Market Commentary – June 2026

The U.S. stock market continued its April momentum through May. Each of the benchmark indexes listed here posted notable monthly gains, with several indexes reaching historic highs. The May rally was largely dominated by the information technology sector, particularly AI shares. An exceptional Q1 corporate earnings performance helped support Wall Street's May surge. The S&P 500 and the NASDAQ each set new records in May, and while the Dow lagged somewhat behind those benchmarks, it nonetheless rose well past the 50,000 threshold. However, while headlines throughout May focused on stocks at record highs, the broader economy showed signs of stagflation.

Wall Street's rally in May was driven by tech and AI stocks, which heavily dominated the market share of gains. Health care and consumer discretionary shares also helped drive the overall market, which also saw gains in communication services, industrials, and real estate. Utilities, energy, consumer staples, financials, and materials lagged.

While equities soared, the bond market exhibited anxiety over inflation and fiscal sustainability. The yield on 10-year Treasuries hovered around 4.30%-4.60% for most of the month, with yields reaching their highest levels since July 2025, evidencing a broad repricing on inflationary pressures, elevated energy prices, and uncertainty surrounding Federal Reserve leadership and policy direction. Yields on two-year notes hovered around 4.00% as markets soured on potential interest rate cuts for the remainder of 2026.

Price pressures accelerated in May. Both the personal consumption expenditures (PCE) price index (the preferred inflation indicator of the Federal Reserve) and the Consumer Price Index rose 3.8% since last April, well above the Federal Reserve's 2.0% target. Prices at the wholesale level increased by 6.0% over the past 12 months, their fastest pace of growth since 2022.

In addition to price pressures, the economy showed signs of slowing. First-quarter gross domestic product was revised downward to an annualized rate of 1.6% from an earlier estimate of 2.0%. While business and government spending provided some cushion, consumer spending decelerated from 1.9% to 1.4%. Slowing wage growth and higher fuel costs helped weaken consumer spending and disposable income, which fell to its lowest level since February 2025.

First-quarter earnings were exceptionally strong for S&P 500 companies, delivering the fastest year-over-year growth since 2021 and broad-based gains across multiple sectors. According to FactSet, earnings rose 28.4% from a year earlier, and 84% of S&P 500 companies exceeded earnings per share (EPS) estimates. Each of the “Magnificent 7” also beat EPS expectations, surpassing estimates by 32.5%—about double the S&P 500 average.

Crude oil prices experienced a sharp reversal in May, with prices falling over 16.5% as geopolitical uncertainty eased due to expectations of a U.S.-Iran ceasefire and improving prospects for the reopening of the Strait of Hormuz. The retail price of regular gasoline was $4.475 per gallon on May 25, $0.352 above the price a month earlier and $1.315 higher than the price a year ago. The dollar showed resilience in May, closing the month at about where it began, despite a myriad of domestic economic factors, including a slowing labor market and persistent inflationary pressures.

*Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark the performance of specific investments.

The U.S. bond market spent much of the second quarter oscillating between rising and falling yields, influenced by resilient growth, stubborn inflation, and a cautious Federal Reserve. Treasury yields drifted higher in the second quarter as energy-linked inflation coupled with fading hopes for near-term fiscal easing ultimately pushed yields up but not without periods of decline. The 10-year Treasury yield spent most of the quarter swaying within a 4.0%-4.5% range. The two-year note also ebbed and flowed for much of the quarter.

According to FactSet, following a blowout Q1 in which S&P 500 companies posted 28.6% earnings growth (the highest since 2021), corporate profits are expected to carry strong momentum into the second quarter. With the start of Q2 earnings season in mid-July, analysts are projecting a year-over-year growth rate of 20.6%-21.3% for the S&P 500. Corporate America remains resilient despite market anxiety surrounding sticky inflation and a potential Federal Reserve interest rate hike in September.

To describe the second quarter as a roller-coaster ride for energy markets would be an understatement. Volatility in the Middle East sent crude oil prices surging to near four-year highs in April. However, a diplomatic compromise, including the reopening of the Strait of Hormuz, led to a massive reduction in crude oil prices throughout June. April saw prices rise to a 46-month high of nearly $113.00 per barrel, more than double the price at the start of the year. Escalating crude oil prices impacted consumers at the pumps, where gasoline prices climbed to a national average of over $4.00 per gallon. In mid-May, peace talks slowed price increases, culminating in a ceasefire agreement in mid-June, which resulted in the rapid deflation of crude oil prices to about $70.00 per barrel by the end of the quarter. The retail price for regular gasoline was $3.914 per gallon on June 22^nd, $0.561 below the price at the end of May but $0.701 more than the price a year ago. According to Freddie Mac, the 30-year fixed-rate mortgage averaged 6.49% as of June 25^th. That's up from 6.38% at the end of March but under the 6.77% rate from a year earlier.

Despite persistent inflation, tighter financial conditions, and geopolitical tensions, the U.S. economy showed surprising resilience. Gross domestic product held steady at an annualized rate of 2.1% during the quarter. While growth was modest, it exceeded fears of an economic contraction that prevailed throughout the end of the first quarter. The conflict in the Middle East, beginning in mid-March, had a ripple effect throughout the economy. Crude oil prices rapidly increased, inflationary pressures were felt for both products and services, and consumer spending retreated.

Latest Economic Report

• Employment: Job growth exceeded expectations for the second consecutive month in May as employment rose by 172,000 after increasing 179,000 (revised) in the previous month. The change in employment for March was revised up by 29,000 to 214,000, and the change for April was revised up by 64,000 to 179,000. With these revisions, employment in March and April combined was 93,000 higher than previously reported. The unemployment rate was 4.3% in May, unchanged from the previous month's rate and from May 2025. The number of unemployed persons in May was 7.3 million, which was essentially unchanged from the previous month and from May 2025. The number of long-term unemployed (those jobless for 27 weeks or more), at 2.0 million in May, rose 155,000 from the April rate and accounted for 27.5% of all unemployed persons. The total number of long-term unemployed in May was about 524,000 more than the estimate from a year earlier. The labor force participation rate, at 61.8% in May, was unchanged from the April rate and was 0.6 percentage point below the rate from a year earlier. The employment-population ratio in May, at 59.2%, increased 0.1 percentage point from April but was 0.5 percentage point below the May 2025 estimate. In May, average hourly earnings increased by $0.12, or 0.3%, to $37.53. Over the past 12 months ended in May, average hourly earnings rose by 3.4%, down 0.2 percentage point from the 12 months ended in April 2026 (3.6%). The average workweek was unchanged at 34.3 hours last month.
• FOMC/interest rates: As expected, the Federal Open Market Committee (FOMC) left the federal funds target rate range unchanged at its current 3.50%-3.75%. Following its first meeting under new Fed chair Kevin Warsh, the Committee's statement, which was much briefer than in the past, indicated that economic activity was moving at a solid pace and that inflation remained elevated.
• GDP: The rate of economic expansion accelerated somewhat in the first quarter of 2026, with gross domestic product (GDP) rising 2.1%, according to the third and final estimate from the Bureau of Economic Analysis. In the fourth quarter, GDP rose 0.5%. Compared to the fourth quarter, the increase in GDP in the first quarter reflected advances in government spending (-5.6% to +4.4%) and exports (-3.2% to +10.9%) and a deceleration in consumer spending (+1.9% to +0.5%) that were partly offset by an acceleration in investment (+2.3% to +7.9%). Consumer spending, as measured by personal consumption expenditures, is the primary driver of GDP. In the first quarter, spending on both goods and services each rose 0.5%.
• Inflation/consumer spending: According to the latest Personal Income and Outlays report, both personal income and disposable (after-tax) personal income each rose 0.7% in May from April. Personal consumption expenditures increased 0.7%. Consumer prices, as measured by the PCE price index, rose 0.4% in May, the same increase as in April. Excluding food and energy, the PCE price index increased 0.3% in May. From the same month one year ago, the PCE price index increased 4.1% (3.8% for the 12 months ended in April). Excluding food and energy, the PCE price index increased 3.4% from May 2025 (3.3% for the year ended in April).
  • The Consumer Price Index (CPI) advanced 0.5% in May and 4.2% over the last 12 months, 0.4 percentage point higher than for the 12 months ended in April. Energy prices, which drove the overall surge in CPI, rose 3.9% in May and 23.5% over the last 12 months. Gasoline prices increased 7.8% in May and 40.5% since May 2025. Shelter prices increased 0.3% in May and 3.4% since May 2025. Food prices rose 0.2% in May and 2.7% over the last 12 months. Prices less food and energy rose 0.2% in May and 2.9% over the last 12 months.
  • The latest data reveals that the Producer Price Index increased 1.1% in May, unchanged from the revised April estimate. Producer prices increased 6.5% over the last 12 months, the largest 12-month advance since the 12 months ended November 2022. In May, prices for goods rose 2.8% from the previous month, which accounted for nearly 80.0% of the overall increase. Gasoline prices rose 23.4% in May. Prices for services increased 0.3% in May. For the year, producer prices for goods rose 10.4%, while prices for services advanced 4.9%. Excluding food and energy, prices increased 0.4% in May and 4.9% over the year. Excluding foods, energy, and trade services, producer prices moved up 0.8% in May and 5.1% since May 2025.
• Housing: Existing home sales increased 3.2% in May and 3.2% from a year ago. Inventory of existing homes for sale in May, at a 4.5-month supply, was unchanged from the prior month's estimate. The median sales price in May was $429,300, up from the April estimate of $417,500, and greater than the May 2025 price of $423,700. Sales of existing single-family homes rose 3.5% in May and 3.3% from May 2025. The median sales price for existing single-family homes in May was $434,300, up from the previous month's price of $421,900, and higher than the May 2025 price of $428,800.
  • The most recent data shows sales of new single-family houses in May 2026 were 7.3% below the April rate and 6.8% under the May 2025 estimate. Inventory of new single-family homes for sale in May represented a supply of 10.3 months at the current sales rate, 10.8% above the April estimate and 6.2% over the May 2025 figure. The median sales price of new houses sold in May 2026 was $424,900. This was 2.0% above the April price and unchanged from the May 2025 price. The average sales price of new houses sold in May 2026 was $540,600. This was 7.8% above the April price and 5.0% higher than the April 2025 figure.
• Manufacturing: Industrial production (IP) ticked up 0.1% in May after rising 0.9% in April. IP was 1.7% above its year-earlier level. Manufacturing output was unchanged from the prior month last month but 1.4% above the May 2025 estimate. In May, the index for mining rose 1.3% and was up 2.0% from last year, while the index for utilities decreased 0.4% in May but was 3.1% over the May 2025 estimate.
  • According to the latest report from the Census Bureau, new orders for durable goods decreased $15.6 billion, or 4.5%, in May following an 8.5% April advance. Excluding transportation, new orders increased 1.3%. Excluding defense, new orders decreased 4.6%. Transportation equipment led to the May decrease, falling $18.5 billion, or 14.0%.
• Imports and exports: S. import prices increased 1.9% in May, according to the latest report from the Bureau of Labor Statistics. Prices for exports increased 1.3% in May. Over the 12 months ended in May, import prices rose 6.7%, the largest over-the-year advance since import prices rose 7.7% in August 2022. Export prices increased 11.2% since May 2025, the largest over-the-year increase since export prices rose 11.2% in August 2022.
• International markets: June saw strong stock market performances in Europe and Asia, driven by easing energy costs and a continuing surge in AI shares. European equities had their strongest quarterly performance since the three months ended October 2020. Asian stock markets enjoyed their strongest quarter in 17 years. By the end of June, the STOXX Europe 600 Index rose 2.5% for the month and 9.9% for the second quarter; the United Kingdom's FTSE ticked up 1.7% for the month and 3.7% for the second quarter; Japan's Nikkei 225 Index gained 5.0% in June and 37.2% in the second quarter; and China's Shanghai Composite Index ticked up 0.5% in June and 5.2% in the second quarter.
• Consumer confidence: The Consumer Confidence Index inched up in June to 91.2 from 90.6 in May. The Present Situation Index, based on consumers' assessment of current business and labor market conditions, decreased by 3.0 points to 116.4. The Expectations Index, based on consumers' short-term outlook for income, business, and labor market conditions, rose by 3.0 points to 74.4.

Eye on the Year Ahead

Economic uncertainty remains elevated heading into the third quarter. While the labor market has shown strength, inflation remains "sticky," as geopolitical instability continues to be a key variable.