STOCK MARKET RECAP MAY 2026

The trend in stock prices has continued upward over the last month.  After the decline in March, the S&P 500 has climbed 17% and the Nasdaq has climbed 26%.

All the major market indices reached new all-time highs last Thursday the 14^th and are still hovering near those levels. Stocks have fallen slightly over the last week.

At the beginning of April, Wall Street began to look past the situation in the Middle East. Even though the Strait of Hormuz is still closed, the market is expecting it to open very soon.  Oil prices remain high, but the expectation is that they will fall rapidly once the Strait is reopened.

When we look at the wider trend since last October, we were stuck in a flat cycle until early March.  It then looked like the trend broke in a downward move – only to be reversed by the latest move higher in April. The tech sector (see Nasdaq in the graph) has been leading the recent increase in stock prices.

I expect continued volatility until ships can traverse the Strait freely.  The stock market does not care about the war, only the movement of oil and other products through the Strait. 

The Middle East risks still boil down to the price of oil and its impact on inflation and interest rates.  If the commodity supply issues continue, the potential for a bigger impact on the economy increases.

Oil is hovering around $100 per barrel – down from the peak of $115 but still 80% higher than it was in January.  Interest rates are up about 10% this year but still in the same range they have been in the last three years.

Bullishness about corporate earnings is driving the stock market higher.  Corporate earnings saw above average increases last year and the market is expecting even higher profit growth in 2026. 

Tech stocks have led the recent stock market rally.  Semiconductor stocks are up 50% this year – a huge move in a short period of time.

The expected interest rate adjustments from the Fed have changed significantly in the last three months. Previously, the market was expecting one or two rate cuts this year from the Fed. Due to inflationary pressures, the market is now expecting one or two rate increases.

SUMMARY

This is an unusual time in the financial markets.  There are some extremely positive data points – very high corporate profit growth, AI advancements, massive spending on AI infrastructure, and strong consumer spending for affluent consumers.  We also have some very negative factors to consider – high energy prices, rising inflation, rising interest rates, strained middle class consumers, no help from the Fed, and increasing risks of recession. 

The negative forces are all tied to the Strait of Hormuz.  This is why conflicting and changing news reports regarding the Iran situation are distorting market forces more than usual. 

Rather than pay attention to the questionable news reports, it makes more sense at this point to pay attention to the price of oil and the direction of interest rates. 

Stay Disciplined My Friends,

Phil

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