This market update highlights key developments across equities, fixed income, and the broader economic landscape as 2026 continues to unfold.
Equities
Markets Reached Record Highs, Led by a Powerful Surge in Chip Stocks
May was a strong month for stocks, with all three major U.S. indexes closing at record highs. The S&P 500 returned 5.26%, its second consecutive positive month, while the technology-heavy Nasdaq posted its best month of the year. The Dow Jones Industrial Average closed above 51,000 for the first time in its history. The clear driver was renewed enthusiasm for companies tied to artificial intelligence, and in particular two corners of the semiconductor industry that we will explain in some detail, since they accounted for an outsized share of the month’s gains. Smaller U.S. companies, as measured by the Russell 2000, rose 4.37%, and the rally extended overseas as well: emerging market stocks gained 9.50%, helped by their heavy exposure to Asian chipmakers, while developed international markets (MSCI EAFE) rose 3.18%. The MSCI ACWI, which tracks stocks across the globe, gained 5.21%. One note of caution worth flagging: the rally was heavily concentrated in semiconductor names, and by some technical measures that group has risen at a pace not seen since the late 1990s. Concentrated leadership of this kind tends to reward a diversified portfolio that participates in the gains without depending entirely on any single theme.
Spotlight: The Memory and Processor Chip Boom
Why Memory Makers and Traditional Chip Companies Surged
Two groups of semiconductor companies drove much of May’s gains, and the reasons behind their moves are worth understanding because they reflect a genuine shift in demand rather than simple speculation. The first group is memory chip makers, the companies that produce the components that store data. Micron, the largest U.S. memory maker, became a one-trillion-dollar company for the first time, and its Korean competitors SK Hynix and Samsung both reached record highs. The driver is a specialized product called high-bandwidth memory, which sits alongside the processors that power artificial intelligence systems. Demand for this memory is currently outstripping supply by the widest margin the industry has ever seen, which has pushed prices sharply higher and given these companies pricing power they have not enjoyed in years. Micron noted it can meet only about half to two-thirds of what its customers want to buy. The second group is the makers of traditional processor chips, namely AMD and Intel, the two companies behind the central processors used in most computers and data centers. AMD reached an all-time high after reporting that its data-center business had grown 57% from a year earlier and that it had captured a record share of the server processor market. Intel rallied strongly as well on progress in its effort to manufacture chips for other companies. The underlying reason both are benefiting is a shift in how artificial intelligence systems are built: as these systems move from training to everyday use, they require many more traditional processors to coordinate the work, expanding the market for exactly the products these two companies sell.
Bonds
Yields Held Near Recent Highs as Income Opportunities Remained Attractive
Bond markets were relatively steady in May. The 10-year U.S. Treasury yield ended the month at 4.44%, close to where it began, after dipping mid-month and then easing again in the final week as oil prices fell and inflation concerns moderated somewhat. The 2-year Treasury yield finished at 4.00%, leaving the yield curve with a modest positive slope of about 43 basis points, meaning longer-term bonds continued to offer more income than shorter-term ones, which is the normal and healthy state for fixed income markets. The Bloomberg U.S. Aggregate Bond Index returned 0.31% for the month, a solid result that reflects both the income bonds now generate and the late-month easing in yields. Corporate bonds remained well-behaved, with the extra yield investors demand to hold company debt staying low by historical standards, though we are watching for any signs of widening tied to the energy situation. For income-focused investors, the broader message remains constructive: yields across the Treasury and investment-grade markets are at their most attractive levels in years, and bonds continue to play their intended role of generating reliable income and adding stability to a portfolio.
The Federal Reserve and a Leadership Transition
A New Chair Takes the Helm as the Fed Weighs Persistent Inflation
May marked a historic leadership transition at the Federal Reserve. Kevin Warsh was confirmed by the Senate on May 13 in a 54-to-45 vote and took office as chair when Jerome Powell’s term expired on May 15. In an unusual arrangement, Powell chose to remain on the Fed’s Board of Governors rather than step away entirely. The transition was widely anticipated, and markets took it in stride. There was no Federal Reserve policy meeting in May, but the minutes from the late-April meeting, released on May 20, drew attention. They revealed that a majority of Fed officials believe it could become appropriate to raise interest rates further if inflation remains persistently above their 2% target. This represents a notable shift in tone: as recently as late last year, the conversation was about how quickly the Fed might cut rates, and now the committee is openly discussing the possibility of hikes. The new chair is generally viewed as favoring lower rates, which sets up an interesting dynamic between his inclinations and an inflation backdrop that argues for patience. Overseas, both the European Central Bank and the Bank of England held their rates steady following their late-April meetings, with markets in Europe beginning to anticipate a possible rate increase in June given the persistence of energy-driven inflation. The first policy meeting under the new Fed chair takes place in mid-June, and we will be watching it closely.
The Economy and Global Events
Inflation Stayed Elevated on Energy Costs, but Oil Prices Fell Sharply
The economic data released in May reflected the lingering effects of the energy shock that began earlier in the year. Consumer prices rose 3.8% over the prior year in April, the highest reading since May 2023, driven almost entirely by energy costs, with gasoline prices up more than 28% from a year earlier. Underlying inflation outside of food and energy was more contained at 2.8%. The labor market remained stable, with 115,000 jobs added in April and the unemployment rate holding at 4.3%, though hiring has clearly slowed from last year’s pace. Economic growth in the first quarter was revised down to a 1.6% annualized rate. The most encouraging development came in energy markets. Oil prices fell sharply during the month, with international benchmark Brent crude declining more than 19%, its worst month since 2020, on growing optimism that a diplomatic resolution to the Iran conflict was within reach. Negotiators reached a tentative 60-day framework to extend the existing ceasefire and begin talks. It is important to be clear-eyed here: the critical Strait of Hormuz shipping lane has not yet fully reopened, and the framework still requires final approval, so the recent relief in oil prices reflects expectations of a resolution rather than a completed one. When shipping resumes, it will meaningfully ease inflation pressure that has defined much of 2026.
Bottom Line
A Strong Month That Rewards Discipline and Diversification
May was an encouraging month, with markets reaching new highs on the strength of a genuine and well-supported boom in demand for artificial intelligence technology. The gains in chip makers, in particular, reflect real and growing demand rather than mere speculation, which is a meaningful distinction. At the same time, we think it is important to keep perspective. The market’s strength has been concentrated in a relatively narrow group of technology companies, while the broader economic picture remains strong, but inflation remains elevated. This is precisely the kind of environment in which a balanced, diversified approach proves its worth: a thoughtfully constructed portfolio participates in the gains from leading themes like artificial intelligence while maintaining the stability that comes from holding quality companies across different sectors, international stocks at attractive valuations, and bonds that now generate meaningful income. The path forward will be shaped by several developments we are monitoring closely: whether the Iran conflict moves toward genuine resolution and the Strait of Hormuz reopens, how inflation evolves as energy prices adjust, and the approach the new Federal Reserve chair takes at his first meeting in June. We remain confident that staying disciplined, diversified, and focused on the long term is the surest path through an environment that, while offering real opportunity, also calls for prudence.