Economy, Stocks and Bonds
May 2026
The Persian Gulf remains a focal point in an increasingly fragmented global landscape. Oil prices have again spiked to four-year highs despite an initial reprieve following the ceasefire announcement. The longer the conflict persists, the more costly it will be to bring impacted production back online. Relationships within member countries of international alliances continue to be tested. In another sign of a changing world order, the United Arab Emirates has pulled out of its decades-long membership in OPEC.
Given this backdrop, the pace of inflation has increased. The Federal Reserve has the challenge of assessing the stickiness of this increase and carving out “noise” that may be in the system from a temporary supply shock. The Federal Reserve’s April meeting concluded with no change to the Federal Funds rate (as the markets widely expected). A Senate vote to confirm Kevin Warsh as new Chair is expected in mid-May. In committee confirmation hearings, Warsh focused on promising “regime change” at the Fed and a possible shift on how it measures inflation as well as a move to reduce the emphasis on forward guidance on policy decisions.
The latest GDP report indicated a 2% uptick in growth, right at the level generally considered by economists to be the sustainable long-term growth rate for a mature economy. Meanwhile, the labor market has shown resilience with the latest unemployment figure dropping slightly to 4.3%. This remains well below the 5% level traditionally considered to be “full employment.”
Despite the state of the geopolitical environment, the S&P 500 has recovered approximately 13% since its end of March low. Fueling the advance has been technology driven companies which have fared well coming into the release of their closely watched first quarter earnings reports. Current market conditions display widening performance gaps between individual companies and sectors, where active management thrives. Concomitantly, the VIX volatility index is down from a recent peak of over 30, to a more sedated 17.5.
Rates in the fixed income market remain elevated. We continue to see corporate bond rates in the range of 4% to 5% for the maturity range that we are comfortable with.
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