Resilience and Momentum Supporting Market Strength

1. Economic Momentum and the AI Investment Cycle Supporting Markets Markets have continued to move higher, with the S&P 500 and Nasdaq Composite now up approximately 17% and 26%,¹ respectively, supported by a combination of improving economic data, resilient corporate fundamentals, and continued strength across AI-related investment themes. A key driver behind the rally has been the steady improvement in growth expectations, with the Atlanta Fed GDP tracker now running at approximately 3.7% even in the face of the conflict in Iran and higher gas prices.²

Labor market data has remained particularly constructive. Nonfarm payrolls increased by 115,000, marking the strongest two-month employment gain since 2024,³ while weekly initial jobless claims continue to signal stability. Weekly claims most recently came in at 200,000, with the four-week moving average declining further to 203,250,⁴ remaining well below levels historically associated with economic weakness. Layoff activity has also remained contained, with Challenger, Gray & Christmas job cuts down 50% year-to-date and 21% year-over-year.⁵

Broader economic activity continues to reinforce this resilient backdrop. Both ISM Manufacturing and ISM Services remained above the key 50 threshold, signaling continued expansion across the economy. Importantly, much of this strength continues to be tied to the ongoing AI investment cycle. The AI food chain is increasingly benefiting a broad range of industries, extending beyond technology into data center infrastructure, grid and power development, semiconductors, industrials, and even chemicals. As hyperscaler capital expenditures continue to accelerate, these second-order beneficiaries remain well positioned to support both earnings growth and broader economic momentum.

2. Consumer Trends and the Search for Broader Market Participation The next key test for markets will come from upcoming earnings reports across the discretionary and consumer sectors, which should provide important insight into the health of the U.S. consumer. Retail sales data has remained constructive, growing roughly 4% year-over-year,⁶ suggesting spending activity continues to hold up despite higher ongoing geopolitical uncertainty. At the same time, the consumer backdrop remains K-shaped, with higher-income households continuing to benefit from elevated home values, strong equity market appreciation over the past several years, and generally healthy balance sheets.

Another important theme to watch is whether market leadership can continue to broaden beyond a narrow group of technology names. Prior to the geopolitical escalation, participation across the market had been improving meaningfully, with a wider range of sectors contributing to performance. During the height of the conflict, however, leadership became more concentrated within large-cap technology. We continue to look for participation across industries as AI has boosted earnings growth across sectors. We see a lot of potential with these sectors’ eventual participation, particularly with financials, as they have lagged, being down roughly 5.74% year-to-date despite strong Q1 earnings growth of +24%.⁷

3. Earnings Strength and Key Macro Focus Areas The earnings backdrop continues to remain constructive, with earnings growth currently running at approximately 25%, reinforcing the resilience seen across much of corporate America. This week, investor focus will center on several key reports, including results from Cisco Systems and Applied Materials, alongside CPI and PPI inflation data, which will be critical in shaping expectations around Federal Reserve policy. At the same time, geopolitical developments remain front and center, particularly surrounding the ongoing conflict in Iran and the upcoming Trump-Xi meeting.

4. Fixed Income U.S. Treasury yields were mixed across the curve last week, with modest net changes despite pronounced rate volatility driven by geopolitical tensions involving Iran and the markets digestion of April’s job report. By Friday’s close, the 2-year treasury was 1 basis point higher, while the 10-year & 30-year treasury yields both fell 2 basis points. The week ahead brings a dense macro calendar, highlighted by April CPI on Tuesday, PPI on Wednesday, and Retail Sales on Thursday.⁸

Credit markets strengthened modestly last week, with tightening evident across both the investment-grade and high-yield sectors. Investment-grade spreads moved 5 basis points tighter to +111, while high-yield spreads narrowed 1 basis point to +323. In the municipal market, tax-exempt yields were lower by 1-2 basis points across the curve.⁹

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Return for Selected Indices¹⁰

Sources:

1. Bloomberg: As of May 11, 2026 ↩︎
2. Federal Reserve Bank of Atlanta: As of May 8, 2026 ↩︎
3. Bloomberg: As of May 8, 2026 ↩︎
4. Department of Labor: As of May 7, 2026 ↩︎
5. Challenger, Gray & Christmas: As of May 7, 2026 ↩︎
6. United States Census Bureau: As of April 21, 2026 ↩︎
7. Bloomberg: As of May 11, 2026 ↩︎
8. Bloomberg: As of May 11, 2026 ↩︎
9. Bloomberg: As of May 11, 2026 ↩︎
10. Bloomberg. As of May 11, 2026 ↩︎

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