Monthly Market Update – May 2026

Stocks Rally Again as Tech Boom Powers On

U.S. and global markets delivered another strong month of gains, as investor optimism around artificial intelligence, solid corporate earnings, and easing oil prices outweighed lingering concerns about inflation and geopolitical tensions. Below is a breakdown of what drove global stock markets, bonds, and yields, and how the broader economy fared.

Key Takeaways

• U.S. UPSIDE SURPRISES The U.S. economy has demonstrated steady strength, consistently exceeding expectations and pushing the Citi U.S. Economic Surprise Index to its highest level since late 2023. Stronger-than-expected data in retail sales, manufacturing, and employment points to broad, resilient growth.
• STEADY CORE BUT HEADLINE SPIKE April inflation delivered mixed signals, with headline CPI rising to +3.8%, above expectations and up from March. Core inflation ticked up modestly, suggesting underlying pressures may not be accelerating as much as the headline implies.
• FED UNLIKELY TO ACT ON ENERGY ALONE Rising headline inflation—largely driven by energy prices—has complicated the Fed’s policy outlook, as underlying trends remain more stable. Encouragingly, core measures like PCE inflation and shelter costs suggest broader price pressures are not accelerating significantly.  
• EARNINGS BLOWOUT Corporate earnings continue to defy expectations, with S&P 500 companies delivering an extraordinary +28.6% growth rate for Q1 2026—far exceeding initial forecasts and marking six straight quarters of double-digit gains. A broad set of milestones signal widespread business confidence and momentum.
• AI INVESTABLE OPPORTUNITY BROADENING AI continues to power market gains, but leadership is shifting from hyperscaler tech giants to the broader ecosystem supporting AI infrastructure. Suppliers of chips, equipment, energy, and materials are now outperforming, driven by the surge in data center buildouts.
• SURF, SUN, STOCKS Despite record highs and a prolonged rally, investor anxiety is rising amid concerns over valuations, interest rates, and geopolitical risks. However, historical trends suggest that strength begets strength. A near-term pause or pullback is likely, but the S&P 500 typically posts gains between Memorial Day and Labor Day which often continues higher after strong streaks.

Market Summary

Asset Class Total Returns

Source: Bloomberg, as of May 31, 2026. Performance figures are index total returns: U.S. Bonds (Barclays U.S. Aggregate Bond TR), U.S. High Yield (Barclays U.S. HY 2% Issuer-Capped TR), International Bonds (Barclays Global Aggregate ex USD TR), Large Caps (S&P 500 TR), Small Caps (Russell 2000 TR), Developed Markets (MSCI EAFE NR USD), Emerging Markets (MSCI EM NR USD), Real Estate (FTSE NAREIT All Equity REITS TR).

U.S. stocks: Tech Leads, Growth Dominates

The U.S. stock market continued its upward climb in May, with the S&P 500 rising +5.3% for the month and pushing its year-to-date gain above +10.7%. The index notched several record highs along the way, signaling strong investor confidence.

Technology stocks were the clear driver. The information technology sector surged nearly +16%, fueled by ongoing enthusiasm for the artificial intelligence boom. Heavy tech exposure helped lift the Nasdaq Composite by +8.4%, making it the top-performing major index for the month.

Large companies outperformed their smaller peers in May, though smaller stocks still posted solid results. The Russell 2000 (small caps) gained +4.3% and notably remains ahead of large caps for the year, up an impressive +17.6%.

However, the rally wasn’t broad-based. Eight of the S&P 500’s 11 sectors declined, highlighting uneven market participation. The energy sector lagged sharply, falling nearly -6%, as oil prices pulled back.

In terms of investing styles, growth stocks outperformed value stocks in May, particularly among large caps. Still, for the year overall, value stocks—especially small-cap value—continue to lead, with gains exceeding +18%.

International stocks: Emerging markets still in the spotlight

Markets outside the U.S. also advanced, though gains were more modest in developed economies. The MSCI EAFE Index (developed international markets) rose +3.2% in May.

Emerging markets, however, stood out. These markets delivered nearly +10% returns, outperforming developed markets for the second consecutive month. This marks their strongest two-month stretch since 2002.

Asia led the charge, jumping +11.3%, while Latin America lagged with a –4.2% decline. The difference came largely down to technology exposure.

Countries tied to the semiconductor supply chain saw explosive gains:

• South Korea surged +35% in May and is up +119% this year
• Taiwan gained+ 16.3% in May and+ 60.3% year-to-date

Both markets benefited from their dominance in memory chips and semiconductor production, key components of AI technologies.

As in the U.S., growth stocks outperformed value across international markets, reflecting investor preference for companies tied to innovation and tech expansion.

Bonds: Modest Gains Despite Higher Rates

Bond markets quietly delivered positive returns, even as interest rates inched higher.

The Bloomberg U.S. Aggregate Bond Index rose +0.3% in May, marking its second straight monthly gain and fourth positive month out of the last five.

Treasury yields moved modestly higher:

• The 2-year yield rose +14 basis points to 4.00%
• The 10-year Treasury yield ended at 4.44%, up +6 basis points from April
• The 30-year Treasury yield ended at 4.97%, just +1 basis point higher from last month

Despite the higher yields, bond prices held steady thanks to easing inflation fears and stabilizing oil prices.

Corporate bonds were standout performers. Investors favored investment-grade bonds over high-yield, signaling a tilt toward safer assets amid uncertainty. Credit markets remained strong, with tight spreads pointing to healthy corporate fundamentals.

Municipal bonds also impressed, outperforming Treasuries and broader bond indices. Demand for tax-advantaged income has helped munis rally in nine of the last 10 months.

The economy: Strong Data Meets Inflation Pressures

The U.S. economy continues to show resilience, though inflation remains a key concern.

On the positive side:

• Manufacturing activity improved in May
• Job growth in April beat expectations

These signals suggest underlying economic strength.

However, inflation remains elevated. April data showed:

• Headline inflation (CPI) climbed to 3.8%, the highest since May 2023
• The surge was largely driven by energy prices, which jumped +18%

The Federal Reserve’s preferred measure, core PCE, also ticked up:

• Rising from 3.2% in March to 3.3% in April on a year-on-year basis
• However, on a monthly basis it has seen three consecutive declines now

At the same time, oil prices retreated below $100 per barrel after spending much of the month above $110. This decline helped ease some inflation concerns.

Still, markets are increasingly expecting the Federal Reserve to keep interest rates higher for longer, with some anticipating another rate hike later in the year.

Adding to the policy backdrop, Kevin Warsh was named Fed chair, replacing Jerome Powell, who remains on the board of governors.

Source: Bloomberg. Data as of May 31, 2026.
Price Returns for Equity, Total Returns for Bonds.
* The term basis points (bps) refers to a common unit of measure for interest rates and other percentages in finance. One basis point is equal to 0.01%. Bond prices and bond yields are inversely related. As the price of a bond goes up, the yield decreases.

Bottom Line

May reinforced a few key themes shaping markets right now:

• Technology and AI remain dominant drivers of stock performance
• Emerging markets—especially Asia—are benefiting from global tech demand
• Bonds are stabilizing, even as interest rates stay elevated
• The economy is strong, but inflation pressures haven’t disappeared

For retail investors, diversification remains critical. While tech stocks and growth names have delivered impressive gains, uneven sector performance and evolving interest rate expectations suggest the path forward may not be smooth.

U.S. UPSIDE SURPRISES

The U.S. economy continues to demonstrate resilient, renewed strength, surprising Wall Street and reinforcing confidence among consumers and investors alike. A steady stream of better-than-expected economic reports has pushed a closely watched gauge of economic momentum—the Citi U.S. Economic Surprise Index—to its highest level since October 2023, signaling that the economy is consistently outperforming expectations. The Citi Economic Surprise Index tracks whether economic reports come in better or worse than economists expect. When the index rises, it means data is consistently beating forecasts—often a sign of underlying economic momentum.

Recent economic data points paint a picture of resilience. Reports in May on retail sales, manufacturing, and employment all came in stronger than anticipated, suggesting broad-based growth across the economy. Behind the scenes, real-time indicators are telling a similar story. Measures such as department store sales, restaurant bookings, and credit card spending indicate that consumers are still opening their wallets, a critical driver of U.S. economic health. This combination of traditional and real-time data has helped boost the Economic Surprise Index to a near three-year high—a sign that economists may have underestimated the economy’s strength in recent months.

While the U.S. economy gains steam, much of the rest of the world is struggling to keep pace. Europe and Asia are facing several challenges, including weaker domestic demand, higher reliance on energy imports, and less flexibility from central banks to support growth. As a result, economic data in those regions has generally fallen short of expectations. The contrast is especially clear when comparing trends:

• United States: The surprise index has climbed steadily to multiyear highs, signaling repeated upside surprises and a lower perceived risk of recession.
• Eurozone: Economic data has frequently disappointed, with the region drifting toward multiyear lows and showing signs of structural weakness.
• China: The world’s second-largest economy has experienced significant volatility, occasionally exceeding expectations but trending downward overall in recent years.

The key takeaway is that the latest wave of economic data suggests the U.S. economy is not just holding steady—it’s exceeding expectations. With consumers still spending and key sectors outperforming forecasts, the country appears well-positioned compared to its global peers. The widening gap between the U.S. and other major economies could have ripple effects for global markets. A stronger U.S. economy often supports the dollar and can attract investment, while weaker growth abroad may weigh on global trade and corporate earnings for multinational companies.

U.S. Economic Data Surprises to the Upside

The Citi U.S. Economic Surprise Index has climbed to Multiyear Highs

Source: Citi Economic Surprise Indices, Bloomberg. Data as of June 4, 2026. The Citigroup Economic Surprise Indexes represent the sum of the difference between official economic results and forecasts. With a sum over 0, its economic performance generally beats market expectations. With a sum below 0, its economic conditions are generally worse than expected.

STEADY CORE BUT HEADLINE SPIKE

One set of data that nobody wants to be higher than expected: inflation reports. The April Consumer Price Index (CPI), which measures the cost of everyday goods and services, rose +0.6% for the month—a step down from March’s sharper +0.9% increase. That slowdown normally would offer some relief to consumers and policymakers watching for signs that price pressures may be stabilizing. However, the picture remains mixed because on the more widely reported year-over-year basis, CPI climbed +3.8%, slightly above expectations and up from March’s +3.3% annual pace. In other words, inflation is still running hotter than many had hoped.

Looking beyond volatile food and energy prices, core inflation—a key measure closely watched by the Federal Reserve—also edged higher. Core CPI rose +0.4% in April, slightly above expectations and up from the prior month’s +0.2% gain. On an annual basis, core prices increased a much more moderate +2.8%, but still marking the highest level since last September. However, much of that increase appears to be driven by a one-time jump in housing-related costs, following disruptions in data collection during a partial government shutdown. Importantly, it suggests the underlying core inflation trend is not accelerating nearly as sharply as the headline numbers.

Importantly, even with April’s uptick, inflation remains well below the peaks seen in 2022, when prices surged at their fastest pace in decades. April’s data highlights a familiar theme in today’s economy—progress, but not perfection. It isn’t fully under control, but the monthly data is moderating from the initial Middle East related spike, and compared to the 2022 extremes, the annual rates are considerably lower, particularly when the volatile food and energy costs are excluded.

Energy Costs Push Headline Consumer Inflation to 3-Year High

U.S. Consumer Price Index (CPI), Year-over-year % change

Sources: CNBC.

FED UNLIKELY TO ACT ON ENERGY ALONE

The rise in headline inflation is complicating the Federal Reserve’s next move—and markets are taking notice. The jump in March and April CPI has put pressure on policymakers, but the vast majority of the move higher was energy. The energy index rose +3.8% in April and +17.9% over the past year, largely reflecting higher oil prices tied to the Iran conflict.

Historically, the Fed has tended to look past short-term, energy-driven price spikes, viewing them as temporary. But with inflation still running above its long-term target, investors are beginning to question how long that patience can last. For now, markets aren’t betting on immediate action. Futures markets tied to Fed policy show virtually no chance of a rate hike in the near term, with only a small probability (3.6%) of a rate cut at the June 17 Federal Open Market Committee meeting and zero chance of a rate hike.

But looking further out, expectations remain mixed but much higher that a hike is coming. Current pricing suggests:

• Less than a 1% chance of a rate cut by year-end
• Roughly even odds (about 41% each) of the Fed either holding steady or raising rates by a quarter point
• And around a 14% chance of two rate hikes (a total of 0.5%)

In short, investors increasingly see a “higher-for-longer” rate environment as a realistic scenario. Yet, despite the headline inflation concerns, some underlying trends offer reassurance. The Fed’s preferred inflation gauge, the Core Personal Consumption Expenditures (PCE) Price Index, has declined for three consecutive months, suggesting price pressures may be easing. Short-term projections also point to a mixed but potentially improving outlook. While inflation may tick higher in the next reading, macro research firm Hedgeye forecasts suggest a return to slower price growth in subsequent months with the June CPI print that is due on July 14.

Also, consider that one of the biggest drivers of inflation—shelter—remains moderate and is not accelerating. The shelter component, which makes up about one-third of the CPI, rose +0.6% in April and +3.3% over the past year. That’s a far cry from the double-digit increases seen in 2022 and 2023 and the double-digit annual rate just reported for the energy component. Importantly, multiple measures of shelter inflation now show that this “sticky” category of inflation has stabilized near long-term norms, with no clear signs of reacceleration.

Overall, inflation’s recent uptick is keeping the Fed on guard, but much of the pressure appears tied to volatile energy prices rather than a broad-based resurgence. For now, policymakers are likely to stay on hold, watching closely to see whether price pressures fade or persist. For consumers, that means interest rates may not be cut anytime soon—but it also suggests inflation isn’t spiraling out of control. 

Shelter Inflation Should be Stable for the Remainder of the Year

Various rental rates, monthly % Year-over-Year change

Sources: BLS, FactSet, Zillow, J.P. Morgan Asset Management. *Zillow Observed Rent Index data is being led by 12 months. Latest Zillow Observed Rent Index data are as of March 2026. Data are based on availability as of May 15, 2026.

EARNINGS BLOWOUT

Another month and another focus of quarterly corporate earnings. Why the repeated attention? Well, as we’ve chronicled over the past few quarters, S&P 500 earnings have turned in a remarkable stretch of double-digit earnings growth that hasn’t been seen since the 1990s. As a reminder, Q4-2025 earnings were initially forecasted to be at a sub-8% growth rate but actually ended at +14.2% annual growth. 

For the virtually complete Q1-2026 earnings season, Wall Street analysts were initially projecting earnings growth of +11%, but with 97% of S&P 500 companies reported (as of May 29) earnings are at a +28.6% annual growth rate! That is extraordinary growth and marks six consecutive quarters of double-digit earnings growth—and the remaining three quarters of 2026 are also projected to deliver double-digit year-over-year growth. According to FactSet data, the almost-complete Q1-2026 earnings season is hitting a plethora of milestones not seen in years:

• Earnings growth is up +28.6% from a year ago 🡪 Highest since Q4-2021
•  85% of companies beat analysts’ earnings estimates 🡪 Highest since Q2-2021
•  Net profit margins hit +14.8% 🡪 Highest in FactSet’s data dating back to 2009
•  59 companies issued positive earnings guidance for Q2 🡪 Highest since Q2-2021

That last item is important because it demonstrates that company managements are confident that they can continue to grow – at rates faster than they were previously projecting. As shown in the chart below, Wall Street analysts share that sentiment. Analysts are increasing the estimates for Q2-2026 at the fastest pace since 2021. 

Some market watchers have criticized the eye-popping earnings growth for being too narrow, with most of the strength to the Magnificent 7 mega-cap tech firms and the Artificial Intelligence (AI) boom. FactSet data does indeed show the Mag7 companies with an astounding +63.2% earnings growth and 100% beat rate (over analysts’ estimates), but the remaining 493 S&P 500 companies are still sporting a very healthy +17.4% earnings growth and 85% beat rate. That would still be the best earnings growth rate since Q4-2024 and is nearly double the 10-year average earnings growth rate of +9.9%.

Analysts Increased Quarterly EPS Estimates by the Largest Amount Since 2021

Change in S&P 500 Quarterly EPS: First 2 Months of the Quarter

Source: FactSet. *Data for Q1-2026 through May 29, 2026 with 97% of companies in the S&P 500 having reported actual results.

AI INVESTABLE OPPORTUNITY BROADENING

By now, it is very clear that continued enthusiasm around artificial intelligence (AI) is a primary driver of the market’s rally. AI’s contribution to capital expenditures, earnings, and overall market returns has been dominant. All investors have benefited from the AI movement, but the researchers at J.P. Morgan (JPM) have found an interesting dichotomy in the beneficiaries of the AI strength. 

Until recently, gains were concentrated in a small group of companies known as hyperscalers — large tech firms that build and run massive data centers to power cloud computing and AI. Now, that narrow focus is expanding.

The opportunity is shifting from the companies funding AI buildouts to the companies enabling them.

The folks at JPM demonstrate this shift by comparing returns of AI chip “customers” versus “suppliers”:

• AI Chip Customers → Hyperscalers remain the primary customers for advanced chips deployed in data centers
• AI Chip Suppliers → the providers of equipment, materials, and infrastructure for the buildout of data centers

While hyperscaler customers get most of the attention, suppliers are increasingly garnering the returns. As the chart below shows, the suppliers have outperformed customers by roughly 230% year-to-date, suggesting the market is increasingly expressing the AI theme through the broader ecosystem rather than only through hyperscalers.

Behind every data center buildout are critical components including:

• Cooling systems to prevent overheating
• Connectivity to link servers
• Electricity distribution to power operations

These behind-the-scenes needs are driving demand for supplier industries — and boosting their market performance across multiple sectors like Semiconductors, Hardware, Power and energy infrastructure, and Metals and mining. With many key suppliers based in Asia, this trend is also supporting emerging market equities.

What does it all mean for investors? The big takeaway is that opportunity is no longer limited to a handful of hyperscaler tech giants. Leadership is shifting from the “customers” to the builders and enablers. As AI spending turns into real-world infrastructure, the companies supplying the tools and materials are getting investor attention. 

Importantly it means the AI boom isn’t narrowing — it’s broadening, both in terms of sectors and geographies.

Performance of Al Chip Customers vs. Suppliers

Price return of Nvidia’s top 10 suppliers and customers (indexed to 100 on Jan 1)

Source: Bloomberg, J.P. Morgan Asset Management. Data as of 5/28/2026.

SURF, SUN, AND STOCKS

Following such an extended market rally, both in duration and magnitude—and with many new record highs, many investors get nervous and think the only path forward must be down. And stocks are entirely likely to consolidate in the near term and digest recent gains. Headwinds remain, there always are some, and the prospect of higher energy costs tied to the Iran conflict, elevated interest rates, and stretched valuations can be daunting… not to mention unfavorable midterm election seasonality. 

Still, over the intermediate and longer term it is hard not to remain constructive. Bespoke Investment Group notes that over the last 50 years, the S&P 500 has averaged a gain of +2.6% between Memorial Day and Labor Day, with gains 74% of the time. Performance over the last 10 years has been even stronger, with an average gain of +6% and gains 90% of the time. 

Moreover, strength often begets more strength. Carson Investment Management published the chart below that shows since 1950, after a 9-week win streak like the current one, the S&P 500 was higher a year later in 8 of the 10 prior occurrences, with a median gain of +12.3%.

Recent Win Streaks Are Historic and Potentially Bullish

S&P 500 Performance After Nine Week Win Streaks (1950 – Current)

Source: Carson Investment Research, FactSet. Data as of 5/29/2026. *Win streak still active.

The combined April and May return was +16.1%, the second-best showing on record for those two-month combinations behind only 2020’s +17.8% return. But how did investors do in subsequent performance after previously strong April and May moves? The four other times stocks gained double digits over those two months, June was never lower, and the rest of the year was up at least +14%, and the median gain was +18%.

Source: Carson Investment Research, FactSet. Data as of 5/31/2026.

Asset Class Performance

The Importance of Diversification. Diversification mitigates the risk of relying on any single investment and offers a host of long-term benefits, such as lowering portfolio volatility, improving risk-adjusted returns, and helping investments to compound more effectively.

Source: Bloomberg.

Asset‐class performance is presented by using market returns from an exchange‐traded fund (ETF) proxy that best represents its respective broad asset class. Returns shown are net of fund fees for and do not necessarily represent performance of specific mutual funds and/or exchange-traded funds recommended by The Retirement Planning Group. The performance of those funds may be substantially different from the performance of the broad asset classes and to proxy ETFs represented here. U.S. Bonds (iShares Core U.S. Aggregate Bond ETF); High‐Yield Bond (iShares iBoxx $ High Yield Corporate Bond ETF); Intl Bonds (Vanguard Total International Bond ETF); Large Growth (iShares Russell 1000 Growth ETF); Large Value (iShares Russell 1000 Value ETF); Mid Growth (iShares Russell Mid-Cap Growth ETF); Mid Value (iShares Russell Mid-Cap Value ETF); Small Growth (iShares Russell 2000 Growth ETF); Small Value (iShares Russell 2000 Value ETF); Intl Equity (iShares MSCI EAFE ETF); Emg Markets (iShares MSCI Emerging Markets ETF); and Real Estate (iShares U.S. Real Estate ETF). The return displayed as “60/40 Allocation” is a weighted average of the ETF proxies shown as represented by: 24% U.S. Bonds, 10% International Bonds, 6% High Yield Bonds, 14% Large Growth, 14% Large Value, 4% Mid Growth, 4% Mid Value, 1% Small Growth, 1% Small Value, 17% International Stock, 4% Emerging Markets, 2% Real Estate.

* The term basis points (bps) refers to a common unit of measure for interest rates and other percentages in finance. One basis point is equal to 0.01%. Bond prices and bond yields are inversely related. As the price of a bond goes up, the yield decreases.

Chris Bouffard is CIO of The Retirement Planning Group (TRPG), a Registered Investment Adviser. He has oversight of investments for the advisory services offered through TRPG.

Disclaimer: Information provided is for educational purposes only and does not constitute investment, legal or tax advice. All examples are hypothetical and for illustrative purposes only. Past performance of any market results is no assurance of future performance. The information contained herein has been obtained from sources deemed reliable but is not guaranteed. Please contact TRPG for more complete information based on your personal circumstances and to obtain personal individual investment advice.