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Assessing the Sustainability of the Record-High Rally

Technical Take on the Record-High Rally

Adam Turnquist | Chief Technical Strategist
Last Updated: May 28, 2026

Risk appetite remains firmly intact as optimism surrounding a potential resolution to the war with Iran continues to improve investor sentiment. The S&P 500 has now advanced for eight consecutive weeks, with price action remaining remarkably resilient throughout the recovery. Since bottoming on March 30, the index has gained roughly 18% over just 39 trading sessions, producing an average daily gain of more than 0.8% while experiencing a maximum drawdown of only 1.2% during the advance. While easing geopolitical tensions and an ongoing ceasefire framework have provided a major catalyst for the rally, strong corporate earnings have also played a critical role in sustaining momentum.

According to LPL Chief Equity Strategist Jeffrey Buchbinder, first-quarter S&P 500 earnings growth is currently tracking near 28% year over year. The Magnificent Seven accounted for more than 15 percentage points of that growth, though the remaining “S&P 493” are still expected to deliver earnings growth near 20%, highlighting that underlying fundamentals outside of mega cap technology remain healthy.

From a technical perspective, the S&P 500 regained momentum quickly after gapping above its 200-day moving average (dma) in April and has since moved decisively to new record highs above the 7,000-point milestone. Momentum indicators continue to confirm the bullish trend, although several measures are now approaching short-term overbought territory following the magnitude and speed of the advance.

Market breadth, however, remains a more cautious part of the recovery story. Breadth indicators have diverged from price action over the last month, suggesting participation beneath the surface has not fully kept pace with the index-level rally. Currently, only about 60% of S&P 500 constituents are trading above their 200-dma, below the historical average of roughly 73% typically seen when the index is making new highs. Still, narrow breadth has not prevented this large cap-led bull market from extending higher, as periods of concentrated leadership have often been followed by broader sector and style rotations once mega cap momentum begins to cool.

A similar pattern unfolded last year when large cap technology stocks led the market sharply higher off the April lows before eventually consolidating as leadership broadened into value stocks, small caps, and other cyclical areas of the market last fall. The current environment appears to be following a comparable script, with mega cap technology and semiconductor-related names once again carrying much of the market through major resistance levels.

Technology leadership remains exceptionally strong, with the sector continuing to reach new highs on both an absolute and relative basis. However, increasingly stretched momentum conditions and elevated positioning suggest the rally may be becoming more vulnerable to short-term consolidation. Semiconductor and memory-related stocks have experienced parabolic advances since the March lows, with several momentum indicators reaching historically elevated levels. While overbought conditions alone are not necessarily bearish, the probability of near-term profit taking or rotational activity appears to be rising as investor positioning becomes increasingly crowded.

Records on Repeat for the Broader Market

Source: LPL Research, Bloomberg 05/27/26
Disclosures: Past performance is no guarantee of future results. All indexes are unmanaged and cannot be invested in directly.

Internal Outperformance

Another way to assess participation is to analyze how many stocks are outperforming the broader index. As the rotation from last fall gained traction into 2026, just over two-thirds of S&P 500 constituents were outperforming the index on the year in mid-February. Historically, that level has represented the upper end of participation breadth over the last two decades in our dataset.

Since then, leadership has rotated back toward growth and big tech, driving the percentage of stocks outperforming the index down to roughly 33% earlier this month. That level is approaching a historically narrow participation extreme, which has often preceded broader market rotations. In fact, following the previous seven instances where internal outperformance reached similarly depressed levels, large cap value and small cap stocks outperformed both large cap growth and the broader S&P 500 over the subsequent one-, three-, and six-month periods.

Historically Narrow Leadership May Be Setting the Stage for Rotation

Source: LPL Research, FactSet 05/26/26
Disclosures: Past performance is no guarantee of future results. All indexes are unmanaged and cannot be invested in directly.

Conclusion

The S&P 500 continues to exhibit strong momentum, supported by growing optimism surrounding a resolution to the conflict with Iran and the eventual reopening of the Strait of Hormuz. Corporate earnings have provided another important tailwind, particularly within large cap technology, where strong results continue to reinforce the longer-term artificial intelligence growth narrative. At the same time, increasingly stretched momentum conditions are beginning to emerge following the market’s largely one-way advance, especially across semiconductor and memory-related stocks that have experienced parabolic moves higher in recent months.

Investor sentiment and positioning within the technology space have also become increasingly crowded from a contrarian perspective, leaving us somewhat cautious over the near term as the probability of consolidation or a pullback appears elevated. Longer term, we remain constructive on the secular bull market backdrop but recognize market advances rarely unfold in such a linear fashion. In addition, historically low levels of internal outperformance continue to suggest the potential for a broader rotation away from concentrated large cap growth leadership and into other areas of the market.

Important Disclosures

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors. To determine which investment(s) may be appropriate for you, please consult your financial professional prior to investing.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk.

Indexes are unmanaged and cannot be invested into directly. Index performance is not indicative of the performance of any investment and does not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

This material was prepared by LPL Financial, LLC. All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.

Unless otherwise stated LPL Financial and the third party persons and firms mentioned are not affiliates of each other and make no representation with respect to each other. Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services.

Asset Class Disclosures –

International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.

Bonds are subject to market and interest rate risk if sold prior to maturity.

Municipal bonds are subject and market and interest rate risk and potentially capital gains tax if sold prior to maturity. Interest income may be subject to the alternative minimum tax. Municipal bonds are federally tax-free but other state and local taxes may apply.

Preferred stock dividends are paid at the discretion of the issuing company. Preferred stocks are subject to interest rate and credit risk. They may be subject to a call features.

Alternative investments may not be suitable for all investors and involve special risks such as leveraging the investment, potential adverse market forces, regulatory changes and potentially illiquidity. The strategies employed in the management of alternative investments may accelerate the velocity of potential losses.

Mortgage backed securities are subject to credit, default, prepayment, extension, market and interest rate risk.

High yield/junk bonds (grade BB or below) are below investment grade securities, and are subject to higher interest rate, credit, and liquidity risks than those graded BBB and above. They generally should be part of a diversified portfolio for sophisticated investors.

Precious metal investing involves greater fluctuation and potential for losses.

The fast price swings of commodities will result in significant volatility in an investor’s holdings.

This research material has been prepared by LPL Financial LLC.

Not Insured by FDIC/NCUA or Any Other Government Agency | Not Bank/Credit Union Deposits or Obligations | Not Bank/Credit Union Guaranteed | May Lose Value

For Public Use – Tracking: #1115500

May 28, 2026
AI Capex Boom Fuels Corporate Bond Supply and Duration Risks

AI’s New Frontier: The Transformation of Investment-Grade Credit

May 26, 2026 | Lawrence Gillum

The artificial intelligence (AI) boom has transitioned from an equity market narrative to a defining force in fixed income. Hyperscalers (Amazon (AMZN), Alphabet (GOOG/L), Meta (META), Microsoft (MSFT), and Oracle (ORCL)) are shifting from internal cash flows to substantial bond issuance to fund massive data center, graphics processing unit (GPU), and power infrastructure buildouts. This marks a structural change in investment-grade (IG) credit supply, with important implications for duration, spreads, sector composition, and portfolio construction.

In 2025, the five major hyperscalers issued approximately $121 billion in U.S. corporate bonds, more than four times their 2020–2024 annual average of $28 billion. Early 2026 data show continued momentum, with projections for hyperscaler net supply rising 30–50% to $130–150 billion. Overall U.S. IG gross issuance is forecast to hit record levels between $1.8 trillion and $2.25 trillion, with AI-related deals representing a material share. Tech’s weighting in major IG benchmarks has already increased and now accounts for around 10% of the Bloomberg Corporate Bond Index, which is up from 9% in 2024.

This issuance is notably long dated, reflecting the multi-decade useful life of data centers and associated infrastructure. Wall Street estimates center on $300 billion in AI-related IG supply for 2026, potentially delivering $360 billion in 10-year duration equivalents. The result is incremental duration added to portfolios at a time when many investors already grapple with term premium dynamics and a potentially steepening yield curve.

From a credit perspective, the story remains fundamentally constructive. Hyperscalers maintain solid balance sheets, with post-issuance leverage often in the 0.4–0.7x range versus the IG average of near 3x. New-issue concessions have averaged around 12 basis points — wider than the broader market’s ~2.5 basis points — yet deals remain heavily oversubscribed, often 4x or more (meaning for every $1 of debt issuance, there has been $4 of demand). However, despite steady demand, credit spreads (the additional compensation above Treasury securities) have widened for the tech sector relative to the broader IG corporate bond index on issuance concerns. After largely trading in concert with the index, the tech sector has underperformed lately right as issuance started to pick up.

Tech Spreads Have Widened Relative to the Index on Issuance Concerns

Source: LPL Research, Bloomberg 05/26/26
Disclosures: All indexes are unmanaged and cannot be invested in directly. Past performance is no guarantee of future results.

That said, technical pressures are evident. Surging supply amid tight spreads risks modest widening, particularly if merger and acquisition (M&A) activity rebounds or refinancing waves coincide. Concentration risk is rising — the broader tech sector could exceed 12% of benchmarks (currently 10%), introducing greater equity-like correlation during periods of AI hype cycles or regulatory scrutiny.

The AI debt wave underscores a broader truth: innovation-driven capital expenditures (capex) are no longer confined to equity balance sheets. It is actively reshaping the IG universe, creating both challenges and compelling opportunities for those equipped to navigate the dispersion. While tech sector concentration within the broader corporate bond market will likely continue to rise, it is important to note that corporate bonds still represent only 24% of the Bloomberg Aggregate Bond Index. As such, tech concentration risk remains relatively modest within the broader fixed income market (less than 2.5%). And, with spreads still at historically low levels and total yields above long-term averages, the current environment favors income-oriented investors who can largely buy and hold bonds while harvesting coupon payments.

Important Disclosures

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors. To determine which investment(s) may be appropriate for you, please consult your financial professional prior to investing.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk.

Indexes are unmanaged and cannot be invested into directly. Index performance is not indicative of the performance of any investment and does not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

This material was prepared by LPL Financial, LLC. All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.

Unless otherwise stated LPL Financial and the third party persons and firms mentioned are not affiliates of each other and make no representation with respect to each other. Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services.

Asset Class Disclosures –

International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.

Bonds are subject to market and interest rate risk if sold prior to maturity.

Municipal bonds are subject and market and interest rate risk and potentially capital gains tax if sold prior to maturity. Interest income may be subject to the alternative minimum tax. Municipal bonds are federally tax-free but other state and local taxes may apply.

Preferred stock dividends are paid at the discretion of the issuing company. Preferred stocks are subject to interest rate and credit risk. They may be subject to a call features.

Alternative investments may not be suitable for all investors and involve special risks such as leveraging the investment, potential adverse market forces, regulatory changes and potentially illiquidity. The strategies employed in the management of alternative investments may accelerate the velocity of potential losses.

Mortgage backed securities are subject to credit, default, prepayment, extension, market and interest rate risk.

High yield/junk bonds (grade BB or below) are below investment grade securities, and are subject to higher interest rate, credit, and liquidity risks than those graded BBB and above. They generally should be part of a diversified portfolio for sophisticated investors.

Precious metal investing involves greater fluctuation and potential for losses.

The fast price swings of commodities will result in significant volatility in an investor’s holdings.

This research material has been prepared by LPL Financial LLC.

Not Insured by FDIC/NCUA or Any Other Government Agency | Not Bank/Credit Union Deposits or Obligations | Not Bank/Credit Union Guaranteed | May Lose Value

For Public Use – Tracking: #1114528

May 26, 2026
Weekly Market Commentary | Seeds of Opportunity: The Case for Agriculture Investments | May 26, 2026
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Commodity market trends: Commodity markets have been on an impressive, and volatile, run so far this decade, with leadership oscillating between energy and precious metals. Not surprising, after commodities’ “Lost Decade” of the 2010s, given the asset class tends to move in long capital cycles.

Shift to Agriculture: LPL Research has written plenty on precious metals and energy and holds positive views on each. However, the focus this week is on a corner of the commodity complex that is just starting to break out and catch our attention — agriculture.

Supply constraints and geopolitics: Constraints in the supply of fertilizer inputs, and how it may impact the
agricultural commodity market, are one of the many impacts that investors have been paying attention to since the Strait of Hormuz closed.

Historical analysis: In this week’s Weekly Market Commentary, LPL Research presents an overview of the agriculture market, including historical analysis of the prior two commodity cycles and the environments when agricultural commodity and equity performance have converged and diverged.

Agriculture Commodities: Then and Now

At the start of the 21st century (approximately 2002–2012), commodities broadly went through a massive investment cycle. Given the cycle drove run-ups in the price of most every commodity market, including both agricultural and non-agricultural commodities, this cycle is commonly referred to as a commodity “super-cycle.” This period was powered by increased demand for commodities broadly from emerging markets, primarily China’s rapid industrialization and urbanization at the time. Increased demand drove prices higher, as the supply impulse couldn’t respond quickly enough. However, in typical cyclical industry fashion, that supply response did eventually come, creating a “Lost Decade” (approximately 2012–2020) for commodity price performance. The incremental global supply that came to market coincided with several headwinds, creating a “double whammy” for commodity markets broadly. Those headwinds included: decelerating growth from China; a stronger dollar; lower energy costs from the U.S. shale boom; and waning institutional investor interest in commodity investments. Additional headwinds, specific to agriculture, include technological advances in farming and some of the best growing conditions seen in a century. The “Commodity ‘Super-Cycle’ and ‘Lost Decade’ Defined First Two Decades of 21st Century” chart illustrates cumulative returns for agricultural commodities during these periods.

Agricultural (Ag) commodities typically do not receive the level of press coverage as energy or precious metals, and the performance of ag commodities has slightly lagged behind them. However, the post-COVID-19 performance has certainly been strong enough to declare that the “Lost Decade” for the commodity complex writ large is over. Cumulative performance of the three commodity segments, as well as a broad index of commodities, is illustrated in the “Commodity Markets Recover in the 2020s (April 2020–May 20, 2026)” chart.

Which brings us to 2026 and the Strait of Hormuz. The Iran war and subsequent closure of the Strait have impacted global trade flows in ways that investors are still trying to ascertain. One of the knock-on effects of the constrained waterway is the supply of various inputs for fertilizer; approximately 20–30% of global fertilizer exports transit the Strait in normal times, including meaningful shares of urea (~34%), ammonia (~23%), phosphates (~20%), and sulfur (~45%). Nitrogen and phosphate fertilizers are foundational inputs for grain production, therefore a sustained disruption raises the risk that farmers reduce application rates, switch acreage toward less fertilizer-intensive crops (from corn to soybeans, for example), or accept lower yield potential. This results in a lagged transmission to agricultural commodities, where fertilizer prices move first, planting decisions adjust, and grain prices respond as yield risk becomes visible. Despite the recent move in agriculture futures, the move is less pronounced than energy, as Ag markets tend to price visible inventory and weather risk faster than input-cost-driven yield risk.

The Agribusiness Industry: The Business of Agriculture\

Companies participating across the value chain of agricultural production are collectively members of the agribusiness industry, and the industry’s publicly traded shares are known as agribusiness equities. This group of companies participate in a broad range of activities and therefore should not be seen as simple proxies for corn, soybeans, wheat, cattle, or fertilizer prices. These are operating businesses whose economics are tied to commodity cycles through volumes, spreads, farmer income, asset utilization, working capital, and capital allocation. For simplicity, we provide a high-level segmentation of the industry, namely commodity producers, enablers, and spread businesses.
- Commodity producers have the most intuitive commodity exposure. A farmland owner, specialty crop grower, cattle producer, or egg producer is closer to the physical commodity. Examples of producers include Fresh Del Monte Produce (produce grower /distributor) and Cal-Maine Foods (egg producer).
- Commodity enablers sell the tools farmers need to produce crops, such as capital equipment (tractors, combines, and other machinery), seed, chemicals, fertilizer, irrigation, and agronomy services. These companies generally benefit when farmer economics are strong, but they are one step removed from the commodity. Examples of enablers include Deere (farm equipment manufacturing) and Corteva (seed and crop-protection).
- Commodity spread businesses are the least intuitive but often the most important part of public agribusiness. They are grain merchants and processors and may benefit from higher volatility, strong export flows, basis dislocations (a divergence between cash prices and futures), even if crop prices themselves are flat or falling. Thus, equities of spread businesses can behave very differently from agricultural commodity futures. Examples of spread businesses include Archer-Daniels-Midland and Bunge Global.
An important point for investors to keep in mind when analyzing the differences between agricultural commodities and agribusiness equities is that while the equities are exposed to commodity prices and cycles in various ways, they ultimately create (or destroy) shareholder value based on how well they run their respective businesses. Businesses make countless decisions that drive value creation that a bushel of wheat, for example, will never have to make. Said another way, buying commodities is generally a direct expression of supply/demand dynamics in the underlying commodities, while buying agribusiness equities is a call on how companies convert those commodity conditions into earnings and cash flow. This nuance presents itself clearly when analyzing the performance of each asset class over long periods of time.

In the “Agribusiness Equities Outperformed Agriculture Commodities in “Lost Decade”; Have Lagged in Current Cycle” chart, we plot indexed monthly cumulative performance of the equities (represented by the MVIS Global Agribusiness Index) against the commodities (represented by the Deutsche Bank DBIQ Diversified Agriculture Index). The chart indexes the performance series at 100 as of April 30, 2020, which is the point in time we designate as the end of the “Lost Decade” cycle and start of the current cycle. In the “Lost Decade” period, equities proved more resilient, producing slightly positive cumulative returns of ~30%. In the last six years, agricultural commodities have outperformed agribusiness equities. Combining these two periods demonstrates the power of compounding, and the struggle of digging out of a drawdown; despite the underperformance during the current cycle, over the entire timeseries the equity index has outperformed the commodity index by over 100%.

Commodities and Stocks: Convergence and Divergence

How similar should investors expect equities to perform relative to the underlying commodities the businesses are exposed to? The key point to remember is agribusiness equities and agricultural commodities can converge when the market is repricing scarcity, but they often diverge when the question shifts from commodity price direction to how individual companies convert the agricultural cycle into earnings and free cash flow.

The relationship between agribusiness equities and agricultural commodities has been regime dependent. During the latter years of the last commodity “super-cycle” (2007-2012), the two asset’s returns displayed above average correlations (correlation coefficient is a statistical measure of how similarly two data series move), particularly during the 2007–2008 commodity surge, and the 2010–2012 food-price rally and U.S. drought. A similar backdrop has unfolded in the current decade, with the post-COVID-19 and Russia/Ukraine war driven supply shocks again driving above-average correlations. These periods of higher correlations can be explained by rising agricultural prices improving the revenue and earnings backdrop for agribusiness companies. Said differently: the commodity signal was large enough to overwhelm business-model differences.

In between those two periods, which took place primarily during the commodity “Lost Decade,” the relationship was much looser. The 2013–2019 period showed oscillating, unstable correlations as agricultural commodities were pressured by strong supply growth, large harvests, a stronger U.S. dollar, and weaker emerging-market demand, while agribusiness equities were increasingly driven by corporate variables such as equipment replacement cycles, seed and chemical pricing, processing margins, mergers & acquisitions (M&A), and broader equity-market beta.

Note: This correlation analysis was initially published in the May 2026 issue of Beyond the Numbers, and includes additional insights and visual support.

Carrying this analysis forward to today, one could reasonably expect to see the correlation between agriculture commodities and agribusiness equities remain elevated, as the market prices supply uncertainty, with a bias toward scarcity as opposed to abundance as geopolitical driven supply disruptions are likely to continue in an increasingly multi-polar world. However, we remind investors that equities will discount cash flows far into the future, while in the short-term agricultural commodities will tend to move on variables like visible inventory and weather risk. Therefore, we expect equity performance to diverge from commodities for brief periods within a given regime.

Conclusion and Asset Allocation Insights

Agriculture has spent much of the 2020s outside the spotlight occupied by energy and precious metals, but that may be changing. The combination of geopolitical disruption, fertilizer supply risk, a potentially weaker U.S. dollar, and renewed concerns around global food supply creates a more constructive backdrop for agricultural commodities. While the transmission from fertilizer constraints to crop prices can be lagged, the market appears to be moving from an environment defined by abundance toward one increasingly shaped by scarcity risk.

For investors, the opportunity set is broader than simply buying agricultural futures. We believe commodities offer the cleanest exposure to supply and demand, inflation sensitivity, and near-term price risk, while agribusiness equities offer exposure to operating leverage, margins, capital allocation, dividends, and business-model execution. History shows these two asset classes can converge during commodity shocks but diverge when corporate fundamentals matter more than the direction of crop prices, though past performance does not guarantee future results. As a result, investors should view agricultural commodities and agribusiness equities as complementary tools for expressing a view on the agriculture cycle.

Investors seeking focused equity exposure to agricultural commodities should look toward selected individual companies in the agribusiness industry, which primarily reside within the materials, industrials, and consumer staples sectors. The LPL Research Strategic and Tactical Asset Allocation Committee (STAAC) holds a positive outlook on the industrials sector, and a neutral outlook for both the materials and consumer staples sectors. Investors can also seek dedicated exposure to the agribusiness industry via thematic allocation strategies. The STAAC maintains a neutral view on Agriculture (Ag) & Livestock commodities and acknowledges the technical backdrop of the space is improving.

Important Disclosures

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.

References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities.

All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

All investing involves risk, including possible loss of principal.

US Treasuries may be considered “safe haven” investments but do carry some degree of risk including interest rate, credit, and market risk. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.

The Standard & Poor’s 500 Index (S&P500) is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

The PE ratio (price-to-earnings ratio) is a measure of the price paid for a share relative to the annual net income or profit earned by the firm per share. It is a financial ratio used for valuation: a higher PE ratio means that investors are paying more for each unit of net income, so the stock is more expensive compared to one with lower PE ratio.

Earnings per share (EPS) is the portion of a company’s profit allocated to each outstanding share of common stock. EPS serves as an indicator of a company’s profitability. Earnings per share is generally considered to be the single most important variable in determining a share’s price. It is also a major component used to calculate the price-to-earnings valuation ratio.

All index data from FactSet or Bloomberg. All index data from FactSet or Bloomberg.

This research material has been prepared by LPL Financial LLC.

Not Insured by FDIC/NCUA or Any Other Government Agency | Not Bank/Credit Union Guaranteed | Not Bank/Credit Union Deposits or Obligations| May Lose Value

For public use.
Member FINRA/SIPC.
Tracking #1113960 | #1113962 (Exp. 05/2027)
May 26, 2026

Weekly Market Performance | May 22, 2026

May 22, 2026 | LPL Research

LPL Research provides its Weekly Market Performance for the week of May 18, 2026.

Stock Index Performance

Index	Week-Ending	One Month	Year to Date
S&P 500	1.12%	4.96%	9.44%
Dow Jones Industrial	2.37%	2.44%	5.48%
Nasdaq Composite	0.73%	7.13%	13.66%
Russell 2000	2.84%	3.14%	15.75%
MSCI EAFE	2.48%	2.23%	8.55%
MSCI EM	1.74%	4.46%	21.01%

S&P 500 Index Sectors

Sector	Week-Ending	One Month	Year to Date
Materials	0.28%	-3.00%	10.20%
Utilities	3.25%	0.70%	5.83%
Industrials	0.49%	0.60%	10.94%
Consumer Staples	-0.96%	2.52%	10.12%
Real Estate	3.18%	2.51%	11.08%
Health Care	3.44%	2.41%	-3.27%
Financials	1.71%	-0.52%	-5.24%
Consumer Discretionary	2.28%	1.70%	2.69%
Information Technology	1.25%	10.80%	18.49%
Communication Services	-1.62%	4.39%	9.30%
Energy	-0.47%	4.34%	31.40%

Fixed Income and Commodities

Indexes and Commodities	Week-Ending	One Month	Year to Date
Bloomberg U.S. Aggregate	0.29%	-0.99%	-0.42%
Bloomberg Credit	0.30%	-0.89%	-0.31%
Bloomberg Munis	-0.40%	-1.14%	0.19%
Bloomberg High Yield	0.18%	-0.28%	1.06%
Oil	-8.70%	3.54%	67.62%
Natural Gas	-1.62%	6.98%	-21.00%
Gold	-0.57%	-4.76%	4.51%
Silver	-0.08%	-2.29%	5.95%

Source: LPL Research, Bloomberg 5/22/26 @3:15 p.m. ET
Disclosures: Indexes are unmanaged and cannot be invested in directly.

U.S. and International Equities

Global equity markets finished the week higher after rebounding from early declines, supported by easing geopolitical tensions, lower interest rates, and another solid round of corporate earnings. International developed markets outperformed, with the MSCI EAFE Index gaining more than 2%, while emerging markets advanced over 1.5%. The S&P 500 rose 1%, extending its winning streak to eight consecutive weeks, its longest stretch of weekly gains since 2023.

Investor sentiment improved as optimism surrounding a potential agreement between the U.S. and Iran helped reduce geopolitical concerns. Reports indicating progress on the latest peace proposal, combined with a pullback in both Treasury yields and oil prices, provided additional support for broader risk assets.

On the policy front, Kevin Warsh was officially sworn in as the new Chair of the Federal Reserve (Fed) on Friday. Warsh takes over an increasingly divided Fed, with minutes from the April Federal Open Market Committee meeting revealing a more hawkish tone among policymakers. The minutes showed that “many” participants favored removing the easing bias from the Fed’s policy statement as inflation risks remain elevated.

U.S. Equities: Momentum continued this week for U.S. equities, with the S&P 500 finishing the week back near record-high territory. Buying pressure was broad, as advancing shares on the index outpaced decliners by around 3:1. Small caps outperformed, with the Russell 2000 rallying nearly 3% and finishing the week just below its early May high. Hope for a continued path toward deescalation with Iran, stabilizing interest rates, and continued earnings strength supported risk appetite. S&P 500 earnings growth is tracking near 30% for the first quarter, materially ahead of expectations entering reporting season. Performance has once again been heavily influenced by mega-caps. The “Magnificent Seven” delivered earnings growth of roughly 63% during the quarter, accounting for more than half of the S&P 500’s total earnings growth. Still, strength beneath the surface has been better than many appreciate, with the remaining S&P 493 generating a solid 17% earnings growth rate this quarter, according to FactSet.

NVIDIA (NVDA) remained a primary market focus after delivering another strong beat-and-raise quarter, with management highlighting “parabolic” demand tied to AI infrastructure spending. The results reinforced confidence in the secular AI growth theme that continues to drive leadership within large-cap technology.

Retail earnings also drew attention this week following results from Walmart (WMT) and Target (TGT), where management commentary pointed to growing concerns around the durability of lower-income consumer spending trends.

International Equities: International equity markets moved higher this week, led by developed markets as easing geopolitical concerns and lower global interest rates supported risk sentiment. The MSCI EAFE Index gained roughly 2.5% amid growing optimism surrounding a potential Middle East peace agreement. In Europe, the STOXX Europe 600 posted gains in all five trading sessions and advanced 3%, while Germany’s DAX climbed nearly 4% on the back of solid earnings results and improving consumer and business confidence. Japan’s Nikkei 225 recovered from sharp losses earlier in the week to finish up 3%, supported by softer-than-expected inflation data and a decline in Japanese government bond yields. China lagged broader international markets, with the Shanghai Composite slipping 0.5% amid ongoing concerns surrounding domestic growth and uneven economic momentum.

Fixed Income, Currency, and Commodity Markets

Fixed Income: Core bonds, as measured by the Bloomberg Aggregate Index, were slightly higher on the week, with Treasury yield declines as the primary driver of returns. Investment-grade credit spreads were marginally higher on the week but remain at very low levels.

As discussed in this week’s LPL Market Signals, global bond markets have faced several headwinds since the onset of the Iran conflict. These include rising inflation expectations, higher term premia, a repricing higher in monetary policy rate expectations, and — particularly in the U.K. — an increase in political risk premia. As a result, 10-year developed market yields have risen by roughly 40–60 basis points, with U.K. gilts leading the move higher (+66 bps). In the U.S., the primary driver of higher yields has been an increase in real yields (as reflected in Treasury Inflation-Protected Securities, or TIPS), driven by a repricing of Fed rate expectations. Markets are currently pricing in approximately a 50% probability of two rate hikes over the next 12 months. This week’s FOMC meeting minutes struck a hawkish tone; however, we believe the hurdle for additional rate hikes is higher than the Fed simply maintaining its current policy stance — absent a meaningful unanchoring of inflation expectations, which we have not yet observed. As a result, real yields are now at their highest levels in decades, with the 10-year TIPS yield at 2.14% and the 30-year TIPS yield at 2.84%. TIPS are U.S. government bonds designed to preserve purchasing power, as their principal adjusts with inflation. Investors therefore earn a return tied to CPI increases plus a fixed real yield. In effect, regardless of the path of inflation, investors locking in these securities today can expect to earn approximately 2.14% and 2.84% in real terms over the next 10- and 30-year periods, respectively. For investors seeking inflation protection, current yields are elevated relative to historical levels, offering both explicit protection against inflation surprises and attractive real carry.

Commodities and Currencies: The broader commodity complex moved lower this week, pressured primarily by weakness in energy markets as geopolitical headlines surrounding Iran shifted modestly toward de-escalation. President Trump postponed planned strikes on Iran earlier in the week to allow additional diplomatic negotiations to take place. Still, uncertainty remained elevated amid reports of a proposed Iran-Oman toll arrangement through the Strait of Hormuz, Iran’s resistance to transferring enriched uranium out of the country, and renewed concerns following a strike on a United Arab Emirates nuclear facility, all of which raised questions about the durability of any potential peace agreement.

Brent crude declined roughly 5% on the week but continued to hold above key technical support near $98. Precious metals also weakened as markets increasingly priced in the possibility of a Fed rate hike later this year. Platinum and palladium underperformed in metals, while gold slipped less than 0.5%. Industrial metals were firmer overall, led by a 1.5% gain in copper as ongoing supply concerns continued to support prices.

Agricultural commodities outperformed, with corn, wheat, and soybeans each advancing more than 1%. Fertilizer shortages tied to the effective closure of the Strait of Hormuz have further tightened supply conditions across the agriculture sector, particularly during a critical period for North American crop production.

Meanwhile, the U.S. dollar finished little changed on the week and continued to diverge from rising interest rates. Structural pressures, including central bank diversification away from the dollar, shifting global monetary policy expectations, and concerns surrounding the U.S. fiscal outlook, have continued to weigh on the currency despite elevated Treasury yields.

Economic Weekly Roundup

The economic calendar was relatively light this week, with the April FOMC meeting minutes (Wednesday), University of Michigan survey data (Friday), and the official swearing in of Kevin Warsh as the new Fed Chair (Friday) highlighting the week.

According to the minutes to the FOMC’s April meeting, which was generally perceived as hawkish, FOMC “participants generally” judged that elevated inflation could require keeping the fed funds rate unchanged for longer than they had previously anticipated. Market-implied expectations for the fed funds rate at the end of 2026 were roughly unchanged following the release of the minutes. Markets have priced in one full rate hike in 2026.

Friday’s University of Michigan surveys again noted that inflation and the broader cost of living continue to be first-order concerns. The report also mentioned that “consumers appear worried that inflation will increase and proliferate beyond fuel prices, even in the long run.”

Finally, also on Friday, Warsh was sworn in and will become the 17^th Fed Chair in its history (11^th in the post 1935 Banking Act era). Warsh has noted that he wants to bring “regime change” to the central bank, including shrinking the Fed’s $6.7 trillion balance sheet, establishing a new framework for analyzing inflation, and changing how the institution communicates with the public. Most of his intentions, however, require consensus approval.

The Week Ahead

The following economic data is slated for the week ahead:

Monday: Memorial Day Holiday, no economic releases scheduled
Tuesday: ADP Weekly Employment Change (May 9), Chicago Fed National Activity Index (Apr), Philadelphia Fed Non-Manufacturing Activity (May), FHFA House Price Index (Mar), House Price Purchase Index (1Q), S&P Case-Shiller 20-City and National House Price Indexes (Mar), Conference Board Consumer Confidence report (May), Dallas Fed Manufacturing Activity (May)
Wednesday: MBA Mortgage Applications (May 22), Richmond Fed Manufacturing Index and Business Conditions (May), Dallas Fed Services Activity (May)
Thursday: Personal Income and Spending (Apr), Headline and Core PCE Price Indexes (Apr), Real Personal Spending (Apr), Durable Goods Orders (Apr preliminary), Initial Jobless Claims (May 23), Capital Goods Orders and Shipments (Apr preliminary), Continuing Claims (May 16), GDP Annualized (1Q second reading), Personal Consumption (1Q second reading), Core PCE Price Index (1Q second reading), New Home Sales (Apr), Building Permits (Apr final)
Friday: Advance Goods Trade Balance (Apr), Retail Inventories (Apr), Wholesale Inventories (Apr preliminary), MNI Chicago PMI (May)

Important Disclosures

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors. To determine which investment(s) may be appropriate for you, please consult your financial professional prior to investing.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk.

Indexes are unmanaged and cannot be invested into directly. Index performance is not indicative of the performance of any investment and does not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

This material was prepared by LPL Financial, LLC. All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.

Unless otherwise stated LPL Financial and the third party persons and firms mentioned are not affiliates of each other and make no representation with respect to each other. Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services.

Asset Class Disclosures –

International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.

Bonds are subject to market and interest rate risk if sold prior to maturity.

Municipal bonds are subject and market and interest rate risk and potentially capital gains tax if sold prior to maturity. Interest income may be subject to the alternative minimum tax. Municipal bonds are federally tax-free but other state and local taxes may apply.

Preferred stock dividends are paid at the discretion of the issuing company. Preferred stocks are subject to interest rate and credit risk. They may be subject to a call features.

Alternative investments may not be suitable for all investors and involve special risks such as leveraging the investment, potential adverse market forces, regulatory changes and potentially illiquidity. The strategies employed in the management of alternative investments may accelerate the velocity of potential losses.

Mortgage backed securities are subject to credit, default, prepayment, extension, market and interest rate risk.

High yield/junk bonds (grade BB or below) are below investment grade securities, and are subject to higher interest rate, credit, and liquidity risks than those graded BBB and above. They generally should be part of a diversified portfolio for sophisticated investors.

Precious metal investing involves greater fluctuation and potential for losses.

The fast price swings of commodities will result in significant volatility in an investor’s holdings.

This research material has been prepared by LPL Financial LLC.

Not Insured by FDIC/NCUA or Any Other Government Agency | Not Bank/Credit Union Deposits or Obligations | Not Bank/Credit Union Guaranteed | May Lose Value

For Public Use – Tracking: #1114245

May 22, 2026

Why AI Efficiency May Boost Labor Demand

How AI May Increase Jobs, Not Replace Them

Dr. Jeffrey Roach | Chief Economist
Last Updated: May 21, 2026

From the April payroll report released on May 8, we realize that not all industries are equally impacted by AI. Diagnostic imaging centers, an area where AI is thought to replace humans, have increased demand for workers, whereas bookkeeping demand has declined in recent years. William Jevons, a British economist born in the same town as the Beatles but less famous, explained that increased efficiencies may spark additional demand and that this concept may help us understand the potential AI impacts on the job market.

The Jevons paradox suggests that when technology makes the use of a resource more efficient, demand for that resource can rise rather than fall because lower costs unlock new uses and broader adoption. Applied to AI and the labor market, this means AI may reduce the time and cost required to perform many tasks, but that does not necessarily imply a proportional decline in labor demand. Instead, by making tasks, software development, customer service, research, and operations more productive, AI can expand the volume of work organizations are able to undertake and create demand for new roles, new products, and new business models. Or in the case of diagnostic imaging centers, as mentioned above, the lower cost of the service is a catalyst for a spike in demand, and so a firm hires more workers to meet the shift in demand.

The implication is that AI’s labor-market impact will likely be less about the wholesale elimination of jobs and more about the reallocation of tasks across workers, firms, and industries. Some routine or automatable tasks will be displaced, and certain occupations will face pressure. But as AI lowers the cost of service, demand may increase for workers who can use AI effectively, improve workflows, and apply human judgment. In this sense, AI could follow a Jevons-like pattern: greater efficiency may increase the overall demand for AI-enabled work, even as it changes the composition of employment and raises the premium on adaptability, digital fluency, and higher-value human skills. And AI may end up being the antidote to a shrinking labor force.

Percent of Working-Age Population Will Shrink

Source: LPL Research, Bureau of Labor Statistics 05/13/26

Policymakers and investors increasingly see AI as a way to offset the economic drag from aging populations, especially in developed economies where the workforce is starting to shrink. As more people move into retirement and a larger share of the population is over 70, fewer workers are available to support overall growth. AI is viewed as a way to fill that gap by boosting how much each worker can produce rather than relying on a larger workforce. It can automate repetitive tasks, enhance decision-making, and allow smaller teams to generate the same or greater output. That dynamic matters for governments as well, since slower workforce growth puts pressure on tax revenue while spending on healthcare and pensions is rising.

From an investor perspective, AI is also tied to long-term profitability in a world where labor is becoming scarcer and more expensive. Companies that adopt these technologies can reduce their dependence on hiring while improving efficiency and output, which helps protect margins. This encourages more spending on technology and capital investment as businesses look to substitute machines for labor. Over time, many investors believe AI could drive a sustained increase in productivity similar to earlier technological shifts. In that sense, it is being treated as a structural solution to demographic challenges, one that could extend the growth trajectory of aging economies while supporting returns even as population dynamics become less favorable.

AI is likely to reshape rather than simply eliminate jobs, with efficiency gains potentially increasing demand for AI-enabled work while raising the premium on adaptability and human judgment.

For more ways AI will shape the outlook for economic growth, inflation, and the job market, check out this month’s Economic Navigator.

Important Disclosures

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors. To determine which investment(s) may be appropriate for you, please consult your financial professional prior to investing.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk.

Indexes are unmanaged and cannot be invested into directly. Index performance is not indicative of the performance of any investment and does not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

This material was prepared by LPL Financial, LLC. All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.

Unless otherwise stated LPL Financial and the third party persons and firms mentioned are not affiliates of each other and make no representation with respect to each other. Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services.

Asset Class Disclosures –

International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.

Bonds are subject to market and interest rate risk if sold prior to maturity.

Municipal bonds are subject and market and interest rate risk and potentially capital gains tax if sold prior to maturity. Interest income may be subject to the alternative minimum tax. Municipal bonds are federally tax-free but other state and local taxes may apply.

Preferred stock dividends are paid at the discretion of the issuing company. Preferred stocks are subject to interest rate and credit risk. They may be subject to a call features.

Alternative investments may not be suitable for all investors and involve special risks such as leveraging the investment, potential adverse market forces, regulatory changes and potentially illiquidity. The strategies employed in the management of alternative investments may accelerate the velocity of potential losses.

Mortgage backed securities are subject to credit, default, prepayment, extension, market and interest rate risk.

High yield/junk bonds (grade BB or below) are below investment grade securities, and are subject to higher interest rate, credit, and liquidity risks than those graded BBB and above. They generally should be part of a diversified portfolio for sophisticated investors.

Precious metal investing involves greater fluctuation and potential for losses.

The fast price swings of commodities will result in significant volatility in an investor’s holdings.

This research material has been prepared by LPL Financial LLC.

Not Insured by FDIC/NCUA or Any Other Government Agency | Not Bank/Credit Union Deposits or Obligations | Not Bank/Credit Union Guaranteed | May Lose Value

For Public Use – Tracking: #1113157

May 21, 2026
What Risks Could Test the Upbeat Market Narrative?

Potential Risks That Could Challenge the Strong Market Narrative

LPL Research
Last Updated: May 20, 2026

Today’s blog is written by Chris Fasciano, chief market strategist at Commonwealth. He represents Commonwealth in various media appearances, advisor speaking events, and Commonwealth conferences. He also oversees and mentors a dynamic team of investment research analysts who specialize in equity and fixed income markets. Prior to this role, Chris spent 10 years as one of the firm’s portfolio managers, involved with asset allocation and fund selection. With a deep background in small- and mid-cap stock research, Chris is uniquely positioned to analyze the latest economic data and offer valuable insights on navigating today’s volatile markets. Chris Fasciano is a guest writer and is not affiliated with LPL Financial.

One of my guiding investment philosophies is that headlines drive markets in the short term but over the long term it is fundamentals that drive markets. That has played out multiple times over the last year. There have been significant sell-offs due to tariff policy and the war in the Middle East. Yet the market rebounded not long after these declines based on an underlying strength in corporate earnings.

Rising markets make everyone feel better, but they also come with higher expectations. Today, the key question is not whether fundamentals are strong but whether the market’s consensus view is too optimistic. Currently, market participants seem to be assuming that the impact from the war will be reversed once an agreement between the U.S. and Iran is reached. Jobs creation will remain positive; inflation will moderate; the economy will continue to grow and earnings will remain strong.

Part of any good investment process is monitoring potential risks to the consensus narrative. Let’s do that now.

It Is All About Earnings

It is easy to see why investors have responded positively to earnings. S&P 500 first quarter earnings are up around 27% versus expectations at the end of March for 13.2% growth. Perhaps more importantly, second quarter earnings estimates have moved higher as well.

Estimates Moving Higher

Source: LPL Research, FactSet 05/15/26
Disclosures: Indexes are unmanaged and cannot be invested in directly. Past performance is no guarantee of future results. Estimates may not develop as predicted and are subject to change.

The “Estimates Moving Higher” chart illustrates where full year 2026 numbers have moved as a result. Since February 27, the day before the war in the Middle East began, 2026 earnings estimates have increased 6.5%. Despite all the headlines over the last few months, the surge in oil prices, and the rise in gas prices, analysts have become more optimistic about the health of corporate America. Current estimates indicate full year earnings growth of 23%!

But if earnings have been driving the market higher and expectations for future growth have increased, then the potential for disappointment has also increased. One of the most important pillars supporting this optimistic outlook is the artificial intelligence (AI) narrative.

The Artificial Intelligence Story

The buildout of AI infrastructure has both been a driver of U.S. economic growth and stock market returns. The best-performing stocks have been the large cap growth stocks most exposed to AI. They have had the best earnings growth profile, and that has led to investors continuing to invest in their stocks.

Early in the Spending Boom

Source: LPL Research, Bloomberg, J.P. Morgan Asset Management 05-15-26
Disclosures: Data 2026, 2027, and 2028 reflect consensus estimates. Capex shown is company total. Past performance is no guarantee of future results. Estimates may not develop as predicted and are subject to change. Any companies referenced are being presented as a proxy, not as a recommendation. Hyperscalers are the large cloud computing companies that own and operate data centers with horizontally linked servers that, along with cool and data storage capabilities, enable them to house and operate AI workloads.

The “Early in the Spending Boom” chart indicates that AI infrastructure capital outlays are beginning to ramp up. This trend will unfold over years and decades. As a result, the theme is likely to remain an important part of the market narrative. But once again, given the optimism surrounding the consensus view for the power of AI’s future, any changes on the margin to capital spending could lead to ripple-effect disappointments for both the economy and market. Simply pushing spending plans out a quarter or two, supply chain issues, or even higher borrowing costs, could unnerve investors and pressure AI related stocks. NVIDIA’s earnings report and conference call after the market closes this evening will be the next key data point in this story.

At the same time, macroeconomic pressures are also beginning to challenge optimistic narratives.

Inflation Is Starting To Run Hot

For the most part, the stock market has ignored rising oil prices as the ceasefire and ongoing negotiations seemed to indicate a potential end to the war in the Middle East. However, the Strait of Hormuz has now been closed for 11 weeks, removing key oil supplies for the global economy. Gas at the pump continues to move higher across the country.

Both the Consumer Price Index (CPI) and the Producer Price Index (PPI) came in higher than anticipated in the month of April. Consumer prices rose at an annual rate of 3.8%. Even more concerning was the increase in producer prices, which rose 6%. Supply chain concerns are beginning to show up in the data.

Inflation Is Beginning To Accelerate

Source: LPL Research, Bureau of Labor Statistics (BLS), FactSet, J.P. Morgan Asset Management 05/15/26
Disclosures: Past performance is no guarantee of future results. Contributions mirror the BLS methodology on page 7 of the CPI report. Values may not sum to headline CPI figures due to rounding and underlying calculations. Headline and core PCE deflator inflation shows are based on seasonally adjusted data due to data availability. Official October 2025 data unavailable due to government shutdown and data shown are J.P. Morgan Asset Management estimates.

The “Inflation Is Beginning To Accelerate” chart examines the key components that are driving consumer price inflation. We are still a long way from inflation reaching the levels seen in 2022 when the Fed reacted by raising interest rates aggressively. However, the drivers of the current increase in inflation are the same as they were back then — energy, food at home, and core goods. That isn’t surprising since the current concern is higher energy prices and supply chain constraints, which were the issues when Russia invaded Ukraine. Higher inflation in those areas could be a drag on other parts of the consumer budget. Given that consumer spending makes up 70% of U.S. economic growth, a headwind for the economy could impact profitability for companies.

Driven by concerns about accelerating inflation and where it might be headed, the yield on the 10-year Treasury bond rose substantially and now is over 4.6%. The 10-year yield is a key benchmark for mortgage rates, which also impacts the spending power of the consumer.

Moderate inflation is manageable, but higher or unpredictable inflation can lead to downward pressure on markets. No matter how well companies are doing, higher interest rates tend to lead to lower valuations for stocks. And if inflation continues to rise, rates are likely to follow. As a result, just the uncertainty about inflation alone can increase volatility even if the longer-term outlook remains anchored.

But it is important to remember that inflation doesn’t impact all companies, sectors, and stocks in the same way. While some companies will be hurt by higher inflation and interest rates, others will benefit.

Portfolio Diversification Remains Key

When markets are priced for optimism, it doesn’t take bad news, only less good news, to trigger volatility. Risk management is a key part of any investment process. Knowing what investor expectations are priced into the market and understanding what could prove them to be either optimistic or pessimistic is a worthwhile exercise to go through.

Timing markets is hard, if not impossible, so wholesale changes to portfolios based on assumptions about the future don’t make sense. As we have learned time after time, assumptions can change very quickly. But there are certainly ways to mitigate risk while preserving the opportunity to participate in further upside.

It is possible that none of the potential risks to the consensus narrative materialize, but with stocks near all-time highs, now is a good time to revisit long-term goals and determine whether your current portfolio accomplishes these goals. If not, some changes may be warranted given the strong moves in numerous asset classes that have occurred over the last year. But if investors do only one thing year in and year out, it should be to rebalance portfolios. Bringing portfolios back in line with diversified allocations should help navigate any uncertainty on the horizon.

Important Disclosures

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors. To determine which investment(s) may be appropriate for you, please consult your financial professional prior to investing.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk.

Indexes are unmanaged and cannot be invested into directly. Index performance is not indicative of the performance of any investment and does not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

This material was prepared by LPL Financial, LLC. All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.

Unless otherwise stated LPL Financial and the third party persons and firms mentioned are not affiliates of each other and make no representation with respect to each other. Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services.

Asset Class Disclosures –

International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.

Bonds are subject to market and interest rate risk if sold prior to maturity.

Municipal bonds are subject and market and interest rate risk and potentially capital gains tax if sold prior to maturity. Interest income may be subject to the alternative minimum tax. Municipal bonds are federally tax-free but other state and local taxes may apply.

Preferred stock dividends are paid at the discretion of the issuing company. Preferred stocks are subject to interest rate and credit risk. They may be subject to a call features.

Alternative investments may not be suitable for all investors and involve special risks such as leveraging the investment, potential adverse market forces, regulatory changes and potentially illiquidity. The strategies employed in the management of alternative investments may accelerate the velocity of potential losses.

Mortgage backed securities are subject to credit, default, prepayment, extension, market and interest rate risk.

High yield/junk bonds (grade BB or below) are below investment grade securities, and are subject to higher interest rate, credit, and liquidity risks than those graded BBB and above. They generally should be part of a diversified portfolio for sophisticated investors.

Precious metal investing involves greater fluctuation and potential for losses.

The fast price swings of commodities will result in significant volatility in an investor’s holdings.

This research material has been prepared by LPL Financial LLC.

Not Insured by FDIC/NCUA or Any Other Government Agency | Not Bank/Credit Union Deposits or Obligations | Not Bank/Credit Union Guaranteed | May Lose Value

For Public Use – Tracking: #1112461

May 20, 2026
Why Portfolio Manager Mistakes Seem Smart at First
Why Most Portfolio Manager Mistakes Seem Smart at the Time

Carter France | Senior Investment Analyst
Last Updated: May 19, 2026

Most portfolio manager mistakes don’t feel reckless when they’re initially put into motion. The manager’s compelling track record and narrative over time leads to reasonable outlooks, portfolio themes, positioning, and trades. The story makes sense. Near term performance in these scenarios ranges from defensible to even impressive, and nothing appears broken yet from an outsider’s perspective.

A contrasting lens tends to be used when we view these mistakes in a backward-looking fashion. Often, lead portfolio managers and key investment professionals don’t fail because they lose skill or discipline. They fail because something subtle has changed — and no one had the time, perspective, or framework to catch it early. The mistake evolves into something that appears obvious, and the initial decision-making no longer looks smart but rather avoidable. Those early conversations that centered around opportunity have now evolved into explanations as managers find themselves playing defense.

The Problem Isn’t Bad Managers — It’s a Focus on the Symptoms Over the Root Cause

When many investors review investment strategies, performance is often the starting point. And understandably so. Returns are visible, easy to compare, and they’re typically what clients notice first when presented with a fact sheet, marketing materials, or research database.

But performance screens are backward‑looking by design. They tell you what has happened — not whether the conditions that made that performance possible still exist.

In our research, early warning signs rarely show up in returns. Instead, they surface quietly in places like:
- A shift in how decisions are made inside the firm
- Asset growth that subtly changes how a strategy is implemented
- Incentives that start favoring asset gathering over process discipline
- Risk exposures that look benign individually but could be dangerous in combination
Few of these warning signs present early, alarming symptoms. By the time symptoms reach an alarming level, the damage to 1- and 3-year-trailing performance figures is sometimes already done.

That’s why manager mistakes almost always look intelligent in real time. The inputs still appear sound. The output just hasn’t been tested yet.

What Institutional Research Thinks About Differently

One of the biggest differences between institutional manager research and individual selection is the questions being asked. Instead of asking: “Has this manager performed?” We ask: “Are the conditions we’ve identified as conducive to consistent risk-adjusted returns and excess returns still present and what could realistically go wrong?”

That shift matters.

It forces you to move beyond stories and into structure. Beyond past success and optimism and into future durability and probability.

Great past performance doesn’t fail all at once. It erodes at the edges — through capacity strain, process drift, team changes, or creeping exposure to undesirable risks.

Avoiding Mistakes Beats Chasing Stars

High‑quality manager research isn’t always about finding the next star manager before everyone else does. In a large, vast investment universe, that can be a low‑probability game with high opportunity costs.

It’s about avoiding predictable paths to failure.

Managers rarely underperform because of one big decision. They tend to underperform because a series of small changes go unchecked — each one reasonable on its own, but collectively transformative to the strategy’s risk profile.

The goal isn’t perfection but rather stacking the odds in the investor’s favor across full market cycles.

For client portfolios, that often translates to:
- Fewer surprises
- Performance that may align with expectations
- More consistency across different market environments
- And fewer uncomfortable client conversations that begin with, “This made sense at the time.”
That last one matters more than most advisors admit. From an end client’s perspective, reasonableness in hindsight and not in the present doesn’t inspire confidence in an investment professional.

Where Our Internal Coverage List Can Help

We continuously pressure‑test portfolio managers on our internal Coverage List via onsite visits and virtual interviews, not to predict exact outcomes, but to help reduce avoidable mistakes.

We focus less on trying to forecast who will outperform next year and more on understanding:
- Whether a manager’s process is still intact
- Whether firm or strategy growth has altered execution
- Whether decision-making authority is clear and stable
- Whether risk is being taken consciously or accumulating unintentionally
In a world where time is the scarcest resource, signals matter more than stories. Good narratives are easy to find. Durable processes are harder.

The internal Coverage List is designed to help advisors identify strategies that exhibit characteristics that contribute to long‑term outcomes, so portfolios don’t just look smart at the time but potentially hold up when it matters. For LPL advisors, we welcome discussions about the Coverage List. For investors, please contact your LPL advisor for details.

Important Disclosures

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors. To determine which investment(s) may be appropriate for you, please consult your financial professional prior to investing.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk.

Indexes are unmanaged and cannot be invested into directly. Index performance is not indicative of the performance of any investment and does not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

This material was prepared by LPL Financial, LLC. All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.

Unless otherwise stated LPL Financial and the third party persons and firms mentioned are not affiliates of each other and make no representation with respect to each other. Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services.

Asset Class Disclosures –

International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.

Bonds are subject to market and interest rate risk if sold prior to maturity.

Municipal bonds are subject and market and interest rate risk and potentially capital gains tax if sold prior to maturity. Interest income may be subject to the alternative minimum tax. Municipal bonds are federally tax-free but other state and local taxes may apply.

Preferred stock dividends are paid at the discretion of the issuing company. Preferred stocks are subject to interest rate and credit risk. They may be subject to a call features.

Alternative investments may not be suitable for all investors and involve special risks such as leveraging the investment, potential adverse market forces, regulatory changes and potentially illiquidity. The strategies employed in the management of alternative investments may accelerate the velocity of potential losses.

Mortgage backed securities are subject to credit, default, prepayment, extension, market and interest rate risk.

High yield/junk bonds (grade BB or below) are below investment grade securities, and are subject to higher interest rate, credit, and liquidity risks than those graded BBB and above. They generally should be part of a diversified portfolio for sophisticated investors.

Precious metal investing involves greater fluctuation and potential for losses.

The fast price swings of commodities will result in significant volatility in an investor’s holdings.

This research material has been prepared by LPL Financial LLC.

Not Insured by FDIC/NCUA or Any Other Government Agency | Not Bank/Credit Union Deposits or Obligations | Not Bank/Credit Union Guaranteed | May Lose Value

For Public Use – Tracking: #1104517
May 19, 2026
Weekly Market Commentary | Energy Shock: Inflation Risks vs. Economic Growth | May 18, 2026

Energy Shock Expected to Hit Prices Harder Than the Economy

Printer Friendly Version

Headlines surrounding the Middle East have dominated investor attention since late February. While uncertainty remains elevated, diplomatic negotiations have supported equities, even as fixed income and commodity markets continue to reflect potential risks.

Economic Resilience Amid Headwinds: Recent economic data suggest the U.S. economy muddles on, though supply chain disruptions, higher shipping costs, and elevated energy prices are current headwinds. In our view, however, these pressures pose a greater risk to inflation than to economic growth.

Implications for Businesses and Consumers: Below, we outline the implications for businesses and consumers.

Another 0.2 and 0.3 Percentage Point Hit to Growth

The Middle East war is expected to exert a modest but meaningful drag on near-term growth through renewed supply chain disruptions, higher shipping costs, and increased uncertainty around energy and trade flows. While the shock does not appear large enough to derail expansion, it will likely weigh on activity at the margin, particularly in trade-sensitive sectors and industries reliant on timely delivery of intermediate goods like fertilizer and steel. Our forecast assumes these disruptions subtract 0.2 percentage points from second quarter real gross domestic product (GDP) growth, reflecting delayed shipments, higher input costs, and a cautious inventory response from firms. Consult the Economic Navigator (May edition) for more context.

The impact is expected to intensify slightly in the third quarter, with supply chain friction subtracting 0.3 percentage points from growth as disruptions ripple more broadly through production schedules and business planning. The key macro implication is not a collapse in demand, but rather a temporary supply-side restraint that limits the economy’s ability to convert resilient final demand into output. If geopolitical tensions persist or energy markets become more volatile, downside risks could build; however, under our baseline expectations, the growth hit remains manageable and should fade as trade adjusts with the economy likely skirting recession (as highlighted in the “Lagged Effects from Middle East Crisis Expected to Cut Q2 Growth By 0.2 Percentage Points” chart).

Lagged Effects from Middle East Crisis Expected to Cut Q2 Growth by 0.2 Percentage Points

_{Source: LPL Research, Bureau of Labor Statistics, 05/13/26
Disclosures: Forecasts may not materialize as predicted and are subject to change as additional data is published.}

Business Investment Added 1.39 Percentage Points to the 2% Headline Growth

Non-residential fixed investment was a key support to first quarter growth, helping offset softer contributions from other parts of the economy and contributing roughly 1.4 points to headline growth. The strength largely reflected solid business spending on equipment, intellectual property products, and structures, suggesting firms remained willing to invest despite elevated financing costs and policy uncertainty. This matters because non-residential investment feeds directly into the real economy. When businesses increase capital outlays, it raises current demand while also expanding future productive capacity. In the first quarter, that contribution likely signaled an economy still benefiting from corporate investment tied to technology adoption, AI infrastructure, automation, reshoring, and productivity-enhancing software. In other words, even as household spending showed signs of cooling, business capital expenditures (capex) provided an important growth buffer and helped broaden expansion beyond the consumer.

In sum, business investment in tech equipment continues to boost growth. This category alone contributed 0.83 percentage points, close to the near-term record for last year. This category has more room to grow if the late 90s are any guide.

Loan Demand Should Stay Elevated as Savings Rate Stays Below 4% in 2026

The savings rate was 3.6% in March 2026, well below the roughly 6.5% pre-COVID-19 average and reflects a combination of higher living costs, continued discretionary spending, and the drawdown of excess savings that had supported consumption earlier in the cycle. For banks and credit unions, a lower savings rate can support loan growth, card balances, and fee income as consumers borrow more, but it also means thinner household liquidity buffers, greater sensitivity to job losses or rate shocks, and potentially higher delinquencies if the labor market weakens. New York Fed data show household debt at $18.8 trillion in Q1 2026, credit card balances at $1.25 trillion, and aggregate delinquencies broadly steady at 4.8%, but the key risk is that a low savings cushion leaves less room for error — especially for households already using credit to bridge the gap between income growth and cost pressures.

Households Are Storing Up Less and Less

_{Source: LPL Research, Bureau of Economic Analysis, 05/13/26}

Consumer credit demand remains solid because households are still spending, but the story is increasingly bifurcated. On one side, higher-income consumers are continuing to fuel retail activity through services, travel, restaurants, premium goods, and online spending. On the other, lower- and middle-income households are relying more on credit to manage elevated prices and cash-flow pressure. That mix helps explain why retail sales have stayed resilient. March retail and food services sales were up 1.7% month-over-month and 4.5% year over year. Meanwhile, revolving consumer credit rose to roughly $1.34 trillion in March 2026, with credit card rates still elevated near 21%, so the growth in credit demand is partly a sign of confidence and partly a sign of necessity.

A few metrics that often give leading indicators of stress are the 30-day and 90-day credit card delinquencies, which are currently sitting below pre-COVID-19 levels.

Middle East War Could Add Full One Percentage Point to Inflation

The April Consumer Price Index (CPI) report underscores that inflation risks are no longer narrowly concentrated in one category, even if the initial impulse remains energy led. Headline CPI rose 0.6% in April and 3.8% over the past year, while core CPI advanced 0.4% on the month and 2.8% year over year, signaling that the disinflationary trend has lost momentum. Energy was the dominant driver, with the energy index up 3.8% in April and accounting for more than 40% of the monthly headline increase, while gasoline rose 5.4% on the month and 28.4% from a year earlier. But the details also point to broader price pressures. Shelter increased 0.6%; food rose 0.5%; food at home climbed 0.7%; airline fares moved higher; and categories such as apparel and household furnishings also firmed. In other words, the April inflation shock is best understood as an energy-driven price impulse that is beginning to seep into transportation, food distribution, travel, and some goods categories.

Medical Care and Transportation Services Are Most Sticky

_{Source: LPL Research, Bureau of Labor Statistics, 05/13/26

Disclosures: Forecasts may not materialize as predicted and are subject to change as additional data is published}

The key risk is that the Middle East conflict turns what might have been a temporary energy shock into a more persistent inflation event. If the conflict lingers through the summer, keeping oil prices elevated, disrupting shipping routes, and raising fuel, freight, and input costs, it could plausibly add a full percentage point to inflation this year through both direct gasoline effects and second-round pass-through into airfares, food, logistics, and imported goods. That would leave households facing a renewed cost of living squeeze just as real wage gains are being pressured, and it would complicate the Fed’s task by keeping headline inflation elevated while core inflation remains sticky. Under that scenario, the economy could face a more uncomfortable mix: softer real purchasing power, weaker consumer confidence, tighter financial conditions for longer, and a reduced likelihood of near-term rate cuts.

April Saw a Rebound in Wholesale Inflation

Inflation pressures resurfaced in April, reinforced by last Wednesday’s Producer Price Index (PPI) report. Headline producer inflation accelerated to 6% year over year — the highest reading since 2022 — driven largely by rising services costs. Services prices climbed 1.2% from March, led by a 5% jump in transportation and warehousing costs as higher energy prices boosted fuel-related margins. Core goods prices excluding food and energy also increased. One closely watched measure — processed goods for intermediate demand — rose more than 2.5% for a second straight month, signaling persistent cost pressures early in the production pipeline. While components feeding into the Fed’s preferred inflation gauge were mixed, the hotter-than-expected report reinforced expectations that the Fed will keep interest rates on hold amid sticky inflation and a still-resilient labor market.

Tariffs Likely Increased Core PCE by 0.8 Percentage Point

According to research from the Fed, full tariff pass-through is completed within 5 to 9 months.¹ Therefore, as of February, the impact is fully realized with an increase of 0.8 percentage points to inflation as measured by personal consumption expenditures (PCE). Tariffs are likely to represent more of a one-time step-up in the price level than a persistent source of accelerating inflation. While tariff-sensitive categories, such as apparel and household furnishings, rebounded in the latest CPI report, the broader tariff impulse appears increasingly front-loaded, suggesting we are likely past the worst of tariff-induced inflation as firms have adjusted sourcing, inventories, and pricing strategies. As a result, the inflation outlook for the remainder of the year will likely be less about tariffs and more about the evolving Middle East conflict. If the Iran conflict lingers through the summer, sustained pressure on oil, gasoline, jet fuel, shipping, and broader logistics costs could become the dominant upside risk, pushing headline inflation higher and slowing the disinflation process even if tariff effects fade. In short, tariffs may have lifted the inflation floor, but geopolitics now represent the more material risk.

The Bottom Line

The outlook is shaped by resilient demand but rising supply-side risks. The Middle East war is expected to subtract 0.2 percentage points from Q2 GDP and 0.3 points from Q3 GDP through supply chain disruptions, higher shipping costs, and energy uncertainty. However, recession risk remains contained as business investment provides an important offset, with non-residential fixed investment contributing roughly 1.4 percentage points to first quarter growth, supported by equipment, technology, AI infrastructure, automation, and reshoring. If the 1990s are any guide, this area of capex could support growth for several more quarters.

Inflation and household balance sheets are the main vulnerabilities. A low savings rate is supporting credit demand but leaving consumers with thinner financial buffers, while spending remains bifurcated between resilient higher-income households and more credit-reliant lower- and middle-income consumers. Tariff effects appear largely front-loaded, but the Middle East conflict now represents a bigger inflation risk: if it persists through the summer, higher energy, freight, and logistics costs could add as much as one percentage point to inflation this year. Meanwhile, AI is likely to reshape rather than simply eliminate jobs, with efficiency gains potentially increasing demand for AI-enabled work while raising the premium on adaptability and human judgment.

Structural changes — an aging population, a productive labor force, and easing services inflation — give the Fed room to cut rates this year, although the temporary spike in energy prices may delay the continuation of the rate easing cycle.

Asset Allocation Insights

LPL’s Strategic and Tactical Asset Allocation Committee (STAAC) recently moved its equities recommendation to a tactical overweight and fixed income to underweight to reflect the improving macroeconomic backdrop.

Within balanced portfolios, this adjustment reflects two related changes: neutralizing the underweight to U.S. small cap value and reducing exposure to mortgage-backed securities (MBS) to fund that move. From a portfolio construction standpoint, this lifts equity exposure slightly above benchmarks while keeping overall risk well within the intended tactical range. This reflects improved expected equity returns following market weakness, alongside a more cautious outlook for select areas of core fixed income. While MBS have delivered strong relative performance over recent years, tighter spreads and rising prepayment risks suggest more limited forward return potential.

Overall, our tactical views emphasize a modest equity overweight led by large cap growth, a continued focus on quality bond sectors, caution in rate‑sensitive fixed income sectors, and an ongoing allocation to diversifying strategies and alternatives.

Important Disclosures

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.

References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities.

All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

All investing involves risk, including possible loss of principal.

US Treasuries may be considered “safe haven” investments but do carry some degree of risk including interest rate, credit, and market risk. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.

The Standard & Poor’s 500 Index (S&P500) is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

The PE ratio (price-to-earnings ratio) is a measure of the price paid for a share relative to the annual net income or profit earned by the firm per share. It is a financial ratio used for valuation: a higher PE ratio means that investors are paying more for each unit of net income, so the stock is more expensive compared to one with lower PE ratio.

Earnings per share (EPS) is the portion of a company’s profit allocated to each outstanding share of common stock. EPS serves as an indicator of a company’s profitability. Earnings per share is generally considered to be the single most important variable in determining a share’s price. It is also a major component used to calculate the price-to-earnings valuation ratio.

All index data from FactSet or Bloomberg. All index data from FactSet or Bloomberg.

This research material has been prepared by LPL Financial LLC.

Not Insured by FDIC/NCUA or Any Other Government Agency | Not Bank/Credit Union Guaranteed | Not Bank/Credit Union Deposits or Obligations| May Lose Value

For public use.
Member FINRA/SIPC.
RES-0007019-0426 Tracking #1105277 | #1105280 (Exp. 05/27)

May 18, 2026

Weekly Market Performance | May 15, 2026

LPL Research
Last Updated: May 15, 2026

LPL Research provides its Weekly Market Performance for the week of May 11, 2026. U.S. equities held up well this week, with the S&P 500 posting a modest weekly gain and hitting a record high on Thursday, supported by AI-driven enthusiasm despite higher oil prices and rising Treasury yields. Macro headwinds, including rising energy costs and elevated inflation, along with limited progress on U.S.-China trade and Middle East tensions, pressured investor sentiment. International equities underperformed, weighed down by a stronger U.S. dollar, rising global rates, and profit-taking in Asia following a “sell-the-news” reaction to the Trump-Xi summit.

Fixed income markets declined as yields rose globally, driven by inflation pressures, higher oil prices, and political uncertainty, particularly in the U.K. High yield credit remains resilient but expensive, with tight spreads and improving fundamentals suggesting limited upside without a downturn.

Stock Index Performance

Index	Week-Ending	One Month	Year to Date
S&P 500	0.35%	5.72%	8.47%
Dow Jones Industrial	-0.08%	2.28%	3.13%
Nasdaq Composite	0.03%	9.32%	12.96%
Russell 2000	-2.09%	3.23%	12.87%
MSCI EAFE	-2.10%	-1.48%	5.99%
MSCI EM	-4.08%	4.77%	19.11%

S&P 500 Index Sectors

Sector	Week-Ending	One Month	Year to Date
Materials	-2.16%	-2.50%	10.02%
Utilities	-1.89%	-4.82%	2.66%
Industrials	-1.05%	0.10%	10.51%
Consumer Staples	1.31%	5.15%	11.25%
Real Estate	-2.52%	-0.52%	7.73%
Health Care	1.03%	-1.93%	-6.46%
Financials	-0.28%	-2.08%	-6.80%
Consumer Discretionary	-3.13%	0.37%	0.33%
Information Technology	1.41%	14.65%	17.27%
Communication Services	-0.86%	5.94%	11.08%
Energy	6.55%	5.89%	31.77%

Fixed Income and Commodities

Indexes and Commodities	Week-Ending	One Month	Year to Date
Bloomberg US Aggregate	-0.52%	-0.68%	-0.08%
Bloomberg Credit	-0.41%	-0.55%	0.03%
Bloomberg Munis	-0.28%	-0.15%	0.90%
Bloomberg High Yield	-0.14%	0.00%	1.23%
Oil	10.42%	15.41%	83.49%
Natural Gas	7.51%	13.56%	-19.59%
Gold	-3.50%	-5.03%	5.35%
Silver	-4.91%	-3.25%	6.61%

Source: LPL Research, Bloomberg 5/15/26 @3:54 p.m. ET
Disclosures: Indexes are unmanaged and cannot be invested in directly.

U.S. and International Equities

U.S. Equities: As trading for the week drew to a close, the S&P 500 was clinging to a modest weekly gain, setting a fresh all-time high along the way and extending its winning streak to seven weeks. Investor focus was on inflation data early in the week and the Trump-Xi summit late in the week, neither of which offered any relief for oil or the rates markets. A double-digit increase in oil and sharply higher Treasury yields weighed on trading Friday. However, enthusiasm for AI, reflected in the sharp gains in Cisco (CSCO) and NVIDIA (NVDA), the well-received Cerebras Systems (CBRS) IPO, rebounds in some leading software names, and the possibility of trade deals with China were enough to keep large cap indexes above water despite some weakness in semiconductors broadly.

Although the status quo with China was not necessarily viewed negatively by strategists, the lack of confirmed agreements on trade and lack of progress on a resolution to the U.S.-Iran conflict did contribute to a challenging week for sector laggard consumer discretionary, which continues to struggle with high oil prices. The increasingly challenging macroeconomic backdrop also pressured sentiment toward small caps, which finished solidly lower on the week and kept market chatter about a lack of breadth front and center for market-watchers. With earnings season largely over, except for chip giant NVDA on May 20 and some May quarter-end reporters in retail, market attention will be focused on the Strait of Hormuz, ongoing inflation pressures, and the leadership transition at the Fed.

International Equities: Developed international and emerging market equities lagged significantly behind the broad U.S. large cap equity market for the week. A surge in the U.S. dollar and high oil prices, which have contributed to upward pressure on interest rates globally, were the biggest drags on the non-U.S. indexes, although Asian equities were also hurt by the sharp intra-week reversal in Korean memory names.

Weakness in developed international markets was broad based with declines in France, Spain, Germany, and Italy on the European side and Australia and Japan in Asia-Pacific. Political strife in the U.K. continued to weigh on the British market, while yields on Japan’s long bond hit multi-decade highs. Weakness in Asian markets permeated through emerging markets as China, India, and Taiwan lagged the U.S. on the Asia side, in part due to profit taking as the Trump-Xi summit reaction seemed to be a sell the news event. Latin America was also weak as commodities outside of oil were mostly lower, particularly precious metals.

Fixed Income, Currency, and Commodity Markets

Fixed Income: Core bonds, as measured by the Bloomberg Aggregate Index, declined over the week. The rise in U.S. Treasury yields this week was driven by higher oil prices, firmer inflation readings in the U.S., and the spillover effects from the broader global bond sell-off — most notably in the U.K. In the U.K., intensifying inflationary pressures, combined with increased political uncertainty surrounding Prime Minister Keir Starmer’s leadership, pushed 30-year gilt yields to their highest levels since 1998.

The high yield market also traded lower over the last five days, which remains broadly sanguine yet sensitive to an evolving risk landscape, as the conflict in the Middle East persists, and domestic consumer pressures mount. Per Bloomberg, approximately $41 billion in market value was trading at spreads wider than 1,000 basis points across the high yield index as of May 5, down from $50 billion at the end of February. As such, nearly a quarter of the index’s option-adjusted spread (OAS) is attributable to the widest 5% of issuers by market value. At current levels, OAS are in the third percentile of historical spread valuations (meaning spreads have been higher 97% of the time since 2001). Removing the weakest credits suggests that valuations are even more expensive.

That said, corporate default rates are declining, distressed exchanges are easing, and the number of liability management exercises is falling, indicating improving quality within the broader high yield market. Additionally, the quality of the index has improved in recent years, with BB-rated securities now representing a record-high share of over 56%. As a result, absent an economic contraction (which is not our base case), spreads can remain at these very tight levels; however, we believe the likelihood of further tightening is low. Overall, the additional compensation for owning higher-risk corporate credit is unattractive, in our view.

Commodities and Currencies: The broader commodities complex rose this week on the back of double-digit gains in crude oil prices. WTI crude settled at $105.42 (+4.2% Friday) and Brent closed just shy of $110 as the Trump-Xi summit yielded no progress on reopening the Strait of Hormuz. Trump said he didn’t press Xi on Iran, though both agreed the waterway “must remain open.” While oil was the weekly winner, precious metals finished at the opposite end of the commodities leaderboard. Gold was hurt by a surging U.S. dollar and a more hawkish market outlook for monetary policy that increased the relative attractiveness of bonds relative to gold. A volatile week has left silver prices down as well. Industrial metals held up well as AI investment continued to support copper globally.

The U.S. dollar strengthened this week, with the Bloomberg Dollar Spot Index up 1.2% for its best week since early March. Repricing for a more hawkish Fed and safe haven buying amid heightened geopolitical uncertainty were among key drivers for the greenback which broke back above its 50- and 200-day moving averages. The yen remained in focus, weakening for five straight sessions toward 159. USD/JPY approached levels last seen before the April 30 intervention.

Economic Weekly Roundup

Medical Care Drove Consumer Inflation. April inflation rose 0.6% month over month, pulling the annual pace up to 3.8% from 3.3% in March. The reacceleration was expected, so investors need to focus more on services to get a bead on the overall trajectory. The so-called “Supercore” (which focuses on services ex housing) accelerated to 3.4% from a year ago from rising medical care services. This pace will likely continue as demand for health care increases as the population ages.

The Fed will almost certainly be on hold for the next two quarters as rates remain elevated since inflation is not expected to ease in the same way investors anticipated just a few months ago.

The Week Ahead

The following economic data is slated for the week ahead:

Monday: New York Fed Services Business Activity (May), NAHB Housing Market Index (May), Total Net TIC Flows (Mar), Net Long-term TIC Flows (Mar)
Tuesday: ADP Weekly Employment Change (May 2), Pending Home Sales (Apr)
Wednesday: MBA Mortgage Applications (May 15), FOMC Meeting Minutes (Apr 29)
Thursday: Initial Jobless Claims (May 16), Continuing Claims (May 9), Philadelphia Fed Business Outlook (May), Housing Starts (Apr), Building Permits (Apr preliminary), S&P Global U.S. Manufacturing, Services, and Composite PMIs (May preliminary), Kansas City Fed Manufacturing Activity (May)
Friday: University of Michigan Consumer Sentiment Report (May final), Kansas City Fed Services Activity (May), Bloomberg U.S. Economic Survey (May)

Important Disclosures

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk.

This material was prepared by LPL Financial, LLC. All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.

Asset Class Disclosures –

Bonds are subject to market and interest rate risk if sold prior to maturity.

Preferred stock dividends are paid at the discretion of the issuing company. Preferred stocks are subject to interest rate and credit risk. They may be subject to a call features.

Mortgage backed securities are subject to credit, default, prepayment, extension, market and interest rate risk.

Precious metal investing involves greater fluctuation and potential for losses.

The fast price swings of commodities will result in significant volatility in an investor’s holdings.

This research material has been prepared by LPL Financial LLC.

Not Insured by FDIC/NCUA or Any Other Government Agency | Not Bank/Credit Union Deposits or Obligations | Not Bank/Credit Union Guaranteed | May Lose Value

For Public Use – Tracking: #1105276

May 18, 2026

Rising Conviction on Earnings Growth

Tactical Update: Rising Conviction on Earnings Growth

George Smith | Portfolio Strategist
Last Updated: May 14, 2026

Rising Conviction on Earnings Growth

In last month’s update, we highlighted a shift from preparation to action as market conditions began to support increased equity exposure. Since then, that positioning has become even more grounded in fundamentals, as earnings have demonstrated strong growth. The improved backdrop also reflects an economy that continues to grow at a solid pace and a market that has remained resilient through recent geopolitical uncertainty.

The LPL Research Strategic and Tactical Asset Allocation Committee (STAAC) recently upgraded equities to overweight (by adding to small cap value), while trimming fixed income to underweight (via a reduction in mortgage-backed securities). That move reflects growing confidence in both the economic backdrop and the earnings outlook. Equity market leadership has remained concentrated in growth and large cap stocks, particularly within the technology sector, where continued investment in artificial intelligence (AI) is driving strong earnings trends. This leadership also reflects the scale of AI-related investment, which is disproportionately benefiting large cap companies with the balance sheet strength to fund that growth.

This earnings season has helped validate that view. As shown in the LPL Research Earnings Season Dashboard below, first quarter results have come in notably strong. Earnings growth is tracking at a torrid pace; a high percentage of companies are beating both earnings and revenue expectations, and forward estimates continue to move higher even late in the reporting cycle. Much of that strength is coming from the largest technology companies (the Magnificent Seven (Mag Seven) stocks have seen an average 57% earnings per share growth in Q1), but the overall tone of the season has been constructive. The average overall S&P 500 upside surprise has been strong, supported by communications services, consumer discretionary sectors, and semiconductors, while both earnings and revenue beat rates are running well above average. Forward estimates have also continued to rise in recent weeks, reflecting resilient demand and continued investment trends.

Earnings Season Dashboard

Statistics	As of May 8, 2026
# of companies that have reported	447
% of companies beating earnings	84
% of companies beating revenues	79
Q1 26 earnings growth	26.8%
Q1 26 revenue growth	11.0%
Trailing earnings	$288.74
Change in trailing earnings	$0.32
Q1 26 earnings	$79.57
Change in Q1 26 earnings	$0.38
Forward earnings	$342.27
Change in forward earnings	$0.20

Source LPL Research, FactSet 05/08/26
Disclosures: All indexes are unmanaged and cannot be invested in directly. Past performance is no guarantee of future results.

One of the most important dynamics in equity markets this year has been the relationship between prices and earnings. While the S&P 500 price has moved higher, earnings expectations (as measured by forward earnings per share (EPS)), have increased at a faster rate. The result is a modest decline in valuation multiples (as measured by the forward price to earnings (P/E) ratio, leaving the market somewhat “cheaper” today on a forward basis than it was at the start of the year. That is not something typically experienced during an equity rally to new all-time highs.

Year-To-Date Change in S&P 500 Price, Earnings, and Valuation

EPS = Earnings Per Share, P/E = Price to Earnings Ratio
Source LPL Research, Goldman Sachs GIR, FactSet 05/13/26
Disclosures: All indexes are unmanaged and cannot be invested in directly. Past performance is no guarantee of future results.

At the same time, it must be considered that earnings strength has been relatively concentrated, with a narrow group of companies driving both earnings revisions and market performance. That type of setup can lead to periods of volatility, particularly in momentum-oriented areas of the market, as leadership rotates beneath the surface.

Current Tactical Positioning

The STAAC’s recommended tactical asset allocation (TAA) includes an overweight stance toward U.S. equities. With a path to reduced geopolitical risk emerging and a supportive earnings backdrop, we expect equities to continue to find support. The STAAC maintains a preference for growth over value and slightly favors large caps over small caps, reflecting both earnings leadership and balance sheet strength. Continued investment in AI also reinforces that bias.

Fixed income remains less compelling in the near term, as yields are expected to remain rangebound and persistent inflation pressures may delay the timing of Federal Reserve rate cuts. In that environment, the return potential for bonds may be more limited relative to equities. At the same time, with economic and policy uncertainty likely to persist, we believe alternative investments can continue to play a role in helping manage portfolio volatility and improving diversification.

Important Disclosures

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk.

This material was prepared by LPL Financial, LLC. All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.

Asset Class Disclosures –

Bonds are subject to market and interest rate risk if sold prior to maturity.

Preferred stock dividends are paid at the discretion of the issuing company. Preferred stocks are subject to interest rate and credit risk. They may be subject to a call features.

Mortgage backed securities are subject to credit, default, prepayment, extension, market and interest rate risk.

Precious metal investing involves greater fluctuation and potential for losses.

The fast price swings of commodities will result in significant volatility in an investor’s holdings.

This research material has been prepared by LPL Financial LLC.

Not Insured by FDIC/NCUA or Any Other Government Agency | Not Bank/Credit Union Deposits or Obligations | Not Bank/Credit Union Guaranteed | May Lose Value

For Public Use – Tracking: #1108759

May 18, 2026

Blog

Technical Take on the Record-High Rally

Records on Repeat for the Broader Market

Internal Outperformance

Historically Narrow Leadership May Be Setting the Stage for Rotation

Conclusion

Important Disclosures

AI’s New Frontier: The Transformation of Investment-Grade Credit

Tech Spreads Have Widened Relative to the Index on Issuance Concerns

Important Disclosures

Stock Index Performance

S&P 500 Index Sectors

Fixed Income and Commodities

U.S. and International Equities

Fixed Income, Currency, and Commodity Markets

Economic Weekly Roundup

The Week Ahead

Important Disclosures

How AI May Increase Jobs, Not Replace Them

Percent of Working-Age Population Will Shrink

Important Disclosures

Potential Risks That Could Challenge the Strong Market Narrative

It Is All About Earnings

Estimates Moving Higher

The Artificial Intelligence Story

Early in the Spending Boom

Inflation Is Starting To Run Hot

Inflation Is Beginning To Accelerate

Portfolio Diversification Remains Key

Important Disclosures

Why Most Portfolio Manager Mistakes Seem Smart at the Time

The Problem Isn’t Bad Managers — It’s a Focus on the Symptoms Over the Root Cause

What Institutional Research Thinks About Differently

Avoiding Mistakes Beats Chasing Stars

Where Our Internal Coverage List Can Help

Important Disclosures

Energy Shock Expected to Hit Prices Harder Than the Economy

Another 0.2 and 0.3 Percentage Point Hit to Growth

Lagged Effects from Middle East Crisis Expected to Cut Q2 Growth by 0.2 Percentage Points

Business Investment Added 1.39 Percentage Points to the 2% Headline Growth

Loan Demand Should Stay Elevated as Savings Rate Stays Below 4% in 2026

Households Are Storing Up Less and Less

Middle East War Could Add Full One Percentage Point to Inflation

Medical Care and Transportation Services Are Most Sticky

April Saw a Rebound in Wholesale Inflation

Tariffs Likely Increased Core PCE by 0.8 Percentage Point

The Bottom Line

Asset Allocation Insights

Stock Index Performance

S&P 500 Index Sectors

Fixed Income and Commodities

U.S. and International Equities

Fixed Income, Currency, and Commodity Markets

Economic Weekly Roundup

The Week Ahead

Important Disclosures

Tactical Update: Rising Conviction on Earnings Growth

Rising Conviction on Earnings Growth

Earnings Season Dashboard

Year-To-Date Change in S&P 500 Price, Earnings, and Valuation

Current Tactical Positioning

Important Disclosures