The first full trading week of May highlighted an increasingly concentrated and fragile market rally, as investors grappled with persistent inflation risks, elevated energy prices, and a Federal Reserve caught between slowing growth and a still-tight labor market. While major indexes remain near record territory, underlying market breadth weakened noticeably, reinforcing concerns that the broader advance is becoming heavily dependent on a narrow group of mega-cap technology and AI-related names.
Wall Street finished the week sharply higher as investors weighed a stronger-than-expected U.S. jobs report, upbeat semiconductor earnings, and escalating geopolitical tensions in the Middle East. The S&P 500 and the Nasdaq notched record highs on Friday, boosted by gains in Nvidia, Sandisk and other AI-related stocks, while a stronger-than-expected jobs report pointed to labor market resilience. They have now notched their sixth straight weekly gains gains, the longest such winning streak since October 2024. The Dow has logged two consecutive weekly advances.
The S&P 500 has now gained 8% in 2026, while the Nasdaq has rallied 13%. The earnings optimism helped investors look past fresh attacks between U.S. and Iranian forces in the Gulf. Brent crude rose above $100 a barrel as hopes faded for a quick resolution to the Middle East conflict and the gradual reopening of the Strait of Hormuz, a key transit route for oil and liquefied natural gas.
For the week, the Dow gained 0.2% to 49,609, the S&P 500 added +2.3% to 7,399 the Nasdaq rocketed higher by 4.5% to 26,247 and the Russell 2000 closed higher by 1.7% to 2,861. The CBOE Volatility Index held steady and added +1.2% to 17.19.
The market has rocketed higher on the backs of AI and tech related stocks, in addition to an impressive earnings season. At this late stage of the earnings season, the S&P 500 continues to report impressive results. Both the percentage of S&P 500 companies reporting positive earnings surprises and the magnitude of earnings surprises are above recent averages. As a result, the index is reporting higher earnings for the first quarter today relative to the end of last week and relative to the end of the quarter. In addition, the index is reporting its highest earnings growth rate since Q4 2021.
But what about the economic data that keeps flowing in?
U.S. consumer sentiment in May fell to an all-time low of 48.2 from April’s 49.8. But April jobs numbers were better than expected. Consumers are concerned about the impact of inflation on personal finances and buying conditions and expect prices to rise at an annual rate of 4.5% over the next year, down slightly from a month earlier, data Friday showed. They saw costs rising at an annual rate of 3.4% over the next five to 10 years.
U.S. employment increased more than expected in April, pointing to labor market stability and reinforcing expectations the Federal Reserve would keep interest rates unchanged for some time as the war with Iran fans inflation.
Despite the second straight month of strong job growth reported by the Labor Department on Friday, strains remained and economists warned the labor market was not out of the woods yet.
Nonfarm payrolls increased by 115,000 jobs last month after an upwardly revised 185,000 advance in March, the Labor Department’s Bureau of Labor Statistics said. Economists polled by Reuters had forecast payrolls rising by 62,000 jobs after a previously reported 178,000 rebound in March.
The number of people working part-time for economic reasons increased by the most in 14 months and there were also more multiple job holders. Household employment decreased for a fourth consecutive month, but was offset by a continued contraction in the labor force, keeping the unemployment rate unchanged at 4.3% after rounding.
The stock market is what’s known as a leading economic indicator. A leading economic indicator is a measure of economic recovery that shows improvement before the actual economy does.
Stock prices are forward-looking in the sense that investors buy and sell stocks not based on what happened yesterday or what is happening today, but rather based on their expectations for the future. For example, a company may report impressive EPS and revenue numbers in a given quarter. But if they also cut revenue and EPS growth projections for the next several quarters at the same time, the stock will most certainly sell off.
An individual stock is priced in large part based on investors’ expectations of what is coming in the next several months and quarters. Collectively, the S&P 500 is priced in a similar fashion.
The stock market leads the economy, NOT the other way around
It is somewhat amazing how many articles and posts one can find online that goes something like this: “Economic indicator XYZ appears to be warning of an economic slowdown; therefore, we should expect the stock market to weaken.”
It is surprising how many people are unaware that one of the official “Leading Economic Indicators” is the S&P 500 Index itself. The bottom line: The stock market leads the economy, not vice versa.
Generally, the stock market performs better in the 12 months before a monthly economic gain and less well or even poorly in the 12 months before a monthly economic decline.
Overall, 89% of the companies in the S&P 500 have reported actual results for Q1 2026 to date. Of these companies, 84% have reported actual EPS above estimates, which is above the 5-year average of 78% and above the 10-year average of 76%.
Economic Reports of Note (All Times EST):
Monday
10:00 am – US: Existing Home Sales
11:30 am – US: 3 & 6-month Bill Auctions
1:00 pm – US: 3-year Note Auction
11:35 pm – JAP: 10-year JBG Auction
Tuesday
6:00 am – US: NFIB Small Business Optimisim
8:15 am – US: ADP Employment Change Weekly
8:30 am – US: CPI
8:30 am – US: Real Earnings
8:55 am – US: Redbook
11:00 am – US: Cleveland CPI
11:30 am – US: 52-week Bill Auction
1:00 pm – US: 10-year Note Auction
1:00 pm – US: Fed Member Goolsbee Speaks
Wednesday
6:00 am – US: OPEC Monthly Report
7:00 am – US: Mortgage Data
8:30 pm – US: PPI
10:30 am – US: Crude Oil Inventories
11:30 am – US: Fed Member Collins Speaks
1:00 pm – US: 30-year Bond Auction
1:15 pm – US: FOMC Member Kashkari Speaks
11:30 pm – JAP: 30-year JGB Auction
Thursday
2:00 am – UK: GDP
8:30 am – US: Retail Sales
8:30 am – US: Weekly Jobless Claims
10:00 am – US: Business & Retial Inventories
11:30 am – US: Atlanta Fed GDPNow
11:30 am – US: 4 & 8-week Bill Auctions
7:30 pm – US: Fed Vice Chair Barr Speaks
7:45 pm – US: FOMC Member Williams Speaks
Friday
8:30 am – US: NY Empire State Manufacturing Index
9:15 am – US: Industrial & Manufacturing Production
9:15 am – US: Capacity Utilization
