May’s Market Momentum

Strong momentum that began in April carried through May, with major stock indexes continuing to climb to new highs.

Despite concerns that might normally cool enthusiasm, what fueled the advance?

Well, there were two competing themes that dominated market action during May.

First, Treasury bond yields trended higher last month in response to concerns about inflation. The war with Iran has lifted gasoline prices and other key commodities. Though the legality of broad-based tariffs is in question, businesses are passing along some costs.

Coupled with signs that the labor market may be firming, chatter is surfacing that the Federal Reserve might hike its key interest rate, the fed funds rate, later in the year. That’s in stark contrast to earlier in the year when investors were eyeing at least one rate cut in 2026.

While higher Treasury yields may have tempered market gains, they did not prevent a banner month for the major market indexes, as illustrated by the table of returns.

Source: Wall Street Journal, MSCI.com, Bloomberg, MarketWatch
MTD returns: April 30, 2026—May 29, 2026
YTD returns: December 31, 2025–May 29, 2026
**in US dollars

The biggest driver of equities last month was corporate profits. Simply put, first quarter earnings have been fabulous.

Many companies that reside within the S&P 500 Index easily surpassed analyst expectations in Q1, according to LSEG.

A brief review of the numbers tells us that Q1 S&P 500 profits rose nearly 30% from one year ago. That’s an astounding feat, and the fastest pace since the fourth quarter of 2021.

Look no further than AI and big tech firms, which are doing much of the heavy lifting. For example, the so-called “Magnificent 7” mega-cap companies posted a striking year-over-year profit increase of more than 60% in Q1, according to FactSet.

In addition, massive spending on AI, semiconductors, and the cloud is translating into a profit boom for many firms tied to the sector.

But it’s not simply the Magnificent 7. Outside this select group, the remaining S&P 500 companies sported an impressive 17% rise in first-quarter earnings. Additionally, analysts have lifted profit estimates for the remainder of the year.

It’s been a powerful set of factors, including:

• AI-driven growth (especially in mega-cap tech)
• Improved margins
• Resilient demand
• Widespread earnings beats

Think of it this way: If you were to purchase a privately held business, current and expected profitability will play a big role in what you might pay for that business.

While other factors come into play, too (such as the industry and interest rates), the same concept holds true for publicly traded companies.

I trust you found this review to be insightful. If you have any questions or simply want to talk through your portfolio or other financial goals, please don’t hesitate to reach out to me or anyone on our team.

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