 3.75%, short-term yields kept cash and short-duration bonds competitive with risk assets. The dollar stayed strong, which squeezed emerging markets and trimmed the returns U.S. investors earned on overseas holdings. Of the three, oil was the most consequential. Surging well above $110 per barrel early in May on conflict escalation before retreating below $90 on ceasefire signals, its next sustained move will do more to shape inflation’s trajectory than any single Fed decision.
Putting It All Together
The economy is resilient but not immune. Inflation has reset higher, and the real risk is not recession but a drawn-out stretch of uncomfortable prices that eventually forces the Fed’s hand. Oil is the swing factor. If energy costs push higher again, the glide path back to target gets considerably steeper. Equity markets are strong but remain concentrated, with earnings holding the bull case together while rate sensitive segments show strain. Cash yields are attractive, and the dollar offers insulation, but the core message is straightforward: stay invested, stay diversified, and resist crowded trades.
These are complex markets, and I am tracking them closely on your behalf. As always, if you have any questions about your portfolio or strategy, I am here to help.
Financial Advisor
HH Financial Planning Group
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Important letters, email, or fax messages should be confirmed by calling (608) 935-7800 or (844) 544-1374. This email service may not be monitored every day or after normal business hours. The S&P 500 Index is a market-capitalization-weighted index of 500 leading publicly traded companies in the U.S. The Nasdaq 100 Index is a basket of the 100 largest, most actively traded U.S. companies listed on the Nasdaq stock exchange. The index includes companies from various industries except for the financial industry, like commercial and investment banks. The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The Russell 2000 Index is a stock market index that measures the performance of the 2,000 smaller companies included in the Russell 3000 Index. Citations (not included in actual email): Ahmed, S. (2026, May 27). Investors expect US dollar to break higher as Fed battles inflation. 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(2026, May 26). The need to diversify diversifiers. BlackRock Investment Institute. https://www.blackrock.com/us/individual/literature/market-commentary/weekly-investment-commentary-en us-20260526-the-need-to-diversify-diversifiers.pdf Mishra, R. (2026, May 27). The “K-shaped” economy is here: What Walmart and Ralph Lauren just revealed about the American consumer. Yahoo Finance. https://finance.yahoo.com/economy/articles/k-shaped-economy-walmart-ralph 203032309.html Mutikani, L. (2026, May 28). US PCE inflation firmer in April. Reuters. https://www.reuters.com/business/us-pce-inflation firmer-april-2026-05-28/ Peterson, M. (2026, May 30). Iran war inequality affordability ceasefire analysis. CNBC. https://www.cnbc.com/2026/05/30/iran-war-inequality-affordability-ceasefire-analysis.html Shalett, L. (2026, May 27). The rally is back, but risks are rising. 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