Key Wealth Investment Brief

Key Takeaways

U.S. and Iran have reached a deal to stop fighting and reopen the Strait of Hormuz.

Late Sunday, President Trump announced that an interim peace deal has been reached that will extend the ceasefire for 60 days and reopen the Strait of Hormuz. Iranian officials have also confirmed this. During the 60-day ceasefire, the two sides will work to create a long-lasting peace deal that will likely include a limit on the Iranian nuclear program in exchange for the U.S. lifting economic sanctions on Iran. The deal is set to be signed on Friday in Switzerland. The market has responded positively to the news, but we remain cautious as many unresolved issues remain, including the continued conflict between Israel and Hezbollah coupled with the fact that it will take considerable time to rebuild energy-related infrastructure that was damaged or destroyed during the 4-month-long conflict. 

SpaceX, we have lift off.

Space Exploration Technologies, more commonly known as SpaceX, debuted last week as the largest IPO in history. After an increase of approximately 20% on its first day of trading, the company is now the sixth most valuable company in the world. The company is also one of the most highly valued stocks, with a price-to-sales ratio of 109. Historically, technology companies have had a broad range of outcomes following their IPO. According to data compiled by Renaissance Macro, returns over the first year have ranged from -94% to +213%, with a median return of -15.7%. In other words, once a high-profile company becomes public and customarily enjoys a one-day “pop,” longer-term returns are more nuanced based on a company’s fundamentals versus investor flows.

Diversification has become underappreciated. 

In recent years, market performance has been largely driven by a smaller number of companies, leading some investors to disregard diversification within their portfolio. We believe investors would be better served to embrace more diversification (not less). In the words of a Wall Street Journal columnist and accomplished author: “The point of diversification isn’t to own assets that all go up in price at the same time. If you do, they’re also likely to go down at the same time. Instead, you should own assets that go up and down at different rates and at different times. In the long run, that reduces your risk — and that’s what diversification is for.”

If you are worried about high concentration and high valuations in the U.S. stock market, diversification can help. One area that could particularly help with diversification is European equities, which have significantly lower valuations and concentration relative to U.S. markets. While these lower valuations are warranted due to the region being a clear laggard in the AI arms race, exposure is still warranted, as the lack of AI exposure could be beneficial in a downturn. Moreover, many European economies are proving more dynamic than some investors may perceive. 

Kevin Warsh is set to lead his first F.O.M.C meeting as the bond market pushes back against interest rate cuts.  

Kevin Warsh will chair his first Federal Open Market Committee (F.O.M.C.) this week as the Committee meets June 16-17. Warsh has publicly stated he believes interest rates should be lower, however many other members of the F.O.M.C. and the bond market disagree. Market participants expect rates to remain unchanged, but they would not be surprised to see a change in the Committee’s statement, moving from an easing bias to a neutral bias.

The meeting will also see the release of the updated Summary of Economic Projections (SEP). The last SEP showed members were forecasting two interest rate cuts this year. 

Bottom Line – how to invest now.

We expect volatility to remain elevated, and we continue to advocate for robust diversification. Bonds may continue to struggle to add ample diversification amidst an environment of larger federal deficits and higher interest rates. Bonds may show higher correlations with stocks in such an environment, leading to less portfolio diversification.

Even before the Iran War, we held the view that inflation could be persistent (due to rising nationalism along with other forces). The Iran crisis adds a material new source of risk, and although we don’t see history repeating itself in lock-step with the 1970s, investors may want to maintain allocations to real assets after the conflict ends.

Another argument for diversification: the S&P 500 index has become much more concentrated. In 2006, the S&P 500 had approximately 35% exposure to growth stocks, 39% blend, and 26% value, according to data from Bank of America (BofA). In 2026, the S&P 500 holds 46% growth stocks, 42% blend, and only 11% value stocks, according to BofA.

In sum, real investors need real assets, and U.S. investors need exposure beyond U.S. financial assets and concentrated indexes.

Equity Takeaways:

Stocks were positive in early Monday trading. The S&P 500 rose approximately 1.4%, to 7537, while the tech-heavy Nasdaq rose approximately 2.4%. Small caps rose approximately 1.6%. Non-U.S. stocks were mixed.

After nine straight weeks of gains, the S&P 500 experienced back-to-back down weeks. We view this pullback as a healthy reset for the market as we head into summer. Despite the market-cap weighted S&P 500 falling last week, the S&P 500 Equal Weight Index moved higher, ending the week at a new all-time high, validating our thesis that market advances would be broad-based. The last two weeks also saw a rise in volatility, as the Cboe Volatility Index (VIX) ended the week at 17.7. This was not a volatility explosion, just merely a return to the index’s long-term average.

Earnings continue to be the driving force behind index returns. The S&P 500 earnings are adding roughly $1.50 each week, meaning if we maintain the current pace, we will end the year with earnings per share at more than $400. In our view, this squarely brings a move to 8000 into the range of likely outcomes. 

Fixed-Income Takeaways:

Yields experienced a bull-steepening last week, as short-term yields fell by more than long-term yields. Specifically, 10-year yields moved 5 basis points (bps) lower to close the week at 4.48%, while 30-year yields moved 3 bps lower to close the week at 4.97%. At the short end, 2-year yields moved 7 bps lower, closing the week at 4.08%.

Yields initially jumped as the CPI report showed inflation jumped above 4% for the first time since 2023 and hostilities between the U.S. and Iran reignited. However, yields came down to end the week after the U.S. announced a halt to further strikes. 

In early Monday trading, yields were slightly lower across the curve: 2-year Treasury yields were trading at 4.04%, 5-year Treasury yields at 4.17%, 10-year Treasury yields at 4.45%, and 30-year Treasury yields at 4.95%.

Credit spreads compressed slightly last week and remained well below historical averages and are not showing any signs of economic concern. Markets experienced $30 billion in Investment Grade issuance last week, bringing the year-to-date issuance total to more than $1 trillion. 

Key Takeaways

Oil inventories are running low as the Strait of Hormuz remains closed.

Despite a ceasefire between the U.S. and Iran being announced in early April, the Strait of Hormuz has remained effectively closed, severely limiting the flow of oil tankers through the critical waterway. Up to this point, the drawdown of oil inventories has helped blunt the price impact of the Strait closure. However, inventories cannot maintain this pace of depletion for much longer, meaning prices may rise in the near future. This could also drive Treasury yields higher, further impacting the economy.

The economy and labor market have remained strong, but shifts have occurred.

Market participants continue to expect strong economic growth in the U.S., with forecasts hovering around 2% and the Atlanta Fed’s GDPNow estimate indicating potentially even faster growth. Additionally, the labor market has experienced three consecutive months of job growth, and the unemployment rate has remained steady at 4.3%. Hiring has been especially strong within the leisure and entertainment sector, possibly because of the upcoming World Cup. On the other hand, amid the recent strength in job growth, one area of mild concern is the rate of wage growth, as it is now slower than the rate of inflation, placing further pressure on consumers.

The jobs report has also experienced a noticeable shift in what sectors are driving the job gains. Since the launch of ChatGPT in November 2022, sectors such as Health Care, Utilities, and Construction have experienced significant gains, while the Information and Transportation sectors have both experienced net declines in the number of employees.

The artificial intelligence (AI) hype cycle continues.

Throughout history, many innovations have gone through a “hype cycle” where expectations for the new technology grow rapidly before reaching a peak. This often culminates in overly optimistic expectations and malinvestment, which causes expectations to reset before the true benefit of the technology is realized. AI has been in the rapid rise in expectations phase since the launch of ChatGPT.

We cannot be sure if we have reached the peak of the hype cycle, as it cannot be determined until it has already passed. One thing is for sure though, the hype cycle has driven up concentration in the market. The “AI Big 10” now accounts for 40% of the S&P 500, according to Bank of America (BofA). The concentration in AI-related companies is expected to rise further with the SpaceX initial public offering (IPO) this week.

Private credit is back in the headlines.

After some deterioration in yields, retail investors increased their redemption requests, resulting in some investors being surprised to learn that there are manager-imposed gates that limit the redemption amount each quarter. Media outlets have picked up on the redemption limits and, in our opinion, caused some undue anxiety.

Despite the negative headlines, we believe private credit remains an attractive diversifier for certain investors’ portfolios. Inflows to funds have continued at a pace of 1–2% per quarter, signaling continued investor appetite for the asset class; and credit quality has fallen slightly but remains above historical levels, according to Cliffwater Direct Lending Index (CDLI) data. Refinancing and prepayment activity has remained above 5% per quarter, allowing funds to meet the redemption requests without additional sales, based on data from CDLI.

Bottom Line – how to invest now.

We expect volatility to remain elevated, and we continue to advocate for robust diversification. Bonds may continue to struggle to add ample diversification amidst an environment of larger federal deficits and higher interest rates. Bonds may show higher correlations with stocks in such an environment, leading to less portfolio diversification.

Even before the Iran War, we held the view that inflation could be persistent (due to rising nationalism along with other forces). The Iran crisis adds a material new source of risk, and although we don’t see history repeating itself in lock-step with the 1970s, investors may want to maintain allocations to real assets after the conflict ends.

Another argument for diversification: the S&P 500 index has become much more concentrated. In 2006, the S&P 500 had approximately 35% exposure to growth stocks, 39% blend, and 26% value, according to data from Bank of America (BofA). In 2026, the S&P 500 holds 46% growth stocks, 42% blend, and only 11% value stocks, according to BofA.

In sum, real investors need real assets, and U.S. investors need exposure beyond U.S. financial assets and concentrated indexes.

Markets generally “settle up” over time. Long-term investors should not become too bearish. Short-term and downside volatility is the price paid to earn long-term outperformance: in the past 75 years, the S&P 500 experienced an intra-year decline of 14% on average, but historically still finished the year positive 78% of the time, according to Creative Planning.

Equity Takeaways:

Stocks were positive in early Monday trading. The S&P 500 rose approximately 0.8%, to 7441, while the tech-heavy Nasdaq rose approximately 1.4%. Small caps rose approximately 1.0%. Non-U.S. stocks were lower.

During last week, the S&P 500 reached an all-time high, then experienced a sharp reversal and finished down, ending its nine-week winning streak. Despite the down week, it is difficult to be bearish about stocks when earnings continue to show strong growth. However, there are some concerns due to the growing concentration of Technology companies, now accounting for approximately 40% of the S&P 500. Additionally, the massive outperformance of Momentum relative to Low Volatility over the past few months is a potential sign of an overextended market.

On the international front, Korea’s KOSPI index has been on a parabolic rise since March, driven by performance in semiconductors. As noted in previous weeks, a parabolic rise typically does not end by going sideways. We are highlighting the KOSPI because since mid-April, it has been a near replica of the Nasdaq 100. The KOSPI experienced a significant downturn to start this week, so far, while the Nasdaq has done the opposite. The linkage between the two indices possibly has been broken, or we could see a significant reversal in the near future.

Fixed-Income Takeaways:

Yields experienced a bear-flattening last week, as short-term yields rose by more than long-term yields. Specifically, 10-year yields moved 10 basis points (bps) higher to close the week at 4.53%, while 30-year yields moved 3 bps higher to close the week at 5.00%. At the short end, 2-year yields moved 15 bps higher, closing the week at 4.15%.

Short-term yields jumped as traders priced in earlier and more aggressive interest rate hikes. The market is pricing in a 70% chance of a rate hike by October. This is in direct contrast to the FOMC’s Summary of Economic Projections from March, which showed participants expected one or two rate cuts this year.

In early Monday trading, yields were slightly lower across the curve: 2-year Treasury yields were trading at 4.13%, 5-year Treasury yields at 4.25%, 10-year Treasury yields at 4.52%, and 30-year Treasury yields at 4.99%.

Credit spreads widened slightly last week but remain well below historical averages and are not showing any signs of economic concern. Markets expect $50 billion in Investment Grade issuance this week. After a record-setting first quarter, this year is on pace to see nearly $2 trillion in issuance – at this level, it may be challenging for spreads to remain at these compressed levels throughout the year.

National Call Replay

Please listen to Key Wealth's Mid-Year Update, where our Chief Investment Office shares timely insights on the forces shaping markets and portfolios in the second half of 2026. We explore how we’re navigating a complex environment marked by geopolitical uncertainty, rapid advances in artificial intelligence, evolving private markets, and a more cautious U.S. consumer, all against the backdrop of the upcoming congressional midterm elections.

Key Wealth's National Call: 2026 Mid-Year CIO Update Replay

Key Takeaways

Market performance has shifted away from the “Magnificent 7.”

Since the launch of ChatGPT, the Magnificent 7 stocks (Apple, Amazon, Alphabet, Meta, Microsoft, Nvidia, Tesla) have been the primary driver of returns in the S&P 500. Beginning in the last few months of 2025, returns have broadened out to now include areas such as Energy, Industrials, and parts of Information Technology beyond the Magnificent 7.

In addition, different equity styles beyond large-cap growth stocks have outperformed, with small-cap and value stocks posting significant gains year-to-date (YTD). The growth in returns has been most noticeable in semiconductors as the artificial intelligence (AI) buildout has driven demand for chips, boosting some shares up more than 100% YTD.

The rise in semiconductors has led to index concentration both at home and abroad.

Emerging Market equities have been one of the top performing assets this year, with a return of 25.4% YTD as of May 29, 2026. Looking deeper, two countries, Taiwan and South Korea, are driving the majority of the returns, while larger countries in the Index, namely China and India, have negative returns for the year.

The Index returns are not only concentrated in countries, but in just a handful of companies. The top five contributors to the performance of the MSCI Emerging Markets Index accounted for 76% of the YTD return; all five of the companies are part of the AI buildout. For comparison, the top five contributors to the S&P 500 Index’s YTD performance accounted for 45% of the total return; of those top five, four of the companies are producers of semiconductors.

The rise in retail investors and passive investment funds is impacting the market.

While earnings have been the primary driver of equity returns this year, the rise in retail investors and passive investment vehicles are becoming a larger influence. Not only has the number of retail traders grown in the past decade, but their use of options and leverage has also seen a significant rise over recent years, according to Bianco Research and Citadel.

Since 2021, the number of call options on the S&P 500 has risen 5x. The use of options, especially the Zero Days to Expiration (0DTE) ones, can be seen as a proxy for speculation, and seeing a rise of this magnitude shows just how optimistic retail investors are.

Are we in a bubble?

With this rise in speculation, it is normal to wonder if we are experiencing a bubble. Based on history, we are probably in the midst of a financial bubble to some degree, but bubbles can last much longer than people think they should. This does not mean you should get out of the market, as it is incredibly difficult to know when or if a bubble will pop. The best way to handle the rising speculation in the market is to stay invested, stay diversified, and consider "dollar cost selling" when positions become outsized.

Bottom Line – how to invest now.

We expect volatility to remain elevated, and we continue to advocate for robust diversification. Bonds may continue to struggle to add ample diversification amidst an environment of larger federal deficits and higher interest rates. Bonds may show higher correlations with stocks in such an environment, leading to less portfolio diversification.

Even before the Iran War, we held the view that inflation could be persistent (due to rising nationalism along with other forces). The Iran crisis adds a material new source of risk, and although we don’t see history repeating itself in lock-step with the 1970s, investors may want to maintain allocations to real assets after the conflict ends.

Another argument for diversification: the S&P 500 index has become much more concentrated. In 2006, the S&P 500 had approximately 35% exposure to growth stocks, 39% blend, and 26% value, according to data from Bank of America (BofA). In 2026, the S&P 500 holds 46% growth stocks, 42% blend, and only 11% value stocks, according to BofA.

In sum, real investors need real assets, and U.S. investors need exposure beyond U.S. financial assets and concentrated indexes.

Markets generally “settle up” over time. Long-term investors should not become too bearish. Short-term and downside volatility is the price paid to earn long-term outperformance: in the past 75 years, the S&P 500 experienced an intra-year decline of 14% on average, but historically still finished the year positive 78% of the time, according to Creative Planning.

Equity Takeaways:

Stocks were mixed in early Monday trading. The S&P 500 rose approximately 0.2%, to 7580, while the tech-heavy Nasdaq fell approximately 0.1%. Small caps fell approximately 0.1%. Non-U.S. stocks were mixed.

After finishing higher again last week, the S&P 500 extended its winning streak to nine weeks, its longest streak since 2023. The rally continues to be driven by earnings announcements significantly outperforming expectations. As of May 29, 2026, Q1:2026 earnings have grown 28.6% year-over-year, the fastest quarterly growth since 2021.

As previously noted, within non-U.S. stocks, emerging markets have been a standout. Emerging countries with high exposure to certain technology sectors (chips / memory) have been leading the MSCI Emerging Markets Index higher. Worth noting, however, is the fact that certain emerging market indices have also become quite concentrated, similar to what is evident within the S&P 500 Index. Risk management, therefore, is warranted.

Fixed-Income Takeaways:

Yields fell across the curve last week as hope rose that an agreement to open the Strait of Hormuz would be finalized. Specifically, 10-year yields moved 12 basis points (bps) lower to close the week at 4.44%, while 30-year yields moved 9 bps lower to close the week at 4.97%. At the short end, 2-year yields moved 12 bps lower, closing the week at 4.00%.

In early Monday trading, yields were higher across the curve: 2-year Treasury yields were trading at 4.07%, 5-year Treasury yields at 4.21%, 10-year Treasury yields at 4.50%, and 30-year Treasury yields at 5.02%.

The market slightly pared back expectations for interest rate increases due to some signs of weakening economic momentum. However, the market is still biased towards hiking, pricing in an approximately 80% chance of a rate hike by the end of January 2027; at the start of the week, those odds were 100%.

Credit spreads continued to tighten last week in both investment grade and high yield due to an improvement in investor risk appetite. Spreads are hitting their tightest level in decades despite the increased supply of bonds, higher use of leverage, and tightening monetary policy. In this environment, strong security selection is paramount.

Upcoming National Call

Please join Key Wealth for our Mid-Year Update, where our Chief Investment Office shares timely insights on the forces shaping markets and portfolios in the second half of 2026. We’ll explore how we’re navigating a complex environment marked by geopolitical uncertainty, rapid advances in artificial intelligence, evolving private markets, and a more cautious U.S. consumer, all against the backdrop of the upcoming congressional midterm elections.

Key Wealth's National Call: 2026 Mid-Year CIO Update
June 9, 2026 | Time: 1:00 p.m. ET, 10:00 a.m. PT

Key Wealth National Client Call 6/9 Webinar Registration Link - Zoom

Key Takeaways

Strong earnings are driving the market higher despite the ongoing Iran War.

First quarter 2026 earnings continue to come in well above expectations. With 90% of the S&P 500 having reported, the blended earnings growth rate is sitting above 28% year-over-year, up from analysts’ expectations of 13% earnings growth at the beginning of the quarter, on track for the best quarter since the Covid pandemic recovery. The rapid growth in earnings is expected to continue into next quarter as analysts forecast growth of 21%, which would be the second-best quarter since the pandemic.

Earnings growth received a significant boost from “Other Income” this quarter, as this category accounted for more than a third of Net Income (historically it accounts for 5%–10%), according to Andreessen Horowitz (a16z). The jump in “Other Income” primarily came from hyperscalers’ unrealized gains in private investments. This strong earnings growth has allowed equities to reach new all-time highs despite the uncertainty around the Iran War, although there is some risk that if the value of these private investments deteriorates, earnings for the market as a whole could falter.

Market concentration is high and expected to grow with the SpaceX IPO.

Artificial intelligence (AI) continues to be the driver of the market, leading to levels of concentration on par with notable past market peaks. The “AI Big 10” (the “Magnificent 7” + Advanced Micro Devices, Broadcom, and Micron) makes up 40% of the S&P 500 market capitalization, according to Bank of America (BofA). This concentration is likely to grow with the impending initial public offering (IPO) of SpaceX. The company is expected to be valued at between $1.5 and $2 trillion, making it one of the 10 largest companies in the world and the largest IPO in history.

Oil inventories are falling quickly, causing bond yields to rise.

There are reports of progress on a deal to end the Iran War, but the U.S. conducted defensive attacks on Iran over the weekend. Oil inventories around the globe have helped blunt some of the price shock caused by the war’s disruption, but those have fallen rapidly – meaning prices will likely rise further if the conflict is prolonged. Inflation has already jumped as a result and could reach more than 4% in the coming months. With inflation this high, it is unlikely the Fed will cut rates this year and instead may actually raise rates; this dynamic has led to a steady increase in bond yields. 

Bottom Line – how to invest now.

We expect volatility to remain elevated, and we continue to advocate for robust diversification. Bonds may continue to struggle to add ample diversification amidst an environment of larger federal deficits and higher interest rates. Bonds may show higher correlations with stocks in such an environment, leading to less portfolio diversification.

Even before the Iran War, we held the view that inflation could be persistent (due to rising nationalism along with other forces). The Iran crisis adds a material new source of risk, and although we don’t see history repeating itself in lock-step with the 1970s, investors may want to maintain allocations to real assets after the conflict ends.

Another argument for diversification: the S&P 500 Index has become much more concentrated. In 2006, the S&P 500 had approximately 35% exposure to growth stocks, 39% blend, and 26% value, according to data from Bank of America (BofA). In 2026, the S&P 500 holds 46% growth stocks, 42% blend, and only 11% value stocks, according to BofA.

In sum, real investors need real assets, and U.S. investors need exposure beyond U.S. financial assets and concentrated indexes.

Markets generally “settle up” over time. Long-term investors should not become too bearish. Short-term and downside volatility is the price paid to earn long-term outperformance: in the past 75 years, the S&P 500 experienced an intra-year decline of 14% on average, but historically still finished the year positive 78% of the time, according to Creative Planning.

Equity Takeaways:

Stocks were mixed in early Tuesday trading. The S&P 500 rose approximately 0.5%, to 7519, while the tech-heavy Nasdaq rose approximately 0.9%. Small caps rose approximately 1.2%. Non-U.S. stocks were mixed.

After finishing higher again last week, the S&P 500 extended its winning streak to eight weeks, its longest streak since 2023. The rally has been driven by the earnings announcements significantly outperforming expectations. The Index’s valuation has actually fallen from the start of the year, currently sitting at 21x earnings, compared to 22x in January.

Within non-U.S. stocks, emerging markets have been a standout. Emerging countries with high exposure to certain technology sectors (chips / memory) have been leading the MSCI Emerging Markets Index higher. Worth noting, however, is the fact that certain emerging market indices have also become quite concentrated, similar to what is evident within the S&P 500 Index. Risk management, therefore, is warranted.

Fixed-Income Takeaways:

Yields fell modestly at the long end of the curve last week. Specifically, 10-year yields moved 3 basis points (bps) lower to close the week at 4.56%, while 30-year yields moved 6 bps lower to close the week at 5.06%. At the short end, 2-year yields moved 5 bps higher, closing the week at 4.12%.

In early Tuesday trading, yields were lower across the curve: 2-year Treasury yields were trading at 4.05%, 5-year Treasury yields at 4.18%, 10-year Treasury yields at 4.48%, and 30-year Treasury yields at 5.00%.

The market is coming to terms with a “higher-for-longer” environment, as investors are now pricing in late cycle interest rate increases. Fed Governor Christopher Waller distanced himself from the interest rate easing camp last week. Waller had previously been firmly in the easing camp; hence, many market participants view this as a sign that rate hikes may be enacted at a Federal Reserve meeting sometime during the next 12 months.

Credit spreads tightened across the board, with high yield being the biggest beneficiary. The high yield spread relative to Treasuries fell 11 bps last week, bringing it to a nearly 20-year low. High yield bonds are outperforming investment grade bonds by 1.6% for the year, the widest margin of the year to this point.

On Friday, May 22, 2026, Kevin Warsh took the oath of office as the new Chairman and member of the Board of Governors of the Federal Reserve System, replacing Jerome Powell as Fed Chair. Differing from historical transitions, Powell has chosen to remain on the Board of Governors for an undetermined period of time, with his stated intention to support Federal Reserve independence.

Upcoming National Call

Please join Key Wealth for our Mid-Year Update, where our Chief Investment Office shares timely insights on the forces shaping markets and portfolios in the second half of 2026. We’ll explore how we’re navigating a complex environment marked by geopolitical uncertainty, rapid advances in artificial intelligence, evolving private markets, and a more cautious U.S. consumer, all against the backdrop of the upcoming congressional midterm elections.

Key Wealth's National Call: 2026 Mid-Year CIO Update
June 9, 2026 | Time: 1:00 p.m. ET, 10:00 a.m. PT
Key Wealth National Client Call 6/9 Webinar Registration Link - Zoom

Key Takeaways

Stocks have performed very well year-to-date (YTD) across the globe. Bonds are facing the headwind of increasing inflation.

We are in a “run it hot” economy. Equities and commodities are rising together, while bonds are languishing. Year-to-date through May 14, 2026, oil is up 77.5%, non-U.S. emerging market stocks are up approximately 23%, and most other stock indices are up between 7 and 13%. Bond total returns are essentially flat to slightly lower.

Inflation, as measured by the consumer price index (CPI), is heading higher. Headline CPI, which includes food and energy, touched 3.8% in April, up from 3.3% in March and 2.4% in February. Core CPI (excluding food and energy) reached 2.8% in April, up from 2.5% in February. If inflation continues to rise, the Federal Reserve (Fed) will have a difficult time cutting interest rates.

Approximately 48% of the S&P 500 Index’s market capitalization is tied to artificial intelligence (AI), AI utilities, and AI capital equipment, according to Bianco Research. AI-related spending is driving very fast earnings growth. Earnings for Q1:2026 are tracking to grow more than 27% and are poised to exceed estimates by 15 percentage points, according to Bianco Research.

Extremely fast earnings growth occurring when the economy is not emerging from a recession is highly unusual and is why stocks are doing so well in the face of higher inflation. How long can this dynamic continue?

Commercial real estate has begun to bounce back after its 2022–2024 drawdown. The residential housing market is stable, with prices cooling in some areas.

The ODCE Index, a widely tracked commercial real estate index maintained by the National Council of Real Estate Investment Fiduciaries (NCREIF), rose 3.8% in the 1-year period ending March 31, 2026. The Index rose sharply in the post-COVID period, before pulling back as interest rates rose in 2022.

Performance continues to be led by the industrials sector, which is showing double-digit 5-year and 10-year returns, supported by structural demand for e-commerce, logistics, etc.

Retail has become a quiet turnaround story, benefiting from supply discipline and improving tenant health. Apartment supply is peaking after elevated deliveries and is expected to decline meaningfully, setting up a recovery in occupancy and rent growth. Finally, office properties are recently showing a modest rebound, but the recovery remains fragile and uneven amid persistent work-related headwinds.

Within residential housing, national home prices are still rising nominally, but appreciation has slowed meaningfully. In February 2026, the latest reported month, the Case-Shiller Home Price Index showed a 0.7% year-over-year gain.

More than half of U.S. metros are now seeing year-over-year price declines according to Case-Shiller, and real (inflation-adjusted) home prices have fallen for nine consecutive months. The market remains highly fragmented.

Bottom Line – how to invest now.

We expect volatility to remain elevated, and we continue to advocate for robust diversification. Bonds may continue to struggle to add ample diversification amidst an environment of larger federal deficits and higher interest rates. Bonds may show higher correlations with stocks in such an environment, leading to less portfolio diversification.

Even before the Iran War, we held the view that inflation could be persistent (due to rising nationalism along with other forces). The Iran crisis adds a material new source of risk, and although we don’t see history repeating itself in lock-step with the 1970s, investors may want to maintain allocations to real assets after the conflict ends.

Another argument for diversification: the S&P 500 Index has become much more concentrated. In 2006, the S&P 500 had approximately 35% exposure to growth stocks, 39% blend, and 26% value, according to data from Bank of America (BofA). In 2026, the S&P 500 holds 46% growth stocks, 42% blend, and only 11% value stocks, according to BofA.

In sum, real investors need real assets, and U.S. investors need exposure beyond U.S. financial assets and concentrated indexes.

Markets generally “settle up” over time. Long-term investors should not become too bearish. Short-term and downside volatility is the price paid to earn long-term outperformance: in the past 75 years, the S&P 500 experienced an intra-year decline of 14% on average, but historically still finished the year positive 78% of the time, according to Creative Planning.

Equity Takeaways:

Stocks were mixed in early Monday trading. The S&P 500 rose approximately 0.1%, to 7414, while the tech-heavy Nasdaq fell approximately 0.1%. Small caps rose approximately 0.8%. Non-U.S. stocks were generally higher.

After finishing higher again last week, the S&P 500 extended its winning streak to seven weeks. Strong earnings growth, combined with positive corporate outlooks, typically leads to higher prices over the long term. Positive earnings revisions have been especially prevalent in the technology sector.

Within non-U.S. stocks, emerging markets have been a standout. Taiwan and South Korea are emerging markets that have high exposure to certain technology sectors (chips / memory), helping index performance.

The SOX semiconductors index is approximately 62% above its 200-day moving average, a very extended level. For historical context, the dot-com bubble peaked with the Nasdaq index approximately 55% above its 200-day moving average, according to data from BofA, Bloomberg, and GFD Finaeon. We are not market timers, but the semiconductor trade is showing signs of froth.

Fixed-Income Takeaways:

Treasury yields moved sharply higher last week across the curve due to hotter-than-expected inflation data. Specifically, 10-year Treasury yields moved 24 basis points (bps) higher to close the week at 4.59%; 30-year yields moved 18 bps higher, crashing through the 5.00% level to close the week at 5.12%. Lastly, 2-year yields moved higher as well, closing the week at 4.07%.

In early Monday trading, yields were stable to slightly lower across the curve. Overall, 2-year Treasury yields were trading at 4.05%, 5-year Treasury yields at 4.24%, 10-year Treasury yields at 4.58%, and 30-year Treasury yields at 5.12%.

Rising inflation expectations will put more pressure on longer-dated bonds, all else equal. In particular, 10-year Treasury yields are at their highest level in over a year, while 30-year yields are at their highest level since 2007. The long end of the yield curve is at risk of becoming unanchored. If 30-year yields continue rising, 10-year yields will likely also face upward pressure.

Market participants are now expecting possible rate hikes, as opposed to rate cuts, this year or early next year. Between one and two rate hikes (0.25% to 0.50%) are priced into the forward curve over the next 10 months. The current fed funds rate is the target range of 3.50% to 3.75%.

With last week’s selloff in Treasuries, bond market volatility has increased. That said, corporate bonds have been very resilient. Investment-grade (IG) credit spreads tightened last week, to 73 bps, and are approaching their tightest levels of the year. High-yield spreads moved approximately 4 bps wider last week, to 267 bps.