Monthly Market Commentary – May 2026

Market Update

U.S. stocks rebounded 10% in April despite ongoing geopolitical tensions.

While global uncertainty has remained elevated, investors have priced in a lower risk of a worsening conflict in the middle east. Market participants have adjusted to the war in Iran and do not expect a significant impact on the economy longer-term.

Easing energy prices and strong corporate earnings supported the equity rally: Small cap stocks (Russell 2000) surged +12.2% and outperformed large caps (S&P 500) which gained +10.5%. While oil prices remained elevated, they retreated from April highs and provided some relief to rising input costs. Additionally, first quarter earnings have grown at the highest rate since Q4 2021 (+27%)¹.
Treasury yields traded in a narrow range as inflation expectations stabilized on easing energy prices: The Bloomberg US Agg Bond Index gained +0.1% as the 10-year Treasury yield rose +0.1% to 4.4%. Investment grade corporate bonds gained +0.5%, Mortgage-Backed Securities (MBS) returned +0.1% and Treasuries dipped -0.1%.
Emerging market (EM) stocks topped asset class returns as Asian equities outperformed: EM stocks returned +14.7% as South Korea (+38%) and Taiwan (+26%) surged. A weaker U.S. dollar (-1.9%), moderating energy prices, and strong gains in AI-related stocks were contributors to strong returns.

Equities

U.S. tech stocks returned 17% in April, gaining the most since 2002.

The S&P 500 Index bounced back in April and posted new record highs following a brief pullback in March (-5.0%). A return to strength in growth-oriented sectors drove returns as investors looked beyond the political and economic uncertainty.

Tech stocks surged on the heels of the U.S.-Iran ceasefire agreement: In addition to easing geopolitical tension, extraordinary demand for AI infrastructure, including semiconductors (+28%), drove strong gains within tech. Google parent Alphabet (+34%) boosted the communication services sector as their AI platform (Gemini) began generating significant revenue.
Volatility has risen due to sudden shifts in market leadership: While market indices hover near all-time highs there has been an increase in the underlying volatility which measures the magnitude of fluctuations in stock prices. Geopolitical events, policy uncertainty, and the potential for AI-related disruption have all contributed to the higher volatility in markets.
Q1 corporate financial results supported the rebound in equities: With 63% of S&P 500 firms reporting results so far, 84% reported earnings per share above estimates while 81% reported a positive revenue surprise. These rates were well above the 5-year averages of 78% and 70%, respectively¹.

Fixed Income

U.S. Treasury yields stabilized in April following a first-quarter sell-off.

Bond returns were mixed but most sectors posted modest gains in April despite elevated inflation, a growing U.S. budget deficit, and reduced expectations for Fed rate cuts. The rise in Treasury yields eased in April as energy prices stabilized and a ceasefire took hold in the Middle East.

Interest rates could be higher for longer until the inflation picture becomes clear: Despite the recent pull back in energy prices, oil is still meaningfully higher in 2026, and some believe the fundamental outlook for inflation now sits in the 2.5% to 3.0% range this year. If inflation expectations remain above the Fed’s 2% target, the Fed could pause rate cuts.

High yield (HY) corporates outperformed as spreads tightened: HY bonds (+1.7%) led fixed income returns as spreads (the yield premium for corporate bonds over treasuries) narrowed by 0.45%, aided by strong earnings.

AI Infrastructure

AI investment has broadened from development to the infrastructure needed to support deployment.

The latest rally in equity markets was led by companies focused on the physical building blocks of AI, including semiconductors (for compute and memory), computer hardware, and industrials.

Data center capacity is projected to expand rapidly over the next five years: Alphabet, Amazon, Meta, and Microsoft are collectively projected to spend more than $600 billion on AI infrastructure this year. There are currently plans for 2,600 new data centers across the globe with the total footprint expected to reach 11,000 facilities by the early 2030s².
Rising data center investment lifted AI “picks and shovels” companies: As AI models transitioned from training to deployment (inference), an infrastructure refresh cycle drove demand for processing power, memory chips, and high-speed networking. Companies supplying essential “picks and shovels” for data center construction rallied in April as the build out accelerated.
Rising power demand and cooling needs are driving industrial stocks: AI processing requires more energy than traditional cloud computing, boosting demand for electrical equipment and machinery used to manage power delivery and thermal loads. As a result, industrial companies tied to these critical infrastructure needs have outperformed.

Geopolitical Events

Tensions in the Middle East de-escalated as the U.S.-Iran ceasefire was extended indefinitely.

As of late April, the U.S. – Iran conflict has shifted from a fast-moving military campaign into more of a strategic stalemate with the primary investment narrative focused on energy markets and global inflation.

Iran continued to impose tight control over the Strait of Hormuz: Despite the ceasefire, shipping activity was severely constrained and well below pre-conflict levels. While oil prices retreated modestly during the month, they remained elevated around $100 per barrel, reflecting ongoing supply risks tied to the fact that roughly 20% of the global oil supply passes through this narrow waterway.
Interest rates could remain higher for longer as energy prices are likely to stoke inflation: Central banks tend to look through short-term energy shocks, but a sustained rise in energy prices could spill over into transportation and manufacturing costs, making inflation more persistent. This dynamic could put pressure on consumer budgets and corporate profits. As a result, the Fed is likely to remain cautious, preferring to see clear evidence that inflation pressures are easing before lowering rates.

Economic Calendar

Recent economic data pointed to a gradually slowing but still resilient U.S. economy.

The economy remains in a stable “low hire, low fire” employment environment with resilient consumer spending but elevated inflation.

Nonfarm payrolls jumped +178k, in a reversal from the -133k jobs lost during February: Job growth has been volatile from month to month over the past year but the per month average remains in positive territory. Unemployment has remained low by historical standards but has ticked up slightly from the low of early 2025 (4.0%).
CPI Inflation rose 3.3% (annualized) in March, as energy prices spiked: Inflation trends have been mixed with headline readings influenced by volatile energy prices while core measures (2.6%) show incremental progress toward the Fed’s 2% target.

U.S. Economic Data

Economic variable	Latest	Previous	Dec. 2025
Nonfarm Payrolls (1000s)	178	-133	-17
Unemployment Rate (%)	4.3	4.4	4.4
CPI Inflation (%)	3.3	2.4	2.7
Retail Sales (%)	1.7	0.7	0.0

As forecasted, the Fed left rates unchanged at their April policy meeting: The Fed left rates unchanged for the third consecutive meeting as they continued to balance elevated inflation with economic uncertainty. The Fed will take a “data dependent” approach to rates and is viewing the rise in energy prices as transitory for the time being.

Date	May Economic Data Calendar
5/8	Nonfarm Payrolls and Unemployment Rate
5/12	CPI Inflation
5/14	Retail Sales
5/20	FOMC Meeting Minutes
5/28	PCE Inflation / Durable Goods Orders

Data and rates used were indicative of market conditions as of the date shown. Opinions, estimates, forecasts, and statements of financial market trends are based on current market conditions and are subject to change without notice. This material is intended for general public use and is for educational purposes only. By providing this content, Park Avenue Securities LLC is not undertaking to provide any recommendations or investment advice regarding any specific account type, service, investment strategy or product to any specific individual or situation, or to otherwise act in any fiduciary or other capacity. Please contact a financial professional for guidance and information that is specific to your individual situation. Indices are unmanaged and one cannot invest directly in an index. Links to external sites are provided for your convenience in locating related information and services. Guardian, its subsidiaries, agents, and employees expressly disclaim any responsibility for and do not maintain, control, recommend, or endorse third-party sites, organizations, products, or services and make no representation as to the completeness, suitability, or quality thereof. Past performance is not a guarantee of future results.

All investments involve risks, including possible loss of principal. Equities may decline in value due to both real and perceived general market, economic, and industry conditions. Fixed income securities involve interest rate, credit, inflation, and reinvestment risks, and possible loss of principal. As interest rates rise, the value of fixed income securities falls. Low-rated, high yield bonds are subject to greater price volatility. Investing in securities of smaller companies tends to be more volatile and less liquid than securities of larger companies. Investing in foreign securities may involve heightened risk including currency fluctuations, less liquid trading markets, greater price volatility, political and economic instability, less publicly available information and changes in tax or currency laws. Such risks are enhanced in emerging markets.

Asset class returns sourced from Morningstar Direct. Asset categories listed correspond to the following underlying indices: Large Cap (S&P 500), Small Cap (Russell 2000), Non-US Dev (MSCI EAFE), Emerging Markets (MSCI EM), Bonds (Bloomberg US Aggregate Bond), Short Gov’t (Bloomberg Short Treasury), Interm Gov’t (Bloomberg US Treasury), IG Corp (Bloomberg US Corp. Bond), High Yield (Bloomberg High Yield Corporate), Global Agg ex-US (Bloomberg Global Agg Ex US – Hedged), Tech (S&P 500 Information Technology), Hardware (S&P 500 Sub/Computer Hardware), Semis (S&P 500 Sub/Semiconductors), Industrials (S&P 500 Industrials), Electrical (S&P 500 Sub/Electrical Equipment), Machinery (S&P 500 Sub/Specialty Industrial Machinery).

Treasury Yields sourced from the U.S. Department of the Treasury. Nonfarm payrolls, unemployment statistics, and inflation (CPI) are sourced from the Department of Labor.

Source: FactSet (Data through 4/30/26 with 63% of S&P 500 companies reporting results)
Source: McKinsey & Company
Source: Bloomberg

The Consumer Price Index (CPI) examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care, and is a commonly used measure of the rate of inflation.

Retail Sales represents the level of retail sales directly to U.S. consumers.

Fed Funds Rate: Short-term target interest rate set by the Federal Open Market Committee (FOMC); the policy making committee of the Federal Reserve. It is the interest that banks and other depository institutions lend money on an overnight basis.

S&P 500 Index: Index is generally considered representative of the stock market as a whole. The index focuses on the large-cap segment of the U.S. equities market.

Russell 2000 Index: Index measures performance of the small-cap segment of the U.S. equity universe.

MSCI EAFE Index: Index measures the performance of the large and mid-cap segments of developed markets, excluding the U.S. & Canada.

MSCI EM Index: Index Measures the performance of the large and mid-cap segments of emerging market equities.

Bloomberg US Aggregate Bond Index: Index measures the performance of investment grade, U.S. dollar-denominated, fixed-rate taxable bond market, including Treasuries, government-related and corporate securities, MBS, ABS, and CMBS.

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