Monthly Market Commentary

These monthly market commentaries share a synopsis of the U.S. financial markets with intelligent insights.

Latest Commentary:

May 2026 Market Recap

Are we headed for a recession? No.

Here’s our monthly AOR Anatomy of a Recession US dashboard from Clearbridge Investments that we review weekly.

see chart here

The strong rally in April continued into May as investors rode the AI growth theme and focused on strong Q1 earnings across most sectors. In the U.S., the S&P 500 was up 5%, the Russell 2000 was up more than 4% and the tech-heavy NASDAQ 100 rose more than 10%. Growth outperformed value and large outperformed small as the market narrowed further. Non-U.S. stocks lagged the U.S. though they sustained their April momentum. MSCI EAFE returned 3% while MSCI Emerging Markets rose 10%, driven by South Korea’s 30% rally in May. The bond market was largely flat for the month, with the Bloomberg Agg index returning 0.3%. U.S. interest rates rose during the middle of the month and held steady into the month end. Investors focused on higher inflation levels and lowered their expectations for rate cuts.

Here are observations on what occurred across the investment markets in May:

Broad Market Performance¹

Data as of May 31, 2026

Domestic Equity²

• U.S. equity markets moved higher in May with the S&P up 5% and the Russell 2000 rising 4%. Reflecting the AI theme, the tech-heavy NASDAQ 100 rose more than 10%.
• Growth stocks outperformed value, aided by the big move in Technology stocks. Large cap stocks outperformed small caps by a modest amount, a reversal from April’s small cap rally.  

International and Global Equities³

• International developed markets also posted positive returns in May as energy prices fell and took some pressure off local economies. MSCI EAFE gained 3% for the month.  
• Emerging market stocks were the best performing region, returning 10%. While China continues to struggle, declining another -3%, South Korean stocks rose 30% on continued AI hardware demand.  

Fixed Income Markets⁴

• U.S. bond market returns once again were flat to slightly positive in May, with the carry offsetting the negative impact of the small rise in interest rates across the curve. 

Specialty Markets⁵

• Oil prices fell more than 16%, falling sharply in the second half of the month. REITs cooled off after rallying in April, hurt by rising interest rates.

Sectors⁶

• Information Technology  (+16%) was the dominant sector in May, outperforming the next highest sector return by 13%. Only 3 of 11 sectors posted positive returns.
  

Key Points:

• Consumer and corporate resilience in the face of higher energy costs have supported equity markets, with the S&P 500's April and May returns ranking among the top 10 strongest two-month stretches since 1950.
• The Profit Margin indicator on the ClearBridge US Recession Dashboard improved last month from yellow to green, and the overall signal remains in green territory.
• The Housing Permits indicator went from yellow to green in April as well.
• Robust corporate earnings should continue to provide a solid market foundation, making us inclined to continue to "buy the dips" should pullbacks emerge.

Job Market Update as of 6/6/2026

US Unemployment Rate remained at 4.3% in May, the lowest level since last August & well below the historical average of 5.7%. 172k jobs were added vs. 85k expected. March/April jobs were revised up 93k. YoY wage growth: +3.4%. Overall: strong report, no Fed rate cut this month.

One Main Reason We Are NOT Heading Into a Recession...

Quietly, the industrial economy has been resurging…according to the Association of American Railroads carloads were up 7.2% last week of May versus last year…and pretty much every category is up year over year thus far in 2026…

see chart here

We all need to be aware of inflation, it's the silent killer for our budgets now and in the future, especially since most of us live on a budget. Budgets are necessary saving for retirement and especially living in retirement. Our investments need to have growth to beat inflation.

Inflation facts to be aware of:

• New Cars: +19% 
• Groceries: +26%
• Family Health Insurance: +27%
• Shelter: +29%
• Restaurants: +31%
• Dozen Eggs: +35%
• Home Prices: +35%
• Electricity: +40%
• Gas Utilities: +41%
• Transportation: +42%
• Gasoline: +52%
• Auto Insurance: +54%
• Ground Beef: +64%

By The Way...

Here's My Stock Market Outlook: 3 Themes for the Second Half of 2026

• Earnings growth, not sentiment, is driving markets.
• The multiyear AI investment cycle is fueling growth across sectors, especially the "physical economy." See railroad chart above as proof.
  
• Non-U.S. markets offer attractive valuations and strong earnings potential relative to the U.S.

Dear Valued Investor,

Equity markets have continued their advance in recent weeks, with the S&P 500 near a record high following a rare nine-week winning streak on strong AI-driven earnings and prospects for an Iran agreement. While the macro backdrop remains mostly constructive, valuations are elevated by most traditional metrics, and oil remains near $100 with the Strait of Hormuz still closed. Is the stock market pricing in too much good news?

To answer this question, we suggest not putting much emphasis on valuation. Valuation metrics such as the price-to-earnings ratio (P/E) are helpful in assessing long-term return potential and downside risk, but they are historically poor market timing tools. The S&P 500’s P/E near 21 can be justified by solid earnings growth and a resilient U.S. economy, although further expansion will require continued cooperation from key drivers such as inflation (oil prices) and interest rates. Unless these macro inputs improve, returns in the second half of the year are likely to be modest, potentially with some bumps along the way.

Against this backdrop, the role of AI remains central. Technology companies, particularly the mega cap hyperscalers, have continued to deliver compelling earnings growth, even as skepticism around the magnitude of investment and timing of eventual returns persists. Results have continued to point to accelerating investment and demand for computing resources. Some big moves in semiconductor and IT hardware companies over the past week suggest the market has not quite caught up to the magnitude of these investments – expected to exceed $750 billion this year and up about 50% since 2026 began.

While valuations appear elevated at the index level and speculation in certain market segments may have gone too far, parts of the technology sector may actually be undervalued relative to their growth potential. Skepticism about the productivity gains AI will bring remains widespread, leaving room for potential upside surprises. At the same time, heavy AI-related capital expenditures have depressed free cash flow, which introduces risk if anticipated productivity gains fail to materialize.

Looking ahead, the market narrative will continue to hinge on the intersection of valuations and AI-driven earnings growth. Elevated multiples and sticky inflation suggest more limited upside from higher valuations, placing greater importance on earnings to come through. AI remains a powerful tailwind for both economic activity and corporate profits, supporting the case for staying invested. The promise of what AI can bring is exciting, but the optimism may be getting ahead of what the technology can deliver. As a result, maintaining discipline around diversification and risk management takes on greater importance.

If you have any questions, please feel free to reach out at your convenience.

Thank you for your trust along your financial journey.

 

Previous Commentary:

• April 2026 Market Commentary
• March 2026 Market Commentary
• January 2026 Market Commentary
• December 2025 Market Commentary

Disclosures and references:

 Investment Advisory Services offered through Global Retirement Partners, LLC DBA Connor & Gallagher OneSource, an SEC registered investment advisor.  

1-6 All data referenced in the table and comments supplied by Morningstar.

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