May 26, 2026

Happy Memorial Day!

Our nation owes a debt to its fallen heroes that we can never fully repay, but we can honor their sacrifice.”

Albert Einstein

As we take a pause to remember those who made our life in the United States possible, we have much to remember and celebrate. Here are the numbers on another positive week. The S&P 500 gained .79%, the Dow Jones Industrial Average led up 2.22%, the Nasdaq added .21%. Internationally a strong week with the FTSE 100 recovering, up 2.22, and the MSCI-EAFE added 1.75%. The 2- Year treasury paid 4.123% and the 10-Year yield was 4.558%.

So, what is the good news? The Dow Jones Industrial Average rose 294 points, or 0.6%, to a record, while the S&P 500 added 0.4% putting it up for eight straight weeks. The Nasdaq Composite ended the day 0.2% higher. There wasn’t much in the way of earnings reports on Friday, but investors were still buoyed by the swell from earlier this week. Overall, it was relatively quiet last Friday ahead of the unofficial start of summer. Investors are still riding the wave of strong earnings, with tech taking a starring role once again. Risk appetite firmed up last Friday, lifting the Dow to a fresh record and capping a choppy week that began with the 10-year yield pressing one-year highs. As Barron Teresa Rivas writes “The central tension stayed familiar: AI CapEx momentum and reviving risk sentiment pushing against rates and geopolitical overhang. Leadership concentrated in AI infrastructure and quality cyclicals, with defensives lagging.  The swing factor was diplomatic. Reports of progress in U.S.-Iran negotiations cooled crude after midweek volatility and let Treasury yields ease, lifting inflation-sensitive sectors that had been pressured earlier.”

Investors don’t expect the party to stop either. Consensus bottom-up earnings estimates for the S&P 500 jumped more than 10% in the past three months, at one of the fastest rates in the past two decades, UBS’ Mark Haefele highlights, four semiconductor companies plus the energy sector account for more than 50% of that rise. Wall Street continues to overlook consumers’ woes, with sentiment falling to another fresh low on Friday.

Speaking of the new Federal Reserve Chairman, upon Kevin Warsh taking over the reins, President Trump made a very public point to encourage the new Fed chair to act independently using his best judgement. The Federal Reserve isn’t going to reduce borrowing costs any time soon because of resurgent inflation, but a rate hike is also off the table for now as the new regime gets underway. The state of the U.S. economy itself suggests a wait-and-see approach for the Fed.

Why? Inflation still lingers, the effect of higher gasoline prices, combined with the residue of the Trump tariffs, has pushed up the rate of U.S. inflation to 3.8% as of April, the consumer price index showed. However, the Iran conflict could end soon and cause oil prices to fall sharply. Inflation would also begin to taper off. As the media hopes you do not remember the last administration’s 9.1% inflation rate.

For now, we watch and wait for the next move in Iran, the administration is betting on the resolution of the conflict and the inflation effects to work its way into the economy, but more importantly the political climate before the mid terms in November. The reason is obvious as The University of Michigan consumer sentiment index for May was revised down to 44.8, the lowest reading on record, its third straight month of declines as Americans fret about the cost of living. When the war ends, the Strait of Hormuz opens and world oil prices drop, Inflation should also rapidly decline. Other than that, all the economic figures, including GDP growth, show a very strong economy. Once inflation subsides, interest rates finally fall and the housing market recovers, the affordability talking point will lose its luster. November is still an eternity away in political terms. In the meantime, as the media harps on any short-term negative news be well to remember what Mark Twain famously said, “Statistics don’t lie. People do.”

In the Bond market, after bottoming near historic lows in 2020–2021, G7 10-year government bond yields have climbed back to roughly 4.5–5% – levels not seen since the mid-2000s. This sustained rise reflects a fundamental shift in the macro backdrop: persistent inflation, tighter monetary policy, and growing concern over sovereign debt levels across major economies. Higher yields signal that markets are pricing in a “higher for longer” rate environment, which raises borrowing costs for governments, businesses, and consumers alike – acting as a potential drag on economic growth.

Finally, Mortgage rates are at their highest level since last August. Not good news for first time home buyers, It appears relief is still over the horizon.

Have a great holiday.

Mike