May 2026 Monthly Review

A Look Back

The above title comes from my dad. Unfortunately, he passed on May 14th at the age of 90. It was a life well-lived and we were all blessed to have him around for so long. Much of my take on life and the big-picture things that really matter have been influenced by him. He would say the above to me when I was trying to come up with complicated reasons or excuses for things going on in the world, or in the space immediately around me. The point was that usually the first, most common-sense explanation turns out to be right. For the purposes of this one-pager, the stock market returns in May are the hoofbeats…and they were extremely positive, after a big bounce back in April. The S&P 500 was up over 5%, and now 11.27% in the first five months of 2026. The tech-heavy NASDAQ performed better, with an 8.43% return in May and over 16% YTD. International Emerging Markets continued their recent tear with a 9.69% return in the month and are up over 25% in 2026. Further, the one-year returns almost look like arcade numbers…30% for the S&P 500, over 40% for the NASDAQ and U.S. Small-Cap and 54% for Emerging Markets! So, why the hoofbeats, and especially in an environment of geo-political uncertainty in the Middle East that has brought on increased energy prices here in the states and around the globe? Maybe there isn’t a unicorn answer. Perhaps it is just as simple as investors have been willing to bid up the prices of stocks in general, and anything AI-related specifically. The AI-theme has really taken hold over the last couple of years, and big companies have committed big dollars to the technology. Data centers are being proposed and built to supply the energy needed to support this effort and chip makers and software developers are busy trying to answer the bell as well…all very good stuff indeed. Recent inflation reports have shown an expected uptick, mostly due to the rise in energy prices. The Feds preferred measure, the Personal Consumption Expenditures (PCE), showed a year-over-year increase of 3.8% in April, the highest since May of 2023. The CPI was also up 3.8% with energy up 18% and airline spending over 20%. Other indicators like employment, spending, and manufacturing are all in the “okay” range. We added over 100,000 non-farm jobs in April and the unemployment rate stands at 4.3%, up from 3.4% two years ago, but well below any danger zone.

A Look Ahead

I suppose the most important question is how long these hoofbeats can keep making their noise. Traditional valuations measures are certainly stretched…and some longer-term ones, like the Buffet indicator, are severely stretched. We have seen comparisons of this AI-fueled rally to the ”Dot-Com” era of the late 90s and early 2000s. There are some similarities from an investor sentiment and concentration standpoint. (The most recent high in the S&P 500 saw only 20 individual stocks making a corresponding high) I remember well the ”Dot-Com” timeframe when people wanted to own anything with a “.com” or “.net” in the name. But, the big difference between then and now is that many or most of those companies 25-30 years ago were not making any money or had any real plans of how to make money. Companies like Nvidia, Meta, Amazon, Intel, etc are making a lot of money and have healthy balance sheets. Now, is it possible that investors are a little too excited about the immediate returns on AI-related stocks? Maybe so…time will tell as it always does. We believe there is more runway for the AI-themed plane, but we also know that valuations eventually matter…and when we hear hoofbeats, it’s probably not a unicorn.