Portfolio Manager Commentary

May 15, 2026

Economic Outlook

In April, the ISM Services PMI registered 51, rising from a 3-year low in March. The NFIB Small Business Optimism Index increased modestly to 95.9. A net 27% of small businesses plan to raise prices over the next 3 months. Labor market conditions remained stable in April, with non-farm payrolls increasing by 115,000 while the unemployment rate held at 4.3%. Average hourly earnings increased 3.6% year-over-year, continuing a gradual moderation in wage growth trends. The Consumer Price Index surged 3.8% year-over-year in April. Energy costs jumped 17.9% over the period. Meanwhile, the Producer Price Index rose 6.0% from a year ago, the largest change since December 2022. The University of Michigan Consumer Sentiment Index continues to make record lows, posting a preliminary May reading of 48.2. The average interest rate for a 30-year fixed-rate mortgage was approximately 6.46% as of May 8.

Fixed Income

The federal funds target range remains at 3.50%–3.75% following the April FOMC meeting, where policymakers held rates steady and reiterated a data-dependent approach amid persistent inflation uncertainty. Notable increases in inflation data are keeping the Fed in a “hold” stance for now, eliminating expectations for any near-term rate cuts and maintaining pressure on the front end of the curve. Interest rate futures markets are pricing in roughly a 50% probability of at least one interest rate hike by the end of 2026. Long-duration Treasury yields have climbed higher in recent weeks. The 30-year Treasury yield recently reached its highest level since 2007. Despite tighter financial conditions, spreads on high-yield bonds remain near cycle lows.

Yield Curve

Current Generic Bond Yields

Equities

U.S. equities have continued to advance in May, with the S&P 500 reaching new all-time highs. Large-cap equity performance remains supported by a sharp rebound in technology stocks, while breadth indicators suggest participation remains somewhat narrow. From a valuation perspective, the S&P 500 currently trades at a trailing P/E ratio of 27.8, which is above both the five-year average of 24.1 and the ten-year average of 22.6. Using forward estimates, the index trades at a P/E ratio of 21.3, also above the five-year average of 20.2 and the ten-year average of 19.4. Meanwhile, earnings expectations continue to improve, with consensus estimates for S&P 500 earnings growth at 22.5% for calendar year 2026 as of May 15.

In 2026, the best performing U.S. sectors have been Energy (+33.81%), Information Technology (+22.58%), and Materials (+11.41%). The worst performing sectors have been Financials (-6.22%), Health Care (-5.88%), and Consumer Discretionary (-2.22%). On a total return basis, the Russell 1000 Growth Index has returned 4.26% year to date, while the Russell 1000 Value Index has increased 10.04% over the same period.