Our May Perspective
What’s New
First quarter earnings for the S&P 500 rose nearly 30% on a year-over-year basis driven by blowout numbers in the Information Technology and Communications Services sectors. This was driven largely by companies closest to the AI boom. Stocks reacted in kind with the S&P 500 rising over 5% during the month bringing year-to-date gains for the index north of 10%.
The economic picture has been decidedly more mixed. The labor market continues to hold up but wage growth is no longer outpacing inflation. The Federal Reserve’s preferred measure of inflation, the Core PCE deflator, rose 3.3% in the past year. The savings rate has also declined to its lowest level in over three years suggesting higher prices at the gas pump and elsewhere are starting to take their toll on the consumer.
The Fed Funds futures market entered 2026 expecting two to three quarter point rate cuts. Now, concerns over stubborn core inflation plus spillover from the conflict with Iran has the market thinking that the Fed’s next move is higher.
Our Perspective
The first quarter of 2026 was an incredible period for corporate earnings. This magnitude of growth is rarely seen outside of early economic recoveries. These results have been met with rising expectations for the quarters ahead which are largely reflected in current valuations. At the same time, the equity market remains incredibly sanguine about the conflict with Iran and the path of economic growth in the US.
The investing public is eagerly awaiting the IPO of SpaceX and other potential high-profile companies (e.g., Anthropic and OpenAI). The merits of any individual investment are outside the scope of Perspective, but such universal bullishness has historically signaled increased odds of greater volatility ahead.
It is very tempting to take on additional risk when the equity market is rising and sentiment is bullish. However, it is important to make sure that overall portfolio risk is appropriate for your financial plan and stress tested against the impact of an unforeseen drawdown in equities.
Our View
Stock Market
The stock market continues to shrug off the ongoing conflict with Iran and the closure of the Strait of Hormuz.
After a 5+% return in May, the S&P 500 is now up over 10% since the eve of the attacks in late February.
Bond Market
It was a volatile month for bond investors. Yields spiked mid month before a late rally that put rates slightly higher than where they began.
Featured Asset Class
Investor interest in Initial Public Offerings (IPOs) is reaching levels not seen in some time. The IPO boom associated with the Tech Bubble of the late 90s is not an appropriate direct comparison. However, it should serve as a powerful reminder that IPOs are not a one-way trade to riches.
Themes Driving Markets
Energy Volatility
The US attack on Iran and closure of the Strait of Hormuz sent oil prices surging. The strait handles roughly a quarter of global maritime oil trade.
Bottom line: Given limited worker bargaining power, higher energy prices are likely to act as a tax on economic growth rather than a spark that starts an inflation spiral.
Tariffs
A year after Liberation Day, tariffs remain unpredictable — but the worst fears haven't materialized. Inflation is contained and corporate margins are holding.
Bottom line: The Supreme Court's invalidation of the IEEPA tariffs was a landmark ruling, but the administration still has significant tools to implement tariffs far above post-WWII norms.
Market Volatility
Q1 tested nerves. Software stocks saw their worst relative drawdown since the dot-com era, and late-quarter geopolitical pressure added to the unease.
Bottom line: Credit spreads held firm, the dollar reaffirmed its safe-haven role, and the equity selloff was tame by historical standards.
The Value of a Mid-Year Review
When costs rise across everyday categories, it's easy to make reactive decisions. But mid-year—when things tend to slow heading into summer—is an ideal time for a financial review. Revisiting your spending plan, cash reserves, and tax strategies now lets you adjust proactively instead of scrambling at year-end.
A mid-year look also gives you context: a clear read on where you actually stand, so the choices ahead are grounded in your full picture rather than a moment of anxiety.
Rising prices reshape how much cash to hold, how much to direct toward expenses, and how much to keep working in the market—and seeing those trade offs together leads to better decisions. If it's been a while since you stepped back to look at the whole plan, now's the time.
Sources: BEA,gov, Morningstar.
All investments contain risk and may lose value. This material contains the opinions of Manning & Napier, which are subject to change based on evolving market and economic conditions. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable but not guaranteed. The S&P 500 Total Return Index is an unmanaged, capitalization-weighted measure comprised of 500 leading U.S. companies to gauge U.S. large cap equities. The index accounts for the reinvestment of regular cash dividends, but not for the withholding of taxes. Morningstar, Inc. is a global investment research firm providing data, information, and analysis of stocks and mutual funds. © Morningstar, Inc. 2026. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied, adapted or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information, except where such damages or losses cannot be limited or excluded by law in your jurisdiction. Past financial performance is no guarantee of future results.
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