If April was the comeback, May was the confirmation. Equity markets extended their remarkable run through the spring, capping what has been one of the strongest two-month stretches for stocks in decades. In this memo we recap May's returns, examine the earnings story powering the rally, address questions about valuations and whether this constitutes a bubble, take stock of where the Federal Reserve stands, and preview the landmark SpaceX IPO on the horizon.
May Performance Recap
May continued the momentum built in April's historic 10%-plus month. The S&P 500 gained approximately 5.25%,[1] international stocks added over 5%, and small- and mid-cap indexes rose close to 4.5%. Bonds and cash both posted positive returns, reinforcing the value of a diversified portfolio. Year-to-date, every major equity market we track is now up double digits: the S&P 500 at roughly +11%, international stocks at +14%, and small/mid-caps — the year's standout — at over +18%, and the calendar is not yet at the halfway point.
Taken together, the 8-week return for the S&P 500 places this stretch in the top 1% of all rolling two-month periods going back to 1988. The typical two-month return over that span has been approximately 2%; this period delivered roughly 18%. While that kind of pace is unlikely to continue uninterrupted — and near-term returns should be expected to normalize — the underlying drivers of the advance are meaningful.
[1]S&P Dow Jones Indices LLC, total return data, May 31, 2026. International equity represented by the MSCI ACWI ex-U.S. Index. Small/midcap represented by the S&P MidCap 400 and S&P SmallCap 600 indices.
Earnings: The Foundation, Not a Frenzy
A natural question when markets rise this quickly is whether price action has detached from fundamentals. The data argues otherwise. This rally has been built on exceptional corporate earnings growth, which is precisely the reason investors own stocks in the first place.
Three metrics tell the story. First, breadth: 84% of S&P 500 companies beat analyst expectations this quarter,[1] compared to a 10-year average of roughly 75–80%. Second, magnitude: companies are beating by an average of 16–17% — more than double the historical norm of around 7%. Third, year-over-year earnings growth came in at approximately 28%, far exceeding the already-optimistic consensus estimate of 13% entering the quarter.
[1]FactSet Earnings Insight, June 2026. Beat rate, magnitude of beats, and year-over-year earnings growth statistics for S&P 500 constituents through the end of the reporting period. Historical averages based on 5- and 10-year data as reported by FactSet.
Importantly, strong earnings have actually pushed valuations lower even as prices rose. Forward earnings expectations for the next 12 months are up approximately 15% while the S&P 500 itself is up roughly 10%, meaning the market's price-to-earnings ratio has compressed. History shows that bull markets driven by genuine earnings growth — rather than multiple expansion alone — tend to be more durable. The market appears to be in that category today.
The Federal Reserve: On Hold, Not on Alert
One of the year's most significant shifts has been the repricing of Federal Reserve expectations. The year began with markets pricing in two to three rate cuts by year-end. Today, futures contracts and prediction markets assign roughly a 40–50% probability to at least one rate hike before the end of 2026,[1] driven largely by inflation that has moved higher — PCE inflation now running around 3.3% against the Fed's 2% target.
[1]CME Group FedWatch Tool and prediction market data, June 2026. Probability estimates reflect federal funds futures pricing and aggregated market forecasts for Fed policy action through year-end 2026.
That said, a full hiking cycle is far from a foregone conclusion. History shows that the Fed has raised rates fewer than six times in only two of its modern hiking cycles — and the average cycle has included approximately eight hikes. A true tightening campaign requires both persistent inflation and a robust labor market. The jobs picture, while improving, does not yet meet that bar.
Also worth watching: new Federal Reserve Chair Kevin Warsh has signaled a preference for the trimmed mean PCE as his preferred inflation gauge — an approach that strips out outliers.[1] On that measure, inflation stands closer to 2.4%, meaningfully nearer the 2% target. If that framework shapes policy, it would reduce the urgency for a hike. The most likely path for the remainder of 2026 is a Federal Reserve that holds steady — neither cutting nor raising — barring a significant deterioration in inflation or employment.
SpaceX IPO: What Investors Need to Know
This summer is expected to bring the largest initial public offering in history when SpaceX lists on the NASDAQ, targeting a valuation of approximately $2 trillion — larger than Berkshire Hathaway, Meta, and Tesla.[2] With the IPO window anticipated around June 11–12, this is generating significant client interest.
A few practical points: the offering is expected to be heavily oversubscribed, and access to IPO shares typically requires custodial minimums in the range of $500,000 or more just to be placed on the priority list. Most first-day IPO returns — historically where the bulk of the gain is captured — are difficult to access for individual investors. The more accessible route is through index funds tracking the NASDAQ and related benchmarks, which are expected to incorporate SpaceX as a holding relatively quickly after listing. Initial allocations will be modest — estimates suggest around 1% of fund weight — but exposure will exist for investors who hold these strategies.
Volatility should be expected around the listing period, as insider lock-up agreements will limit float initially. Lock-up expirations are expected in late 2026 and early 2027, which may present better entry opportunities for those interested in direct ownership. SpaceX is the first of several high-profile AI and technology listings anticipated — OpenAI and Anthropic are also expected later this year.
It has been a remarkable start to 2026 — a year that has rewarded patience and discipline in equal measure. We remain committed to keeping you informed at every stage of the market cycle and to managing your complete financial landscape with care. Reach out anytime with questions.
[1]U.S. Bureau of Economic Analysis, PCE Price Index, May 2026. Federal Reserve trimmed mean PCE data as referenced by Federal Reserve Chair Kevin Warsh. Fed inflation target of 2% as stated in FOMC policy framework.
[2]SpaceX IPO prospectus and related financial filings, June 2026. Market capitalization comparisons based on publicly available data for Berkshire Hathaway, Meta Platforms, and Tesla Inc. as of May 31, 2026.
Disclosures
Index Benchmarks presented within this report may not reflect factors relevant for your portfolio or your unique risks, goals or investment objectives. Past performance of an index is not an indication or guarantee of future results. It is not possible to invest directly in an index.
The Standard & Poor's 500 (S&P 500) is a market-cap weighted index comprised of the common stocks of 500 leading companies in leading industries of the U.S. economy. You cannot invest directly in an index.
The NASDAQ (National Association of Securities Dealers Automated Quotations) 100 is a stock market index made up of equity securities issued by 100 of the largest non-financial companies listed on the Nasdaq stock exchange. It is a modified capitalization-weighted index.
The Bloomberg Aggregate Bond® Index broadly tracks the performance of the U.S. investment-grade bond market. The index is composed of investment-grade government and corporate bonds.
The MSCI ACWI ex USA Growth Index captures large and mid cap securities exhibiting overall growth style characteristics across 22 Developed Markets (DM) countries and 24 Emerging Markets (EM) countries*. The growth investment style characteristics for index construction are defined using five variables: long-term forward EPS growth rate, short-term forward EPS growth rate,current internal growth rate and long-term historical EPS growth trend and long-term historical sales per share growth trend.
The Russell 2500™ Index measures the performance of the small to midcap segment of the US equity universe, commonly referred to as "smid" cap. The Russell 2500 Index is a subset of the Russell 3000® Index. It includes approximately 2500 of the smallest securities based on a combination of their market cap and current index membership.
The PCE (Personal Consumption Expenditures) Price Index - A measure of the prices that people living in the United States, or those buying on their behalf, pay for goods and services. The PCE price index is known for capturing inflation (or deflation) across a wide range of consumer expenses and reflecting changes in consumer behavior.
The Core PCI (Personal Consumption Index) is a measure of prices that people living in the United States, or those buying on their behalf, pay for goods and services. It's sometimes called the core PCE price index, because two categories that can have price swings – food and energy – are left out to make underlying inflation easier to see.
This material is provided for informational purposes only and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The views and strategies described may not be suitable for all investors. They also do not include all fees or expenses that may be incurred by investing in specific products. Past performance is no guarantee of future results.