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06/01/2026

Observations & Insights – June 1, 2026

Markets Push Higher
The U.S. stock market extended its springtime rebound from the first quarter’s negative results as the S&P 500 recorded its ninth consecutive weekly gain. Led by information technology stocks, the NASDAQ finished 2.4% higher for the week, the S&P 500 added 1.4%, and the Dow gained 0.9%.

Key Points
• The bull market remains remarkably strong, with the S&P 500 extending its winning streak to nine consecutive weeks, one of the strongest stretches in market history.
• The economy continues to grow, but inflation remains stubbornly high.
• The AI investment cycle remains a powerful driver of earnings growth and market performance.
• Bonds are struggling as Treasury yields climb to multi-year highs.

Observations: Inflation Runs Hot, but it is (Still) All About Earnings
May’s U.S. stock market gains were big, though they fell short of the unusually strong results recorded in April. The NASDAQ climbed 8.4% in May, the S&P 500 gained 5.1%, and the Dow rose 2.8%. In April, the NASDAQ and the S&P 500 both recorded double-digit gains, rebounding from negative first-quarter results.

For the second time in three weeks, a monthly report showed U.S. inflation running at the highest level since May 2023. Thursday’s Personal Consumer Expenditures Price Index report showed an annual rate of 3.8% in April, the same headline inflation figure reported a couple of weeks earlier as measured by the Consumer Price Index (CPI). Excluding food and energy prices, April’s core PCE inflation was 3.3%.

Investor optimism over the latest round of U.S.-Iranian negotiations sent oil prices lower for the second week in a row. U.S. crude was trading around $88 per barrel on Friday afternoon, down nearly -10% for the week, and roughly -16% lower for May.

The U.S. economy’s expansion in this year’s first quarter was slower than initially estimated. The Commerce Department reported that GDP grew at an annual rate of just 1.6% in the January-to-March period, down from an initial estimate of 2.0%. The reduction stemmed from downward revisions to consumer spending and investment.

Wall Street analysts’ forecasts for second-quarter earnings have steadily risen over the past couple of months. FactSet reported on Friday that analysts raised their quarterly earnings expectations for S&P 500 companies by 2.5% in April and May. Second-quarter results are set to be released beginning in mid-July.

Stock indexes in South Korea and Japan climbed to record highs on Friday. A South Korean benchmark surged nearly 11% for the week amid optimism over AI-related stocks, while a Japanese index rose nearly 2%.

A jobs report due out on Friday will show whether recent strengthening in the labor market extended into May. In April, the economy added an above-forecast 1115,000 jobs on the heels of March’s gain of 185,000. The back-to-back monthly increases marked a shift from a pattern of alternating job losses and gains seen over the previous 10 months.

Insights: The Market Continues to Follow the Money
We sound like a broken record, but stocks gained again last week as the bull market rolls on. Just a few months ago, many investors were worried that the economy was headed for a slowdown and that a recession was only a matter of time. Instead, we have seen a very different outcome. As we enter the second half of the year, economic growth remains positive, corporate earnings continue to surprise to the upside, and the market has pushed higher despite a steady stream of headlines that might suggest otherwise.

The biggest story remains the same one we have been discussing throughout the year: artificial intelligence. The amount of capital being deployed into AI infrastructure is staggering. Technology companies are spending hundreds of billions of dollars building data centers, purchasing chips, and expanding cloud capacity. That spending is flowing through the economy, supporting corporate revenues, earnings growth, and ultimately stock prices. While we have yet to see the full productivity benefits of AI show up in the economic data, the investment cycle itself is already having a meaningful impact.

At the same time, the economy continues to show surprising resilience. The labor market remains healthy, despite the threat of AI making many jobs obsolete. Unemployment is still near historically low levels while consumers continue to spend. Government spending and fiscal deficits are also providing significant support for economic activity. None of this looks like an economy that is preparing for a recession.

The challenge, however, is inflation. While energy prices and geopolitical tensions have certainly contributed, inflation is proving to be broader and more persistent than many expected. Demand remains strong, spending remains healthy, and companies continue to have pricing power. As a result, the market has shifted from expecting multiple interest rate cuts this year to recognizing that rates may stay higher for longer, and there is even some discussion about whether rate hikes could become necessary.

This creates an unusual environment where stocks and bonds are telling two different stories. Stocks continue to focus on strong earnings growth and the opportunities created by AI, while bonds are focused on inflation, government deficits, and the possibility that interest rates remain elevated for longer than expected. Rising Treasury yields are a reminder that inflation still has real consequences, even when equity markets are performing well.

Welcome to the Fed Mr. Warsh
After more than eight years in charge of the Fed, Jerome Powell has officially stepped down as chair and Kevin Warsh takes the baton to lead the largest central bank in the world.

Powell navigated COVID, a generational spike in inflation, an extremely aggressive rate hike cycle in 2022, Washington drama, wars, and more in his eight years. Did he get everything right? No, as he did not foresee the jump in inflation in 2022 (who can forget “transitory,” a phrase we seem to be flirting with again), but overall, he has navigated things well and done an admirable job. Other than two months in 2020, the economy avoided a recession, and investors have done well under his leadership. In fact, the Dow gained 97.0% during his tenure, for an annualized return of 8.5%, which ranks eighth out of the 16 Fed Chairs. Fun stat: Janet Yellen was the shortest Fed Chair (height, not tenure), but stocks gained a very impressive 12.9% annualized under her leadership, ranking second only to Eugene Black.


Source: FactSet

Historically, markets have often tested new leadership at the Fed. The most famous example is in 1987, when the market crashed soon after Alan Greenspan took over. There were many other times trouble brewed within six months of new leadership as well, with multiple challenges in in the 1910s and 1930s, and in more recent times after Arthur Burns and then Paul Volcker took over.

In fact, the Dow historically has had an average peak-to-trough decline of -15.2% within the first six months of new Fed leadership. The good news is the past three new Fed chairs saw relatively calm seas, so this is not a sure thing by any means. Of course, with inflation and higher yields, the market very well could test Warsh… stay tuned!


Source: FactSet

What’s Behind the Bond Market Rout?
Looking at the equity market hitting all-time highs, you could be forgiven for thinking all is well. But you do not have to look too far to see where there is pain: the bond market has been struggling. We have been talking about an inflationary growth regime since the start of the year, and equities doing well while bonds struggle is par for the course in this environment. Still, it has been a particularly rough stretch for bond investors (most people are bond investors with at least some of their portfolio).

Treasury yields surged late last week, but this was not a one-day event. Yields have been climbing across the curve since the U.S./Israel-Iran war began and the Strait of Hormuz was closed. From February 27, the eve of the war, through May 18:
• The 2-year Treasury yield rose from 3.37% to 4.12%, an increase of 0.75 percentage points.
• The 10-year Treasury yield rose from 3.94% to 4.56%, an increase of 0.62 percentage points.

These are significant moves, and they have come about in a relatively short period of time.


Source: Bloomberg

The Front End of the Yield Curve Says the Fed Is Behind
The 2-year yield at 4.12% means that the market expects the short-term policy rate to average that level over the next two years, well above the current policy rate of 3.63%.

In fact, the probability of a rate hike in 2026 has increased to 70%, making a rate hike this year the base case (just barely, as anything between 30% to 70% is really just a coin toss). Here is a chart showing market expectations for policy rates over the next several years.
• On the eve of the mid-east crisis, markets were expecting a couple more rate cuts this year, taking the policy rate to almost 3%. Markets did expect a series of rate hikes from 2028 onwards, but gradually, with the policy rate exceeding its current level only in 2031.
• The entire curve has now shifted above the current policy rate of 3.63%, implying markets now expect the Fed to hike rates this year and continue lifting them beyond 2026.


Source: Bloomberg

In other words, market participants expect rates to stay higher for longer as the Fed looks to get a grip on inflation. Hence, it should not be a surprise that even long-term rates are rising. On the other end of the yield curve, the 30-year Treasury yield hit a peak of 5.19%, the highest level in 30 years. It has pulled back to about 4.97% now, but for reference, it was 4.61% on the eve of the war.


Source: Bloomberg

The bond market clearly does not like elevated inflation, which is why yields are rising. But there is also the prospect of falling demand from abroad as yields on non-U.S. government bonds rise and become more attractive.

Closed Strait = Higher Oil Prices = Inflation Problem
The Strait of Hormuz remains shut, and oil prices remain elevated. Higher oil prices mean higher inflation, and higher inflation means higher yields. It really is that simple.

The U.S.-China summit produced no progress on the Middle East front. There was hope that China might pressure Iran to reopen the Strait of Hormuz. That did not happen. China said it wants oil flowing again, but it appears comfortable with Iranian control of the strait, including the possibility of Iran charging ships a toll to pass through. That remains unacceptable to the U.S., at least for now.

While the Middle East stalemate continues, though, there seems to be more positive news over the last few days. Once again, turmoil in the bond market rather than the stock market increases odds of a U.S.-Iran deal. Without a deal, and with each passing day, global oil reserves are being drawn down, including in the U.S., which is drawing oil from its Strategic Petroleum Reserve (SPR) at a record pace. The likelihood of the inflation problem growing even larger increases as a result, which is why bond yields are surging.

Final Thoughts
The key takeaway is that the bond market is absorbing the cost of higher inflation. Equities remain strong because we have inflationary growth (rather than stagflation). Nominal GDP growth is running hot, and that benefits corporate revenues and profits. AI-related capex is another tailwind, though this is also pushing inflation higher and putting even more upward pressure on bond yields. For now, a Fed led by Kevin Warsh looks set to look past this immediate bout of inflation and let things run hot. We will see how long the bond market allows them to remain comfortable with that stance.

For now, we continue to believe the path of least resistance remains higher for equities. Earnings growth remains strong, economic activity is holding up, and the AI investment cycle appears to have plenty of runway ahead. At the same time, we believe diversification remains critical. History has shown that markets can remain optimistic for much longer than expected, but they can also change direction quickly when expectations become too extreme.

It is our aim at Asbury Wealth Partners that you find the market commentary we provide informative and useful. As our success grows mainly through referrals from our clients, we encourage you to share this weekly newsletter with your friends, family, and colleagues. If you are a client, we thank you for your business and your confidence. If you are not yet a client, we encourage you to contact us today and explore how our team may be able to add value to your unique financial situation.

Thank you,

Paul O'Hara, CFP®
[email protected]

Send a message to learn more

05/27/2026

Observations & Insights – May 26, 2026

Markets Drift Higher
Stocks overcame a shaky start to the week, turning positive on Wednesday as the S&P 500 recorded its eighth weekly gain in a row, the longest streak since late 2023. The Dow outperformed, eclipsing its historic peak set more than three months earlier. At Friday’s close, the S&P 500 and the NASDAQ were slightly below the record levels they set on May 14.

Key Points
• The S&P 500 gained for the eighth week in a row.
• It has been a good year for stocks, but we are not surprised, as an “average” year is unusual.
• After such a historic run, a pause would be perfectly normal, but the strength we have seen so far in May could be a clue that the rest of this year could be strong.
• No matter how you slice it, inflation looks hot, and it is not just energy and tariffs.
• While rising inflation has hurt bonds and raised borrowing costs, it can actually help stocks when accompanied by economic growth and a dovish Fed.

Observations: Bonds Stay Volatile While Earnings Continue to Impress
The recent rise in inflation-driven bond market volatility peaked on Tuesday, when the yield of the 30-year U.S. Treasury closed at 5.18%, the highest since 2007. While yields slipped later in the week, they remained elevated, with the 10-year Treasury ending the trading week at 4.56%, the highest in 12 months.

The outsize impact that mega-cap tech companies are having on the broader market’s earnings became more apparent after the last of the so-called Magnificent Seven stocks reported quarterly results. Those seven firms recorded average first-quarter earnings growth of 63%, versus 17% for the other 493 companies in the S&P 500 Index, according to FactSet. For the Mag 7, it was the highest quarterly growth rate in nearly six years.

The price of U.S. crude climbed above $108 per barrel on Tuesday, only to slip back below $100 as negotiations over the Middle East conflict continued. For the week, oil was down more than 4% at Friday afternoon’s price of around $97.

A monthly gauge of U.S. consumer sentiment fell to a record low, extending its recent decline amid a spike in energy prices. The University of Michigan’s survey results released on Friday showed that sentiment fell to a final May reading of 44.8 from a preliminary figure of 48.2 released a couple of weeks earlier. It was the third straight monthly decline following a recent peak of 56.6 in February.

Minutes released on Wednesday from the U.S. Federal Reserve’s most recent meeting showed that policymakers were considering keeping rates unchanged longer than previously expected while also considering rate hikes if inflation remains high. A majority of Fed members said that a shift to more restrictive monetary policy would likely become appropriate if inflation remains above the Fed’s long-term 2% inflation target.

A U.S. small-cap benchmark outperformed its large-cap peer by a wide margin, extending small caps’ year-to-date outperformance. The small-cap index rose 2.7% for the week versus a 1.1% gain for the large-cap benchmark.

A monthly report scheduled for release on Thursday will provide a fresh look at the recent rise in inflation, including higher energy costs. An earlier reading from the Personal Consumer Expenditures Price Index showed an annual rate of 3.5% in March. A subsequent report on another inflation gauge, the Consumer Price Index, showed an April reading of 3.8%, the highest level in nearly three years.

Insights: Inflation Running Hot & So Are Stocks
The rally continued last week, with the S&P 500 now up eight weeks in a row for the first time since late 2023. Yes, we remain quite optimistic about the remainder of this year, but we also need to be realistic about near-term expectations, as the stock market has had a historic move off the late-March lows. A potential pause or a little weakness here could give the bull market a chance to catch its breath and could actually be a good thing for the big picture.

No Such Thing as An Average Year
Here is something that is very important to remember: There is no such thing as an average year when it comes to the stock market. Since 1950, the S&P 500 has had an average return of 9.6% but gains near that level in an individual year are rare.

In fact, we found only four times in the past 76 years that saw stocks gain 8% to 10% (or about average). In other words, average is not so average when it comes to investing.


Source: YCharts

Given we are in that 8% to 10% range right now, could we really see stocks finish virtually flat over the next seven-plus months of 2026? We would say probably not. In fact, we think having a current return at that “average” level in May suggests the potential for more upside and movement toward our year-end S&P 500 target range of 12% to 15%.

‘May’-be This Is a Bullish Clue
We noted at the start of the month why we expected to see potential strength this May, and that has been happening in a big way. With the month almost over, we have seen an incredible seven all-time highs, the most in May since 2017. In fact, only 1995, 2013, and 2017 saw this many new highs, and that was for the entire month of May. What happened the final seven months those years? Higher at least double digits all three times and up more than 13.2% on average. The May strength could be another clue the bull is alive and well.


Source: FactSet

Inflation Looks Hot No Matter How You Slice It
The inflation data does not look great no matter how you slice it. The headline Consumer Price Index (CPI) rose 0.64% in July (equivalent to an 8% annualized rate), with the three-month annualized pace running at 7.3%. CPI is now up 3.8% over the past year, the highest reading since May 2023.

As we look over inflation numbers, though, keep in mind that inflation is not always bad for stocks, especially if the Federal Reserve is inclined to let the economy “run hot,” which is where we believe we are now. When that is true, higher prices can mean higher revenue (and margins) for businesses, which can be good for stocks. There may be a comeuppance one day if the Fed has to raise rates sharply to get inflation under control (like 2022), but that is not where we are now. Until we get there, we believe that thoughtful investors need to understand the upside of inflation for stocks, even if consumers are seeing the downside every time they make a purchase.

The big inflation driver has been energy prices, with gasoline prices rising over 5% in April, on the back of a 22% increase in March (which was higher than any single month in 2022). Energy commodities (which include gasoline and fuel oil) have now increased more than 28% over the past two months, taking prices to their highest level since July 2022. Back in 2022, prices rose 32% over the first six months of the year. This current spike is larger, and it is happening quickly.


Source: FactSet

On top of that, energy services inflation (electricity and utilities) is also elevated, rising at a 9.2% annualized pace over the past three months and 5.4% over the past year.


Source: FactSet

Meanwhile, food prices (both grocery and restaurant prices) are also rising at a hot clip. Before the pandemic (2017-19), grocery inflation (food at home) ran at an average annualized pace of 0.4%, and inflation for food away from home ran at 2.7%. We are well above that now.

Food at home inflation is up 3.9% annualized over the last three months and 3.0% year over year. Inflation’s running especially hot for several popular items:
• Meats: +8.8% year over year (y/y)
• Fresh vegetables: +11.5% (y/y)
• Tomatoes: +39.7% (y/y)
• Lettuce: +7.9% (y/y)
• Coffee: +18.5% (y/y)

Inflation for food away from home is up 3.2% annualized over the last three months, and 3.6% year over year.


Source: FactSet

It is too early for elevated food price inflation to be a direct consequence of the Middle East conflict and higher energy prices. While higher prices for diesel (used for transportation) and fertilizer (a by-product of natural gas) should impact food prices, that is probably further down the road. Of course, that means we could be in store for a more prolonged period of food inflation.

“Core” inflation looks at inflation excluding food and energy, since food and energy are traditionally more volatile. But the reality is that these are everyday items that make up a sizable portion of household budgets. Energy (both commodities and services) and food make up 20% of the CPI basket. Rising inflation for these items puts a real strain on households.

Keep in mind that the Fed targets headline inflation, which includes food and energy (though their preferred metric is the Personal Consumption Expenditures Price Index). They focus on core inflation only to gauge the underlying trend. That trend is not good either.

Core Inflation Also Has a Lot of Problems
Core CPI rose 0.38% in April, which translates to a 4.6% annualized pace. That is hot, as is the three-month annualized pace of 3.2%. Core CPI is now up 2.7% over the past 12 months. Inflation is elevated and going in the wrong direction.


Source: BLS

Now, a big chunk of core CPI is housing, which makes up about 43% of the basket. This came in on the hotter side in April and reverses some of the softness we saw over the past six months. This is due to a statistical quirk. Missing data in October amid the government shutdown led the Bureau of Labor Statistics to assume there was zero inflation in prices that month. We are catching up to reality now.

There are some commentators who have said that if you exclude housing, core inflation was “moderate,” but that is not really the case. CPI for commodities excluding food and energy was flat in April, amid fading tariff pressures. Still, the three-month pace is running at 0.9% annualized, and prices are up 1.1% from a year ago. That may not seem like much, but it is hot relative to pre-pandemic (2018-19), when commodities (ex-food and energy) experienced zero inflation.


Source: FRED

At the same time, there are items that are still feeling the impact of tariffs, such as apparel. Apparel prices have risen at an annualized pace of 12% over the past three months and are up 4.2% from last year.

Another category experiencing significant inflation is computer software and accessories, which is seeing the impact of demand from AI. CPI for computer software/accessories is up a whopping 83% annualized over the last three months, which tells you that AI demand is far outrunning supply at this time. This barely impacts core CPI because it is only 0.04% of the basket, but it makes a bigger difference for the Fed’s PCE inflation, where it accounts for about 1% of the basket.

All of that is on the goods side, but inflation is problematic even if you look at core services excluding housing. Prices for this category rose 0.38% in April, equivalent to 4.6% annualized. The three-month annualized pace is 3.2%, and prices are up 2.7% year over year, well above the 2017-19 trend of 2.1%.


Source: Carson, BLS

Here is a summary of some different ways of looking at inflation, including a couple of other measures that try to capture what is going on at the core of inflation. It is clear the problem is broad and not isolated to just energy, or tariffs. Across these measures, the three-month pace is mostly hotter than the 12-month pace, which tells us that momentum is in the wrong direction. In addition, all the readings are above the 2017-19 trend. In short, inflation is elevated and going the wrong way no matter how you slice it.


Source: Carson investment Research

Final Thoughts: Bonds Don’t Like the Inflation Backdrop, but Stocks Do (For Now)
The most direct impact of the inflation backdrop is on the bond market. Short and long-term yields are at the highest levels we have seen this year and reflect the real cost of the Middle East crisis and underlying inflationary heat. US Treasury 2-year and 10-year yields have risen to their highest levels this year even with the equity market reaching all-time highs. (Bond prices fall when yields rise.)
• The 2-year Treasury yield has risen from 3.37% on the eve of the war to 4.13%.
• The 10-year Treasury yield has risen from 3.94% to 4.56%.

As we discussed in our 2026 Outlook, we expected an inflationary growth environment this year, and that is where we are. That environment is not great for bond yields and general borrowing costs, but the labor market is holding up well. With inflation high and rising and a solid job market, normally we would be talking about rate hikes. However, the Federal Reserve under incoming Chair Kevin Warsh is expected to hold rates steady for the rest of the year. That is a potential tailwind for stocks, as is the boost inflation can give to sales growth (even if unit growth grows more slowly) and margins. We can see some of the effect in the aggregate earnings numbers. According to FactSet data, with 91% of S&P 500 companies having reported Q1 results, the blended year-over-year earnings growth rate is 27.7%. If we end the quarter there, it will be the highest growth rate since Q4 2021. Despite inflation, and even partially because of it, stocks have been doing just fine.

It is our aim at Asbury Wealth Partners that you find the market commentary we provide informative and useful. As our success grows mainly through referrals from our clients, we encourage you to share this weekly newsletter with your friends, family, and colleagues. If you are a client, we thank you for your business and your confidence. If you are not yet a client, we encourage you to contact us today and explore how our team may be able to add value to your unique financial situation.

Thank you,

Paul O'Hara, CFP®
[email protected]

Send a message to learn more

05/11/2026

Observations & Insights – May 11, 2026

The Rally Continues
The S&P 500 and the NASDAQ recorded their sixth consecutive weekly gains as stronger-than-expected quarterly earnings growth lifted both indexes to fresh record highs. The NASDAQ finished up 4.5% for the week and the S&P 500 added 2.4%. The Dow lagged, posting a fractional gain.

Key Points
• April was an amazing month, with the S&P 500 gaining more than 10%.
• Big monthly gains tend to lead to better performance going forward.
• The six-month stretch that helped give us the saying “Sell in May and Go Away” is here, as historically the worst six consecutive months of the year on average start in May.
• “Sell in May” has not worked recently, and we do not think it will work this year, either.
• The wave of spending on AI infrastructure continues to build.
• Q1 2026 GDP was tepid (although better than Q4 2025), but AI-related demand is strong.

Observations: Earnings Shine as Employment Stabilizes
Profits continued to improve as earnings season entered its final stretch, with analysts now expecting the strongest growth rate since the fourth quarter of 2021, when the economy was recovering from COVID lockdowns. First-quarter net income is expected to rise an average of 27.7% for companies in the S&P 500, based on reports already released as of Friday and forecasts for the relatively small number of firms that had not yet reported, according to FactSet. At the end of March, the projected earnings growth rate was just 13.1%.

The U.S. economy recorded back-to-back monthly jobs gains after alternating between gains and losses each of the previous 10 months. On Friday, the government reported a higher-than-expected gain of 115,000 jobs in April on the heels of March’s upwardly revised figure of 185,000. April’s unemployment rate stayed unchanged at 4.3%.

A U.S. large-cap growth index outperformed its value style counterpart by a wide margin for the fifth week out of the past six, eroding the value style’s still-sizable year-to-date performance lead over growth. As of Friday’s close, the growth benchmark was up nearly 20% over the past six weeks versus an 11% rise for the value benchmark.

Shifting narratives about conflict in the Middle East continued to buffet the oil market, with the price of U.S. crude briefly climbing to $107 per barrel on Monday before sinking to $89 on Wednesday. By Friday afternoon, oil was trading around $95, down around -5% for the week.

The latest surge in oil prices on Monday raised fresh concerns about inflation, and the yield of the 30-year U.S. Treasury eclipsed the 5% threshold for the first time in nearly 10 months. However, the rise was brief, and 10-year and 30-year Treasury yields were down slightly for the week, finishing at 4.37% and 4.95%, respectively.

Predictably, a monthly gauge of U.S. consumer sentiment extended its recent decline amid a spike in energy prices. The University of Michigan’s survey results showed that sentiment fell to a preliminary May reading of 48.2, down from April’s final 49.8 figure. Both numbers are well below a recent peak of 56.6 reached in February.

A Consumer Price Index report scheduled for release on Tuesday will show whether a recent spike in inflation extended into April amid higher energy prices.

As we kick off a new week, the contrast in economic data is much narrower than what we had to navigate previously. Retail sales might generate a little movement, but outside of Tuesday’s Consumer Price Index report, there really is not much coming in that should change the tone for markets. The most recent CPI report showed an annual inflation rate of 3.3% in March, up from the previous month’s 2.4% reading. In March, the energy price component of CPI surged 12.5% on a year-over-year basis. The biggest impact this week will almost certainly come from headlines tied to the Xi Jinping and Trump meeting in China. This is the first time a sitting US president has been to China in over a decade, so it is meaningful regardless of what comes out of it.

Insights: Stay In May?
The incredible rally continued last week, with more gains across the board and more new highs. This is on top of a more than 10% rally in April for the S&P 500, the second-best April ever (going back to 1950). As we noted at the beginning of the month, we expected a rally, but even we certainly did not see a rally of this magnitude coming.


Source: FactSet

Markets Change… and Quickly!
Five weeks ago, in a close repeat of 2025, worries were building that we were heading for a bear market. We pushed back against this narrative and noted many reasons to expect a rally. Well, stocks are now back to new highs, and we do not think the rally is done yet.

There were 13 other times in history that the S&P 500 gained more than 10% in a month, and more often than not, better-than-average returns afterward were common. Yes, 1987 is in there, but up more than 10% six months later on average could bode well for a surprise summer rally.


Source: FactSet

‘Sell in May’ Is Here
Buckle up, as the trigger points for one of the most well-known investment axioms, “Sell in May and Go Away,” has arrived. This gets a ton of play in the media, as the six months starting in May are indeed the worst consecutive six months on the calendar historically. The S&P 500 has averaged only 2.1% over those six months and moved higher only 66% of the time.


Source: FactSet

Let’s be clear: Up 2.1% might not sound like much, but it is still an increase. Also, we do not advocate making investing decisions based simply on the calendar, but it is worth being aware of this calendar effect, as you will hear a lot about it from the financial press over the coming weeks.

It Hasn’t Worked Lately
This time a year ago, many were expecting the big rally in April to roll right back over and potentially turn into a bear market. Well, instead we saw the strongest “Sell in May” six-month rally in history. In fact, make that nine of the past 10 years stocks gained during this historically bearish period.


Source: FactSet

Taking this a step further, May, June, and July have been extremely strong lately. Think about these stats:
• The S&P 500 in May has been higher 12 of the past 13 years.
• The S&P 500 in June has been higher nine of the past 10 years.
• The S&P 500 in July has been higher 11 years in a row.

It’s How You Start that Matters
It is worth noting that if the year is positive going into these six months, the market does much better. And if the S&P 500 is up more than 4% for the year (like this year), the next six months go from an average return of 2.1% to 4.4%. The flipside is that some of the worst “Sell in May” periods in history took place after a bad start to the year.


Source: FactSet

The bottom line is that this bull market is alive and well, and we think it may continue for at least the rest of 2026, and possibly much longer and much higher than most market participants think possible.

The AI Wave Continues, and It’s a Big One
In our 2026 Outlook, we said we thought the artificial intelligence (AI) spending wave would be a strong one. Five months later, that picture has not changed, if anything, it has strengthened. AI continues to have a huge impact on the economy, but the focus is still spending related to building out AI rather than AI providing a boost to productivity. That is something we have yet to see, and we probably will not know how AI effects the economy for several years.

AI-related investment is surging on both the hardware and software side. Looking at hardware, investment spending on IT equipment rose at an annualized pace of 43% in Q1 and clocked in at a 31% annualized pace over the past five quarters. The 2010-24 annual pace was just 6%.


Source: Carson, BEA

These numbers are simply massive, and keep in mind that these are all adjusted for inflation. They have made a huge contribution to GDP growth recently. Across the past five quarters, real GDP growth averaged 2%. AI-related hardware (IT equipment) and software spending contributed 0.90 percentage points (pp) per quarter, or about 45%(!) of real GDP growth. (For perspective, consumption contributed an average of 1.36 pp per quarter, but consumption makes up 68% of the economy while AI-related investment spending makes up just under 5% of GDP.) Putting it in historical perspective, from 2001-24, IT equipment and software spending contributed on average 0.27 pp per quarter. Even during the internet boom (1995-2000), it only contributed an average of 0.68 pp per quarter to real GDP growth.


Source: FRED

Looking ahead, it does not seem like there is going to be any let-up, at least in the near term. The big tech firms recently reported earnings, and they are ramping up CAPEX to even higher levels. When we wrote our Outlook for 2026, we estimated that these firms would spend a total of $515 billion on capex in 2026, up from almost $400 billion in 2025. That amounts to about 1.6% of GDP, which is staggering.

The most recent updates take the 2026 capex estimate to a whopping $725 billion, which is about 2.3% of GDP. That is over 4x the level of capex in 2023 (0.5% of GDP) and 7x the size of where it was in 2019 (0.3%). And the wave is still building, 2027 is expected to be even higher.

What is important to keep in mind here is that one company’s spending is another company’s revenue and profits. That is the connection between all this spending and what we are seeing in the stock market.


Source: Bloomberg

But Why Is Real GDP Growth Relatively Weak?
Real GDP grew just 2% annualized in Q1, below expectations for a 2.3% increase. This was a pickup from the weak Q4 pace of just 0.5%, but in line with the 2025 pace of 2%. The big bounce from Q4 2025 to Q1 2026 was not a surprise, as weakness from the government shutdown in Q4 reversed and boosted growth in Q1. One way to look past the shutdown impact is to average real GDP growth across the last two quarters. That gets you to a relatively weak 1.25%. That is a marked slowdown from the 2023-24 pace of 2.9% and also below the 2010-2019 trend of 2.4% annualized.

This seems strange given the AI-related investment boom, but the issue is that a lot of the equipment is imported (and also exempted from the post-Liberation Day tariffs), and so it does not directly “contribute” to GDP in a strict sense, since only goods produced domestically contribute to GDP. The way GDP is calculated, the spending appears as part of investment but then gets canceled out by the adjustment for trade.

GDP growth can also be noisy because trade (“net exports,” or exports minus imports) and inventories are volatile. Excluding these gives us “real final demand,” a picture of domestic activity that combines household consumption, investment, and government spending.

Real demand rose at a robust annualized pace of 2.8% in Q1 thanks to the rebound in government spending. If we just focus on the private sector, real demand rose at a relatively healthy pace of 2.5%, and it has averaged 2.4% annualized over the last five quarters. That is not bad, but it is slower than the 3.2% pace we saw across 2023-24 or the 3.0% trend from 2010-19.

Real final demand running below trend is essentially why GDP growth over the last five quarters has clocked in below trend, too. There are two big drivers here:
• Weak goods spending, which has run at an annualized pace of just 1.1%, well below the 2010-19 trend of 3.6% and the 2023-24 pace of 3.9%.
• Weak residential investment (housing), which has fallen at an annualized pace of almost 5% over the last five quarters, versus 4.6% across 2010-19 and 1.9% in 2023-24.

Goods spending can be volatile, especially as consumers pull back amid higher inflation. But housing is paying the biggest cost of higher inflation because of higher interest rates. Residential investment has now fallen in seven of the last eight quarters, and this weakness is likely to continue if interest rates remain on the high side.


Source: BEA

AI Feeding Through to Inflation
Despite the war with Iran and resulting energy crisis, arguably the most important macro story right now is the AI wave. But while AI demand continues to increase, supply can barely keep up, which is why we are seeing massive AI-related investment that is more than offsetting weakness in other parts of the economy (like housing). However, the other side of this mismatch of supply and demand is inflation.

Amid AI-related bottlenecks, the Personal Consumption Expenditures Price Index (PCE) for computer software and accessories rose at an annualized pace of 59% in Q1. Prices for this category fell continuously over the past decade, but we are seeing prices surge higher amid the AI boom.


Source: FRED

Of course, AI-related bottlenecks are just one among many problems within the inflation data as inflation continues to creep higher.

Final Thoughts
We expect the AI wave to continue supporting the stock market, even as inflation remains elevated. Looking ahead, a Federal Reserve that is led by Kevin Warsh is likely to hold rates unchanged for the rest of the year. However, with inflation moving in the wrong direction, that means policy is actually getting more dovish. Couple that with rising fiscal deficits, and it means the Fed is likely to let the economy run hot, with nominal GDP growth continuing to clock in around 5% to 6%. For now, that is a potential tailwind for stocks.

It is our aim at Asbury Wealth Partners that you find the market commentary we provide informative and useful. As our success grows mainly through referrals from our clients, we encourage you to share this weekly newsletter with your friends, family, and colleagues. If you are a client, we thank you for your business and your confidence. If you are not yet a client, we encourage you to contact us today and explore how our team may be able to add value to your unique financial situation.

Thank you,

Paul O'Hara, CFP®
[email protected]

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