May 2026 Market Commentary

May 2026 extended the strong momentum that began in April, as investor optimism continued to build around resilient economic growth, accelerating artificial intelligence investment, and easing fears of a near-term economic slowdown. Equity markets moved higher throughout the month, supported by a combination of strong corporate earnings, improving global risk sentiment, and growing confidence that the U.S. economy may achieve a “soft landing” despite elevated interest rates. While volatility remained elevated beneath the surface, the overall tone of the market shifted decisively toward risk-on positioning.

Technology and AI-related infrastructure themes once again dominated market leadership during the month. Investors continued rewarding companies exposed to semiconductors, hyperscale data centers, electrification, power infrastructure, and cloud computing. Management teams across industries reinforced expectations for sustained capital expenditures tied to AI deployment. At the same time, cyclical sectors, such as industrials and financials, also participated in the rally. This participation reflects the improving confidence in broader economic conditions rather than a narrow concentration of gains solely within mega-cap technology.

Markets also benefited from moderating geopolitical concerns and growing expectations that the Federal Reserve may be approaching the later stages of its restrictive monetary policy cycle. Treasury yields remained volatile during the month, but investors largely interpreted incoming inflation and labor market data as supportive of eventual policy easing later in 2026. As a result, risk appetite strengthened, credit spreads tightened modestly, and equity valuations continued expanding despite already elevated market multiples.

Performance across the major U.S. equity indices remained strong during May. The S&P 500 advanced approximately 6.2% during the month, marking one of its strongest May performances since the late 1990s. The Nasdaq Composite continued to lead the market higher, gaining roughly 9.1% as semiconductors and AI-linked names extended their leadership. Meanwhile, the Dow Jones Industrial Average rose approximately 4%, supported by strength in industrial, financial, and select healthcare constituents.

Sector performance within the S&P 500 reflected continued enthusiasm surrounding growth and infrastructure-oriented themes. Information Technology, rising approximately 15.9% this month, was the top performing sector. This increase was driven by strong gains across semiconductors, networking equipment, and AI infrastructure providers. At the opposite end of the spectrum, more defensive sectors significantly lagged the broader market. Energy and Utilities declined approximately 6.1% and 5.5%, respectively, during the month as rising long-term Treasury yields pressured interest rate-sensitive sectors.

Overall, May reinforced the market’s increasingly optimistic outlook for both corporate earnings and economic growth. However, beneath the strong headline performance, markets remained heavily concentrated around a small number of secular growth themes, particularly AI and digital infrastructure. As valuations continue to expand, investors will likely remain focused on whether earnings growth and economic fundamentals can continue justifying the market’s increasingly elevated expectations in the months ahead.

Fixed income markets in May remained volatile as investors continued balancing resilient economic growth against persistent inflation pressures and an uncertain Federal Reserve policy outlook. While equity markets rallied sharply during the month, bond markets reflected a more cautious interpretation of the macroeconomic environment. Unexpectedly strong economic data, ongoing fiscal spending, and continued labor market resilience reinforced concerns that interest rates may need to remain elevated for longer than markets had anticipated earlier in the year.

Treasury yields moved modestly higher across most maturities during May, particularly at the longer end of the curve. The 10-year Treasury yield approached the mid-4% range by month-end, while the 30-year Treasury yield continued pressing toward multi-year highs. Investors increasingly focused on the combination of persistent federal deficits, elevated Treasury issuance, and sticky core inflation, all of which contributed to upward pressure on long-term borrowing costs. At the same time, short-term yields remained relatively anchored as markets continued pricing in the possibility of Federal Reserve rate cuts later in 2026, resulting in a continued steepening of the yield curve.

The Federal Reserve maintained a cautious tone throughout the month, emphasizing that while inflation had moderated meaningfully from prior peaks, progress toward the central bank’s long-term target remained uneven. Federal Reserve officials reiterated the need for patience before considering meaningful policy easing, particularly as economic activity and labor markets remained stronger than anticipated. This “higher-for-longer” narrative continued weighing on duration-sensitive areas of the fixed income market.

From a performance perspective, shorter-duration fixed income sectors generally outperformed longer-duration assets during the month. Long-dated Treasuries remained under pressure as higher yields reduced bond prices, while short-duration government securities and floating-rate instruments provided greater stability. Investment-grade corporate bonds delivered resilient performances as improving risk sentiment and strong corporate earnings helped support credit fundamentals and modestly tighten spreads. High-yield credit also performed well during the month, benefiting from the broader risk-on environment and continued confidence in corporate balance sheets.

Overall, May highlighted the growing divergence between equity and fixed income markets. While equities continued pricing in strong earnings growth, AI-driven investment, and a resilient economy, bond markets remained more focused on inflation persistence, deficit spending, and the possibility that structurally higher interest rates may remain a defining feature of the post-pandemic economic environment. As a result, fixed income investors continued prioritizing income generation, credit quality, and duration management amid an increasingly complex rate landscape.

June 2026 marks a historic moment for capital markets and the commercial aerospace industry as SpaceX, following its merger with xAI, prepares to debut on the Nasdaq on June 5. With an expected valuation between $1.5-$2 trillion and plans to raise approximately $80 billion, the offering is positioned to become the largest IPO in history by a substantial margin. Anticipation surrounding the listing fueled a powerful rally across the broader commercial space sector throughout May, as investors increasingly viewed space infrastructure, satellite communications, and orbital defense technologies as the next major long-term growth frontier.

Ahead of the IPO, SpaceX released financial details for fiscal year 2025 and Q1 2026 through its S-1 filing, offering investors their first comprehensive look into the economics of the company’s rapidly expanding ecosystem. For fiscal year 2025, SpaceX generated $11.4 billion in revenue and $4.4 billion in operating income, representing approximately 49.8% year-over-year growth. However, Q1 2026’s results highlighted the growing complexity of the business following the xAI merger. The company reported quarterly revenue of $4.7 billion alongside an operating loss of approximately $1.9 billion, driven primarily by aggressive investment in AI infrastructure and next-generation aerospace development.

Breaking the business into its major segments—Connectivity, Space, and xAI—reveals a company with highly differentiated growth engines and risk profiles. The Connectivity segment, which includes Starlink consumer broadband and the government-focused Starshield network, remains the company’s primary profit driver. In Q1 2026, the segment generated $3.3 billion in revenue and approximately $1.2 billion in operating income. For fiscal year 2025, Connectivity accounted for roughly 61% of total company revenue, with Starlink revenue growing from $7.7 billion in 2024 to approximately $11.4 billion. The segment generated roughly $4.4 billion in operating profit, effectively funding many of SpaceX’s broader long-term initiatives.

Comparisons between Starlink and traditional telecommunications providers, such as Verizon and T-Mobile, provide an interesting perspective on the evolution of the communications industry. While Verizon and T-Mobile remain substantially larger businesses—with approximately 146 million and 140 million wireless customers, respectively, compared to Starlink’s estimated 10.3 million users—Starlink’s growth trajectory and economics differ significantly. Traditional telecom providers generated approximately $81 billion and $73 billion in revenue during 2025, with operating profits far exceeding Starlink’s current scale. However, average revenue per account (ARPU) highlights the strategic opportunity for SpaceX. Verizon and T-Mobile each generate approximately $148–$149 per account monthly, while SpaceX estimates global Starlink mobile ARPU at roughly $8 per month, ranging from approximately $18 in developed markets to closer to $2 in lower-income regions.

That comparison, however, does not fully capture Starlink’s economics. Premium enterprise, maritime, aviation, and government contracts increase Starlink’s blended connectivity ARPU to an estimated $81–$92 per month. More importantly, Starlink operates with a fundamentally different infrastructure model. Traditional terrestrial telecommunications networks require expensive tower construction, fiber backhaul, land leases, and ongoing maintenance. A single macro cell tower can cost between $300,000 and $1.5 million to deploy, while dense urban 5G deployments may exceed $5 million per site, with annual operating expenses often surpassing $200,000. By contrast, Starlink satellites typically cost between $1 million and $1.7 million each, including manufacturing and launch allocation. Although satellites require replacement every five to seven years, SpaceX’s vertically integrated launch capabilities provide a substantial cost advantage compared to traditional satellite operators and terrestrial telecom infrastructure providers.

The company’s Space segment, the business most associated with the SpaceX brand, continues to operate at a loss as the company aggressively invests in long-term aerospace dominance. During Q1 2026, the segment generated approximately $619 million in revenue but posted an operating loss of about $662 million. Much of that investment is tied to Starship development, SpaceX’s fully reusable heavy-lift rocket system designed to dramatically reduce launch costs while supporting lunar missions, deep space logistics, and large-scale orbital deployment. SpaceX has reportedly invested approximately $15 billion into Starship development to date. The economics behind the platform could prove transformative for the aerospace industry. NASA’s Space Launch System (SLS) currently costs an estimated $2.5 billion to $4 billion per launch, while SpaceX targets long-term Starship launch costs closer to $100 million through reusability and scaled manufacturing.

The newly merged xAI segment represents both the company’s most speculative growth opportunity and its largest financial drag. In Q1 2026, the AI business generated approximately $818 million in revenue but reported an operating loss of roughly $2.5 billion. For fiscal year 2025, the segment lost more than $6.3 billion as the company aggressively expanded compute infrastructure, developed proprietary AI models, and pursued large-scale data center projects. Elon Musk has outlined ambitions extending far beyond software, including orbital AI infrastructure, vertically integrated semiconductor manufacturing, and the development of custom AI accelerators through the company’s Terafab initiative. While the long-term addressable market could be enormous, these initiatives are expected to require hundreds of billions of dollars in capital investment over many years, making profitability timelines highly uncertain.

SpaceX’s IPO has also reignited investor interest across the broader commercial space industry. Companies such as Rocket Lab, AST SpaceMobile, and Firefly Aerospace all posted strong gains during May as investors sought exposure to the rapidly expanding private space economy. Rocket Lab emerged as one of the primary beneficiaries of renewed enthusiasm surrounding launch infrastructure and defense-related aerospace technologies. The company, which specializes in smaller and more frequent launch missions, has secured more than 70 contracted launches with a backlog valued at approximately $2.2 billion. Rocket Lab has also expanded its relationship with the U.S. defense sector, including participation alongside Anduril in hypersonic missile development programs tied to the HASTE platform.

While Rocket Lab’s current Electron rocket platform does not directly compete with SpaceX’s Falcon 9 or Starship systems, the company’s larger Neutron rocket—expected to begin launches in late 2026—will place Rocket Lab into more direct competition within the medium-lift launch market. Additionally, the company’s expected inclusion in the Nasdaq-100 later this summer has further increased investor attention.

Taken together, the commercial space industry increasingly resembles the initial stages of a new global infrastructure race—one centered not only on space exploration, but also on communications, defense systems, AI, and next-generation computing infrastructure. Much like the internet boom of the late 1990s or the cloud computing expansion of the 2010s, investors are beginning to view orbital infrastructure and space-enabled technologies as foundational platforms for the next phase of global economic and technological competition.

The April economic data released in May reflected persistent pessimism over the war in Iran. The Consumer Price Index (CPI) rose 0.6% month-over-month in April, largely driven by elevated energy prices from the Iran conflict. Energy prices jumped 3.8% over the month, or 17.9% on an annualized basis. Gasoline costs surged, increasing 5.4% monthly and 28.4% over the previous 12 months. Core CPI, the Federal Reserve’s preferred measure of inflation, as it excludes the volatile items of energy and food, rose 0.4% month-over-month. Annualized Core CPI remains relatively steady at 2.8%, signaling that underlying inflation remains well behaved and the hope for a return to normal as soon as the war Iran concludes.

The University of Michigan Consumer Sentiment Index continued to deteriorate in May, falling to 44.8 and marking another historic low following April’s weak reading. Consumer sentiment now stands near its lowest level since the survey began in the late 1970s, reflecting persistent pessimism among households grappling with high living costs and increasing financial pressure, particularly from rising energy prices.

Consumer confidence trends varied across demographic groups. Sentiment modestly improved among Generation X consumers aged 35–54, while confidence weakened further among younger and older age groups on a month-over-month basis and across six-month moving averages. By income level, higher-income households showed modest stabilization and mild improvement in confidence trends, while lower and middle-income consumers remained significantly more pessimistic. Across generations, sentiment improved slightly among the Silent Generation but remained flat or declined among most other cohorts.

Consumer purchasing intentions also softened during the month, particularly for discretionary and big-ticket purchases. Survey respondents increasingly shifted from planning major purchases to postponing them over the next six months. Automobile buying intentions continued improving modestly on a rolling six-month basis, however demand remained heavily skewed toward used vehicles rather than new purchases. Elevated gasoline prices have increasingly pushed consumers toward fuel-efficient hybrids and used battery electric vehicles (BEVs) as affordability concerns remain a dominant factor in purchasing decisions.

Housing-related sentiment showed mixed results. Expectations for home purchases improved slightly overall on a six-month rolling basis, supported primarily by increased interest in existing homes, while demand for newly constructed homes softened modestly. Meanwhile, supplemental survey questions revealed that approximately two-thirds of consumers reported reduced spending due to rising prices. Most respondents indicated they were purchasing fewer items, delaying larger discretionary purchases, and prioritizing essential spending. Notably, consumers delaying non-essential purchases still expressed expectations that economic conditions could improve enough later this year to resume discretionary spending activity.

The sharp decline in sentiment was driven largely by renewed inflation concerns tied to surging energy prices following the conflict involving Iran and disruptions surrounding the Strait of Hormuz, both of which significantly increased gasoline and diesel prices nationwide. Consumers also expressed growing anxiety surrounding AI and its potential impact on employment stability, future purchasing power, personal finances, and the broader economic outlook.

In sharp contrast to deteriorating consumer sentiment and rising concerns surrounding job security, the U.S. labor market continued demonstrating resilience during April. Following March’s strong employment report, non-farm payrolls increased by 179,000 jobs in April, while the unemployment rate remained unchanged at 4.3%, signaling continued stability in overall labor market conditions.

Once again, healthcare led job creation, adding 37,000 positions during the month, roughly in line with the sector’s 12-month average monthly gain of 32,000 jobs. Additionally, transportation and warehousing employment reflected notable strength, increasing by 30,000 jobs in April. Despite the monthly improvement, employment within the sector remains approximately 105,000 jobs below its February 2025 peak, highlighting the uneven nature of the broader labor market recovery. Retail trade added nearly 22,000 jobs, driven primarily by warehouse clubs, supercenters, and general merchandise retailers, which accounted for approximately 18,000 of those gains. However, retail employment overall has remained relatively flat over the past year.

By contrast, the information sector continued to experience significant weakness. Employment in the sector declined by 13,000 jobs in April. This includes approximately 4,000 losses among computing infrastructure providers, data processing firms, web hosting companies, and related technology services businesses. Since peaking in November 2022, employment in the information sector has fallen by roughly 342,000 jobs, representing a sharp 11.0% decline. Increasing adoption of AI and automation technologies continues contributing to workforce reductions across traditionally high-paying and entry-level white-collar roles, particularly within technology and digital services industries.

Federal government employment also continued contracting during the month, declining by 9,000 jobs in April. Since October 2024, federal payrolls have fallen by approximately 348,000 jobs, or 11.5%, reflecting ongoing fiscal tightening efforts and restructuring across multiple agencies. Additionally, the number of individuals working part-time for economic reasons rose sharply by 445,000. This suggests that while headline employment figures remain strong, some underlying labor market softness is beginning to emerge beneath the surface.

Average hourly earnings, another key measure of labor market health and inflationary pressure, came in slightly below expectations. Wages increased 0.2% during the month and 3.6% year-over-year, compared to consensus estimates of 0.3% monthly growth and 3.8% annual growth. While wage growth moderates, earnings continue outpacing inflation, providing evidence against a broader stagflationary environment, and supporting consumer purchasing power despite elevated living costs.

From a monetary policy perspective, the stronger-than-expected labor market data further reduced pressure on the Federal Reserve to begin cutting interest rates in the near term. Although expectations for additional rate hikes later this year have diminished, Federal Reserve policymakers are unlikely to shift toward easing until there is clearer evidence that recent inflationary pressures associated with the conflict involving Iran and higher energy prices are temporary geopolitical shocks rather than indicators of more persistent underlying inflation.

Overall, markets interpreted the employment report as evidence that the U.S. economy continues maintaining underlying momentum despite tighter financial conditions, elevated interest rates, and rising energy costs. Layoffs remain near historically low levels, but economists increasingly point to slowing hiring activity—not rising unemployment—as the primary source of labor market cooling. While the tough economic data has remained resilient, softer sentiment surveys and business outlook indicators continue signaling more cautious hiring intentions across both manufacturing and service-oriented sectors.

The U.S. Leading Economic Index (LEI) increased modestly by 0.1% in April 2026 to 97.4, following a 0.6% decline in March. While the monthly improvement provided some stabilization, the broader trend remains subdued. Over the six-month period from October 2025 through April 2026, the LEI declined by 0.7%, continuing to signal a fragile and uneven economic outlook.

The report highlighted the growing divergence between business investment activity and consumer fundamentals. Strong capital expenditures tied to AI infrastructure, hyperscale data centers, and domestic energy production continue supporting economic growth and business spending. However, these investment trends are only partially offsetting growing weakness on the consumer side of the economy. Elevated gasoline and energy costs, combined with slower hiring activity and deteriorating consumer sentiment, are expected to place increasing pressure on household purchasing power in the months ahead. This will particularly affect lower- and middle-income consumers.

April’s modest improvement in the LEI was driven primarily by the strong rebound in equity markets and a notable increase in private housing building permits. Building permits are considered an important leading indicator for construction activity and broader economic momentum, as they reflect future residential development plans. The housing market remains highly cyclical, with activity typically accelerating during the warmer spring and summer months. Despite elevated energy and material costs, which remain meaningful headwinds for home construction, the unexpectedly strong increase in building permits during April was significant enough to push the six-month trend in permits back into positive territory.

The improvement in housing-related indicators suggests that underlying demand for residential development remains relatively resilient despite high financing costs and affordability challenges. At the same time, the broader LEI data continues reinforcing the view that economic growth is becoming increasingly dependent on concentrated areas of business investment, particularly those tied to AI infrastructure and industrial expansion, while consumer-driven areas of the economy continue to show signs of strain.

Despite June historically being a quieter month for financial markets, investors are entering the summer with an unusually active and event-driven backdrop. The historic SpaceX IPO will remain one of the market’s primary focal points in the weeks ahead, not only because of its unprecedented size, but also because of what it may signal for investor appetite toward speculative growth assets, AI infrastructure, and the next generation of technology-related IPOs. Early trading activity has already demonstrated extraordinary demand, with SpaceX becoming one of the largest publicly traded companies in the world almost immediately following its debut.

Markets will closely monitor whether the SpaceX offering becomes a catalyst for continued risk-on momentum or instead introduces increased volatility as institutional and retail investors reposition capital toward the newly public company. The IPO may also serve as a broader test of current market valuations, particularly within high-growth technology and AI-related sectors where expectations remain extremely elevated. Several analysts have already raised concerns that the enthusiasm surrounding SpaceX, combined with ongoing AI-related speculation, could contribute to increasingly stretched valuations and heightened market sensitivity to disappointing economic or earnings data.

Futhermore, geopolitical developments surrounding Iran and the broader Middle East will likely remain equally important for markets. Any credible progress toward a ceasefire agreement or broader diplomatic resolution could significantly impact oil prices, inflation expectations, and overall investor sentiment. Recent reports suggesting movement toward a U.S.-Iran agreement have already triggered sharp declines in crude oil prices alongside rallies in global equities, as investors price in the possibility of reduced energy supply disruptions and the reopening of key shipping routes through the Strait of Hormuz.

Conversely, any deterioration in negotiations or renewed military escalation could quickly reverse recent market optimism. Energy markets remain highly sensitive to developments in the region, and further volatility in oil prices could complicate the Federal Reserve’s inflation outlook at a time when policymakers are already navigating persistent pricing pressures and elevated fiscal deficits. Investors will therefore continue closely monitoring both geopolitical headlines and incoming inflation data for signs of whether the recent improvement in sentiment can be sustained.

Beyond geopolitics and the SpaceX IPO, markets will also shift their attention toward the Federal Reserve’s June policy meeting, labor market data, and the durability of the AI-driven capital expenditure cycle that has fueled much of the market’s gains throughout 2026. While economic growth and corporate earnings have remained resilient thus far, elevated valuations across many areas of the market leave little room for disappointment. As a result, investors are likely to remain highly reactive to both macroeconomic surprises and company-specific guidance throughout the summer months.

Overall, June has the potential to become a pivotal month for markets despite its historically quieter seasonal tendencies. The combination of geopolitical uncertainty, shifting monetary policy expectations, and one of the most important IPOs in modern financial history creates an environment where sentiment could change rapidly as investors assess whether the current rally can continue extending into the second half of 2026.

May’s continued market rally reinforced a theme that has increasingly defined 2026: markets remain primarily driven by earnings growth, AI-related capital investment, and resilient economic activity rather than by traditional recession fears or geopolitical uncertainty alone. Despite elevated valuations, persistent inflation concerns, and ongoing instability in the Middle East, investors continued rewarding companies with strong earnings visibility, pricing power, and exposure to long-term secular growth themes. The market’s ability to absorb higher interest rates while simultaneously expanding earnings expectations suggests that current leadership remains fundamentally supported rather than purely speculative.

At the same time, the strength and concentration of recent market gains continue to warrant careful portfolio management and disciplined risk oversight. A sizable portion of the market’s advance remains tied to a relatively narrow group of themes centered around AI infrastructure, data centers, electrification, semiconductors, aerospace, and digital connectivity. While these areas continue to benefit from extraordinary capital spending trends, periods of rapid investor enthusiasm can also lead to elevated expectations and increased short-term volatility. The upcoming SpaceX IPO further reinforces this dynamic, as markets increasingly shift toward rewarding companies positioned around transformative infrastructure and next-generation technologies.

Importantly, we do not view elevated valuations alone as a sufficient reason to materially reduce equity exposure. Valuations are most concerning when they expand without underlying earnings support. In the current environment, however, corporate earnings growth continues rising alongside valuations, particularly within sectors tied to AI infrastructure, cloud computing, industrial automation, and power demand growth. The broader market has also demonstrated healthier participation in recent months, with industrials, financials, aerospace, and select energy and utility-related industries contributing alongside mega-cap technology leadership. This broadening participation remains an encouraging sign for the durability of the current market cycle.

Rather than attempting to predict short-term market direction based on seasonality or geopolitical headlines, we continue emphasizing active portfolio management through disciplined rebalancing, selective profit-taking, and strategic capital deployment during periods of volatility. Markets remain highly sensitive to changes in interest rate expectations, inflation data, and geopolitical developments, particularly surrounding oil prices and Middle East tensions. As a result, temporary pullbacks or short-term dislocations may continue occurring even within a constructive long-term environment. Historically, these periods of volatility have often created opportunities to strengthen exposure to high-conviction themes at more attractive valuations.

From a thematic perspective, we remain focused on several structural trends that we believe are still in the early stages of long-duration growth cycles. AI infrastructure remains the most significant of these trends, but the investment opportunity extends well beyond software and semiconductors alone. The accelerating buildout of hyperscale data centers continues driving demand across power generation, electrical equipment, cooling systems, advanced networking, industrial automation, engineering services, and specialized materials. Companies tied to high-bandwidth memory, advanced packaging, grid modernization, liquid cooling, and energy infrastructure remain particularly well-positioned as hyperscalers race to secure computing capacity.

Additionally, the SpaceX IPO and renewed investor interest in the commercial aerospace sector may represent the beginning of a broader re-rating across space infrastructure, satellite communications, orbital defense systems, and launch-related technologies. Like cloud computing and AI before it, the commercial space industry is increasingly transitioning from a speculative concept into a rapidly scaling infrastructure ecosystem supported by both private capital and government spending. While many companies in the sector remain early-stage and highly volatile, the long-term strategic importance of space-enabled communications, defense systems, and orbital computing infrastructure continues to grow significantly.

Within fixed income, elevated yields continue providing attractive opportunities for income generation and portfolio diversification, particularly in shorter-duration instruments and higher-quality credit exposures. While long-duration bonds remain vulnerable to persistent inflation and fiscal deficit concerns, the current interest rate environment allows investors to generate materially higher levels of income than were available for the prior decade. We therefore continue viewing fixed income not only as a source of diversification, but increasingly as a meaningful contributor to total return potential.

Overall, while market volatility is likely to remain elevated as investors navigate monetary policy uncertainty, geopolitical developments, and rapidly evolving technological shifts, we continue to believe that maintaining disciplined exposure to durable secular growth themes remains the most effective long-term investment approach. The current environment increasingly rewards companies with strong balance sheets, operational execution, and exposure to critical infrastructure supporting the next generation of global technological expansion.