Commentary
Last week's economic data releases were about as consistent as a social media thread about the economy that somehow ends with 200 people in a heated argument about whether pineapple belongs on pizza, while the original question sits unanswered at the top with 4,000 upvotes.
- U.S. stocks finished higher, although they faded off their best levels, like a party that was fun until someone brought up politics. The S&P 500 Index notched its eighth consecutive weekly gain (its longest winning streak since 2023) and ended the day within 0.3% of its all-time closing high. Utilities, health care, and real estate led while communication services, consumer staples, and energy lagged. Small caps outperformed large caps and value beat growth.
- Stocks outside the U.S. had a good week. International developed stocks advanced, while emerging market stocks were choppier: South Korea gained 4.7% and Indonesia fell by 8.8%.
- U.S. Treasury yields were mixed. The 30-year Treasury yield hit 5.18%—its highest level since 2007—before ending the week at 5.07%. The 10-year Treasury yield finished at 4.56%, its highest level in 12 months (bond prices and yields have an inverse relationship). Several events drove the moves: Moody’s downgrade of U.S. credit from Aaa to Aa1; Fed minutes that confirmed policymakers are both considering holding rates steady for longer than previously expected and potentially hiking if inflation persists; and a record-low consumer sentiment reading.
- Commodities and currencies: Crude oil ended the week at $96.60 a barrel, down from $104—which sounds like good news until you remember it was $57 on January 1. The U.S. dollar was essentially flat.
- The Philadelphia Fed Manufacturing Index dropped 27.1 points to negative 0.4, the lowest reading of the year, against a forecast of 17.6. That's not a miss. It’s the economic equivalent of a software update that promised to fix your phone’s battery life, installed at 3 a.m. without asking, and now your phone won't turn on. Meanwhile, the S&P Global Flash Manufacturing Purchasing Managers’ Index rose to 55.3 in May, up from 54.5 in April, the strongest expansion since May 2022. So, depending on which survey you're reading, manufacturing is either thriving or cratering. Pick one.
- Single-family housing starts dropped by 9% in April, the biggest monthly decline in almost a year. The housing market is why your adult kids are still on your phone plan. And that's not changing anytime soon.
- Initial jobless claims for the week ending May 16 fell by 3,000 to 209,000. People have jobs. They just can't afford the gas to get there.
- The University of Michigan Consumer Sentiment Index’s final May reading was 44.8, the lowest in its 74-year history. Fifty-seven percent of consumers spontaneously mentioned high prices eroding their finances, up from 50% in April. The Strait of Hormuz situation has pushed gas prices to levels that have people feeling nostalgic for 2022. Long-run inflation expectations jumped from 3.4% in February to 3.9%. This is the data point most likely to have new Fed Chair Kevin Warsh searching “what did Volcker actually do?” at 2 a.m.
Earnings
- 1Q26 earnings season is almost over. 94% of S&P 500 companies have reported. Earnings are up 29% year over year and 84% beat estimates. The Magnificent Seven stocks posted 63% earnings growth (versus 17% for the rest of the index). Same S&P 500, different zip codes.