Stocks finished May with strong gains, led again by growth, technology, and artificial intelligence-related shares. For the month, the Dow Jones Industrial Average rose 2.8%, the Nasdaq 100 rose 10.5%, and the S&P 500 gained 5.2%. The Nasdaq was the standout, helped by strength in semiconductors, AI infrastructure, cloud computing, and software, rising about 20% year-to-date. The S&P 500 also set fresh record highs and is up 11% this year, while the Dow has gained just 6% because it has less exposure to the highest-growth areas of the market.
May was strong, but not simple. Markets had to digest higher inflation, softer consumer momentum, a Federal Reserve leadership change, revised GDP data, and geopolitical uncertainty involving Iran and the Strait of Hormuz. Even so, investors focused on corporate earnings, AI-related capital spending, and the possibility that diplomatic progress could reduce pressure on oil prices and, by extension, future inflation. Treasury yields surged mid-month but fell back to end little changed as the price of WTI crude oil fell from $110 to $88 per barrel, helping support investor confidence.
The market’s biggest source of strength, however, has been the ongoing theme of artificial intelligence. AI and chip-related stocks have surged in recent years, led this past month by Dell, Intel, and memory companies such as Micron and SanDisk. More broadly, the speed of the move has raised comparisons to the late-1990s technology bubble, especially because leadership has been concentrated in a relatively small group of companies.
We understand those concerns, but the comparison is incomplete. In the late 1990s, many technology companies did have earnings growth. The problem was that valuations moved far ahead of what even strong forward earnings expectations could support. The warning sign is not a fast-rising market by itself. It is a fast-rising market driven mainly by expanding P/E ratios.
That is not what we are seeing today. In many leading technology companies, earnings growth has absorbed much of the price increase. As a sector, P/E ratios have declined from where they stood at the start of 2026 because earnings growth has outpaced the rally. The technology sector’s valuation premium has also narrowed, and its P/E ratio is much closer to the overall market than many investors might assume.
Memory stocks show why the rally has fundamental support. As AI workloads move from training models to real-world applications, high-bandwidth memory has become a critical bottleneck. That has helped drive gains in Micron in the U.S. and SK Hynix and Samsung in South Korea, where demand is tied to real shortages, real orders, and real pricing power. Dell’s results late in the month reinforced the same point: AI server demand is translating into actual revenue and earnings.
The AI theme has also become more than a stock market story. It is showing up in capital spending, corporate profits, and the composition of economic growth. Business investment connected to technology, software, data centers, and AI infrastructure has become a larger driver of the economy over the past couple of years, which is one reason markets have looked through slower consumer data.
The revised first-quarter GDP report showed broader growth was uneven. Real GDP growth was revised down to a 1.6% annualized pace from the initial estimate of 2.0%, primarily due to softer-than-expected consumer spending and still-strong but slower private investment. Even so, the economy was still growing, and real final sales to private domestic purchasers rose 2.4%. Underlying demand remains positive, though the economy would look less impressive without investment tied to technology and AI.
Consumer data was mixed. Personal income was essentially flat in April, while consumer spending rose 0.5% in current-dollar terms. After inflation, real consumer spending increased only 0.1%. The personal savings rate fell to 2.6%, suggesting households are still spending, but with less cushion. Retail sales rose 0.5% in April and 4.9% from a year earlier, supporting the idea that consumers remain active, though some of the increase reflects higher prices rather than stronger real demand.
The labor market remained steady. April payrolls increased by 115,000, and the unemployment rate held at 4.3%. That is not overheated job growth, but it also does not point to significant labor market stress. Weekly jobless claims told a similar story, with initial claims at 215,000 and the four-week average at 209,000. Those are low levels and suggest layoffs remain limited.
There were caveats. Federal government employment continued to decline, and the number of people working part time for economic reasons rose. That is worth watching because employers sometimes cut hours before cutting jobs. For now, hiring has remained stable on average, and layoffs remain low.
Inflation was the more difficult part of the May data. The Federal Reserve’s preferred inflation gauge, the PCE price index, rose 3.8% from a year earlier in April, while core PCE trended higher to 3.3%. Inflation remains well above the Fed’s 2% target, and energy-price volatility tied to geopolitical risk has complicated the outlook.
May also brought a major leadership change at the Federal Reserve. Kevin Warsh was sworn in as the new Fed Chair late in the month, taking over at a difficult moment. Inflation is still too high for the Fed to confidently cut rates, but growth is not strong enough to ignore the risk of overtightening. The job market is steady but slower, consumers are still spending but saving less, and financial markets are strong. The Fed is being asked to support the economy without reigniting inflation, which is not an easy balance.
Geopolitics remained a major driver. The conflict involving Iran and disruptions around the Strait of Hormuz created uncertainty for oil, inflation, and global trade. Late in the month, markets were supported by reports that the U.S. and Iran were moving closer to a temporary agreement that could extend the ceasefire, reopen key shipping routes, and begin further talks on Iran’s nuclear program. Oil prices moved lower on those hopes, easing one of the market’s most immediate inflation concerns. A durable diplomatic resolution would be positive, but enforcement will matter.
We remain confident in the broader market outlook, while recognizing that leadership can shift quickly. While we have maintained a strong footprint in the broad U.S. market with a focus on technology, over the last year we found success by looking overseas, where international markets offered attractive opportunities after years of U.S. dominance. South Korea has been one of those beneficiaries and remains a position we hold in portfolios. Its market has benefited from the same AI infrastructure cycle driving U.S. technology shares, especially through Samsung Electronics and SK Hynix, which are central to the global memory supply chain. We remind readers that past performance is not indicative of future results.
Looking forward into June, we will be focused on the May employment report, the next inflation readings, the Fed’s first meeting under Chair Warsh, further developments in U.S.-Iran negotiations, and whether AI-driven earnings strength continues to broaden beyond a narrow group of market leaders. We will also be watching whether semiconductor leadership remains concentrated in the largest U.S. companies or continues to benefit overseas markets tied to the AI supply chain.