May 2026 Client Letter: Markets, Economy, and Outlook

The stock market’s recent strength may feel surprising—especially with oil prices still above $100 per barrel. What stands out even more to us is the scale of investment in artificial intelligence (AI). That said, there’s more driving the market than just those headlines.

Economy: Slowing, but Still Supported
Growth is moderating, with first-quarter GDP around 2% as consumer spending cooled. LPL Research recently lowered its 2026 growth outlook to 2.0%. Even so, business investment, government spending, and AI-related activity continue to provide support. A solid labor market and healthy corporate profits are giving the Federal Reserve flexibility, making near-term rate cuts less likely. Inflation will remain closely tied to oil prices and developments in the Middle East.

Stocks: Positive Trend, Expect Some Bumps
We believe the bull market can continue, supported by ongoing optimism around AI. Stocks had a strong April, and valuations for the S&P 500 remain reasonable near a 21 P/E ratio, backed by solid earnings. If AI investment proves productive, it could help extend the cycle—but volatility tied to geopolitical news and energy prices is likely in the near term.

Earnings: The Foundation
Earnings remain a major support for markets. First-quarter growth for S&P 500 companies is tracking above 20%, driven by technology investment and productivity gains. Spending on AI infrastructure continues to rise sharply, creating opportunities—especially in areas like semiconductors. While short-term risks may cause swings, earnings strength is what ultimately sustains markets.

Bonds: Income Still Matters
Yields in fixed income remain attractive compared to history, so we continue to focus on income. While rates may decline eventually, timing is uncertain. In the meantime, high-quality, intermediate-term bonds can provide both income and stability, especially as cash yields begin to normalize.

Bottom Line
We continue to see a constructive environment, though patience will be important through the rest of 2026. Volatility is likely, but strong fundamentals—especially earnings—support a positive long-term outlook. Staying diversified and using pullbacks as opportunities remains a sound approach.

As always, please let me know if there's anything I can do for you or someone you care about.

Sincerely,

Ed

^{Important Information}

^{This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.}

^{References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.}

^{All data is provided as of May 6, 2026.}

^{All index data from FactSet.}

^{The Standard & Poor’s 500 Index (S&P500) is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.}

^{Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.}

^{There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.}

^{Past performance does not guarantee future results.}

^{Asset allocation does not ensure a profit or protect against a loss.}