Monthly Market Insights May 2026
Greetings Team,
It’s not about using AI better. It’s about becoming more human than ever! Are we afraid to be human?
If April was about velocity and catharsis, May was about confirmation with discrimination. The market advanced for a second consecutive month, but its character shifted.
May Performance and Rotation
The Nasdaq again led, up an eye‑catching 9.32%, while equal‑weight and small caps lagged their cap-weighted peers meaningfully. This was not April’s broad rally. This was a narrower, more selective advance driven by AI infrastructure, mega‑cap tech, and a handful of cyclical pockets. The rest of the market climbed, but reluctantly. May proved the regime shift we identified in April was real. Dispersion has not died - it just moved up the cap stack.
📈 S&P 500: 7,580.06 (+5.26% MoM)
📈 S&P 500 Equal Weight: 8,442.40 (+2.51% MoM)
📈 NASDAQ Composite: 26,972.62 (+9.32% MoM)
📈 Dow Jones Industrial Average: 51,032.46 (+4.44% MoM)
📈 Russell 2000: 2,919.34 (+6.57% MoM)
The 5.26% gain is solid by historical standards, but the gap between the cap‑weighted index and its equal‑weight version (+2.51%) was the widest since last autumn. The Nasdaq’s surge was powered by a small cohort: AI chip designers, data center builders, and the mega‑cap cloud names with upside earnings surprises. The Russell 2000’s 6.57% rise looks strong, but nearly half of that came in the final week as month‑end portfolio rebalancing chased laggards.
Key observations: Breadth narrowed from April. In April, 78% of S&P 500 stocks were above their 50‑day moving average at the peak. In May, that number peaked at 61%. Investors did not sell risk; they concentrated risk into the most visible growth stories.
This is a healthy economy with earnings season beating expectations across the board.
Key Themes
AI: From Hope to Proof
May’s difference was earnings. Unlike March and April, where AI enthusiasm was driven by narrative and order speculation, May delivered actual numbers. The major AI‑related hardware and cloud companies beat consensus by an average of 7%, and more importantly, raised forward guidance. The market is no longer pricing a blank check for AI - it is pricing a smaller set of proven winners. That explains the Nasdaq/equal‑weight divergence.
Tariffs, Trade & Transportation: The Re-Pricing of American Power
The “tariff plateau” we identified in April held, but trade talks with Asia showed signs of friction mid‑month, briefly pressuring industrials and retail. Markets shrugged it off, but the equal‑weight S&P’s muted performance suggests that companies without pricing power are still feeling the squeeze. The dollar stabilized in May, removing one tailwind for multinationals. Record U.S. oil exports and trade re-routing may signal the Strait of Hormuz becoming less relevant.
Consumer: Two Speeds Became Three
Higher‑income spending remained robust. Middle‑income consumers showed fatigue, particularly on durable goods. Lower‑income cohorts saw a slight uptick in delinquencies, though from a stable base. The surprise in May was services, as travel, events, and hospitality softened slightly after a strong Q1. Not a collapse, but a moderation. Markets rotated away from leisure and toward tech and selective cyclicals. Perhaps a modern-day Henry Ford will emerge, and a grand profit-sharing plan will restore the balance between capital and labor, resulting in greater prosperity for all. To the Moon for all!
Fed: Warsh Holds, Market Listens for Nuance
Federal Reserve Chair Warsh’s May FOMC statement was a non‑event for rates, but the minutes revealed internal debate about whether “tariff absorption” is complete. A hawkish tilt emerged in two regional presidents, though not enough to move pricing. The 10‑year Treasury yield spiked from 4.2% to nearly 4.7% over the month, before retreating to just under 4.50%. This move provided a tailwind for long‑duration growth stocks, along with opportunities to capture dislocations across fixed income markets. As the Fed and Treasury collaborate on balance sheet duration, expect volatility, and opportunities to continue.
Oil and Geopolitics: Quiet Creep
Geopolitical de‑escalation held through May, with no new shocks in the Gulf. Oil drifted from just over $100/barrel to the high $70s by mid‑month before rebounding to near $90 at month end. Seasonal demand as we enter Summer could elevate prices yet again but shouldn’t be material enough to reach new highs for any extended period. This will tame the “inflation bull” some. Energy stocks were flat to slightly down, and capital continued to flow into the latest and greatest technology.
Passive vs. Active Flows
April’s active manager chase extended into early May. By mid‑month, many managers had hit their tech weightings and paused. The final week saw a resumption of passive inflows into mega‑cap ETFs, amplifying the cap‑weighted index’s gains. This mechanical flow dynamic is worth watching into June.
Outlook
May confirmed the bull case: earnings are not breaking, the Fed is not hiking, and geopolitics aren’t escalating. But May also revealed structural vulnerability beneath the surface along with increased velocity of capital chasing potential returns. The equal‑weight S&P gained only half as much as its cap‑weighted sibling. Small caps lagged. Breadth contracted.
Entering June, we are watching three market-moving forces:
- Breadth stabilization or further narrowing – If the rally remains concentrated in five to ten names, the risk of a sharp pullback increases.
- Consumer-services data – Early June reports on travel and dining will tell us if May’s softness was a one‑off or a trend.
- Oil – A sustained move above $100/barrel (requiring a supply shock, not just seasonal demand) would begin pressuring margins outside of energy.
- Weather – Monitoring the development of incoming Super El-Nino (warming of the Pacific Ocean water temperature cycle) and potential global impacts
Seasonally, June is mixed, but the setup is better than average - rising earnings revisions, a stable Fed, and no immediate election or debt ceiling overhang. We are not expecting a repeat of May’s 5%+ advance, but we are not in full defense mode either.
Fundamentals are stronger than fears. We believe the last eight weeks taught us is that this is not the type of market to be “all in or all out”. The strategy remains: own the proven AI infrastructure names, maintain selective cyclicals, and monitor market participation and breadth weekly.
Conviction does not require vertical climbs. Leading through uncertainty requires ability to keep learning, adapting, and maintaining clarity on what is working and why.
Onward and Upward, Always!
Steven
STEVEN W. SCHMITT, MBA, CFP®, CPM®, CRPS®, ADPA®
Managing Director
Private Wealth Advisor
CA Insurance # 0G61253
The Schmitt Group of Raymond James
Raymond James & Associates, Inc. // 3CV
61 S. Paramus Road Suite 360, Paramus NJ 07652
Direct 551.497.5531 // Text 201.559.0775 // eFax 201.291.4298
steven.schmitt@raymondjames.com
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Any opinions are those of Steven Schmitt and not necessarily those of Raymond James.
Expressions of opinion are as of this date and are subject to change without notice.
The information contained in this commentary does not purport to be a complete description of the securities, markets, or developments referred to in this material.
Investing involves risk and you may incur a profit or loss regardless of strategy selected, including asset allocation and diversification.
Past performance does not guarantee future results.
The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. The NASDAQ composite is an unmanaged index of securities traded on the NASDAQ system.
The Dow Jones Industrial Average (DJIA), commonly known as “The Dow” is an index representing 30 stock of companies maintained and reviewed by the editors of the Wall Street Journal.
The Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index, which represent approximately 8% of the total market capitalization of the Russell 3000 Index.
Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance.
Individual investor's results will vary. Past performance does not guarantee future results. This is not a recommendation to buy or sell any company's stock mentioned above.
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