May delivered a familiar tension. The U.S. economy kept expanding, driven by resilient consumer spending and surging AI investment, yet rising energy prices tied to the U.S.-Iran conflict stoked inflation, leaving the Federal Reserve in a holding pattern and deferring hopes of near-term rate cuts.

For long-term investors, the picture can feel contradictory, with parts of the stock market hitting record highs while entrenched rates weighed on bonds and household budgets. What follows is our monthly review of markets, the Fed, and what both mean for your investments.

Major U.S. Stock Indices 

Equity markets rose in May, with tech indices and AI-exposed Asian markets among the strongest performers. Semiconductor and mega-cap growth stocks drove nearly all the upside, while value stocks, small caps, and defensives lagged.

Here’s a look at the numbers for May:

• The S&P 500 climbed 5.15%.
• The Nasdaq 100 surged 10.49%.
• The Dow Jones Industrial Average edged up 2.78%.

The Big Picture, Up Close

Growth Holds, Unevenly. First-quarter GDP came in at 2.0% annualized before being revised down to 1.6% in late May, while unemployment held steady at 4.3%. Affluent households continued to spend freely on services and experiences while lower-income consumers were visibly stretched by fuel and food costs. AI-driven investment in data centers and software surged, offsetting sluggish traditional capital spending.

A Fed With Few Good Options. Newly minted Fed Chair Kevin Warsh, who was sworn in on May 22nd, is stepping into a Fed that’s between a rock and a hard place. Core PCE data, released in mid-May, showed that the inflation measure rose to 3.3% in April, well above the Fed’s 2% target. Additionally, markets are now pricing in a rate increase as the more likely next move. Officials would prefer to hold steady and watch inflation fade, but sticky services inflation and an energy shock have made that increasingly difficult.

A Strong Earnings Season. With 97% of S&P 500 companies reporting actual results, 85% have reported a positive earnings per share (EPS) surprise, and 81% have reported a positive revenue surprise. During April and May, analysts increased earnings per share estimates for Q2 by 2.5%. Analysts typically cut estimates in the first two months of a quarter, making the 2.5% upgrade an encouraging signal.

The Three Variables That Matter Most. With the Fed funds rate at 3.50% to 3.75%, short-term yields kept cash and short-duration bonds competitive with risk assets. The dollar stayed strong, which squeezed emerging markets and trimmed the returns U.S. investors earned on overseas holdings. Of the three, oil was the most consequential. Surging well above $110 per barrel early in May on conflict escalation before retreating below $90 on ceasefire signals, its next sustained move will do more to shape inflation’s trajectory than any single Fed decision.

Putting It All Together

The economy is resilient but not immune. Inflation has reset higher, and the real risk is not recession but a drawn-out stretch of uncomfortable prices that eventually forces the Fed’s hand. Oil is the swing factor. If energy costs push higher again, the glide path back to target gets considerably steeper.

Equity markets are strong but remain concentrated, with earnings holding the bull case together while rate-sensitive segments show strain. Cash yields are attractive, and the dollar offers insulation, but the core message is straightforward: stay invested, stay diversified, and resist crowded trades.

Know that we are staying focused on your long-term plan and keeping an eye on what’s driving the markets now. If you have questions about recent market shifts or simply want to talk through your strategy, do not hesitate to reach out to our team.

Thank you for reading!

The Trademark Capital® Team

This material is intended for informational purposes only and should not be construed as legal, accounting, tax, investment, or other professional advice. Trademark Capital’s investment strategies are built using quantitative, proprietary algorithms that are designed to identify and react to changing market conditions. However, investors should be aware that no investment strategy or risk management technique can guarantee returns or eliminate risk in any given market environment. As with all investments, Trademark Capital Management’s investment strategies are subject to risk and may lose money. The investment strategies presented are not appropriate for every investor and individual clients should review with their financial advisors the terms and conditions and risk involved with specific products or services. Due to our active risk management, our managed portfolios may underperform during bull markets. Past performance is no guarantee of future results