While geopolitical uncertainty continues in the Middle East and high energy prices have dampened the economic outlook, near-record earnings growth was May’s defining feature. Led by the technology sector, equities drew applause while bonds did the more honest accounting.
In our view, bond markets are being more forthright about latent and emerging risks. Equities, by means of comparison, have been steadily moving higher and testing new heights since March’s sell-off event. This isn’t necessarily uncommon for stock markets, where optimism and pessimism can quickly trade places. Looking under the hood, the V-shaped recovery seems far closer to a dismissal of risks rather than a preference for opportunity.
On the risk side, the Iranian conflict and effective closure of the Strait of Hormuz have yet to be resolved, keeping oil prices at elevated levels. Word of salvo strikes often follows announcements of an imminent peace deal, complicating investor predictions. By May’s end, the leading belief was that a deal was in the works. Again, oil fell sharply on the news.
Up until now, oil prices have been the concern. Recent warnings from oil executives at Exxon Mobil and Chevron, however, have drawn attention to depleted inventory levels and the potential for global supply shortages should oil production not normalize soon. Fiscal stimulus and the drawdown of operational reserves have helped households thus far, but both have finite capacity—consumer spending and economic resiliency, in turn, also have limits.
So, what opportunity could be overshadowing these circumstances? In a word: technology. The AI complex refuses to cool down; an impressive 28% growth in first-quarter earnings doubled expectations, drawing more retail investors into already crowded trades.
Of concern is how business profitability and U.S. stock market performance are being determined by a fraction of companies. When we strip out Nvidia, Micron, Alphabet, and Meta, the earnings profile shifts dramatically. Such market concentration carries innate, and significant, risk. As a group project, tech-heavy indices are relying on their top students to continue showing up—any form of absenteeism or falling short of expectations could impact everyone’s final grade.
Balance can be created elsewhere, namely by carefully weighing the opportunity and growth that technology is known for against the risks identified above. Prudence can welcome the direct beneficiaries of the AI buildout—nearly household names at this point—without mimicking the overallocation found at the index level. Associated opportunities across industrials and power generation may be less celebrated, but they are just as crucial. Innovation is a staged process, with adoption typically following construction and commercialization—proactive management is active here as well, looking toward the future and monitoring how companies may utilize AI to improve their business models.
There is comfort to be found somewhere between the bulls and the bears. In a world trying to reconcile the threat of a global oil supply crisis with the growth prospects of AI, diversification, flexibility, and maneuverability may soon become even more crucial levers in portfolio management.
Market Statistics
| Indices | Month to Date | Year to Date |
| S&P 500 | 5.26% | 11.25% |
| Russell 2000 | 4.37% | 18.27% |
| MSCI EAFE Index | 3.18% | 9.80% |
| U.S. Agg | 0.31% | 0.38% |
| U.S. Dollar Index | 98.94 pts (+0.88 pts) | +0.62 pts |
| Commodities | Month to Date | Year to Date |
| WTI Crude (USD/bbl) | $87.36 (-$17.71) | +$29.94 |
| Gold (USD/oz) | $4,541 (-$77) | +$221 |
Outlook
Outlooks depend on positioning and perspective. We view the global economy and overall market at a crossroads. The short-term path likely hinges on the reopening of the Strait of Hormuz, while artificial intelligence will dictate longer-term destinations.
Fixed Income
Inflation remains well above the Fed’s 2% target, and freshly appointed Chairman Warsh leads a committee that has turned hawkish. Overall, previously anticipated interest rate cuts have all but disappeared. Persistent deficits, the rising cost of war, absent tariff revenue, and fears of entrenched inflation have pushed long-dated yields higher—investors see risk, and so they demand compensation.
With fiscal concerns, rising global bond yields, elevated term premiums, and oil prices behaving as they are, the Fed has likely entered an extended holding period. Truisms are not profound, but they shouldn’t be overlooked: the next move will either be a hike or a reduction. It is worth considering the underlying conditions of each path. Monetary policy could ease up if the Middle East resolves, allowing energy prices to take their foot off the gas pedal. Conversely, the Warsh-led committee may feel pressure to raise rates should the conflict extend into the summer months.
Traditional economic data like inflation readings and jobs reports are vital, but investors would be wise to pay equal attention to the irregular signals on the geopolitical stage. They translate to insights for fixed income and beyond.
Global Equities
The U.S. stock market’s recent outperformance has been carried by a single sector and the impressive earnings growth of a select few industry titans. These layered dependencies are what we call narrowing supports. Beyond the concentration risk, there is the question of scale: as a company grows in size, it becomes more difficult to sustain the same level of growth and meet lofty expectations.
More broadly, optimism is not inherently blind; we need to consider what investors have already priced in thus far and whether a resolution would rally markets or simply shift attention elsewhere. How long might the move to peace take? How quickly can bottlenecks unwind? When will supply and pricing return to pre-war levels?
Certain industries won’t be tethered to these unknowns, carving out structural competitive advantages that set them apart. In other words, these businesses can diversify equity sleeves within a portfolio.
Trump Accounts
Established under the One Big Beautiful Bill Act and set to begin funding on July 4, 2026, Trump Accounts are tax-advantaged savings vehicles for eligible Americans under 18. The federal government seeds each eligible account with $1,000, and families can contribute up to $5,000 annually—with funds restricted to broad U.S. equity index products carrying fees no higher than 0.10%. The accounts are locked until age 18, at which point they convert to a traditional IRA.
For markets, the significance is structural rather than immediate. Bloomberg Intelligence estimates that the program will channel roughly $12 billion per year into passive U.S. equity funds; with six million accounts already open, these estimates may not be far off. That is a manufactured, recurring, price-insensitive bid for domestic stocks that accrues over time—that alone makes them worth watching—which could undermine the mechanisms of efficient price discovery.
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