In 30 seconds: The S&P 500 reached its 20th all-time high of 2026 within the first 100 days of the year, driven largely by AI-related stocks and strong earnings growth, with Goldman's AI basket up 42% year-to-date. A mixed batch of US economic data shows manufacturing improving but services softening, core PCE inflation rising to its highest since late 2023, mortgage rates climbing, and home price appreciation slowing amid weakening consumer confidence. Brad Setser highlights China's surging trade surplus, understated current account data, and declining imports—particularly in autos—while arguing the US fiscal deficit is a primary driver of the persistent trade imbalance. The Strait of Hormuz has been effectively closed for over 13 weeks, keeping oil prices elevated above pre-conflict levels, though a draft US-Iran MoU hinting at restored tanker transit has triggered only modest price declines.
The S&P 500 closed at 7520.3599 on 2026-05-27, barely budging on the day, up 0.02%. That flatness is misleading. The index has now printed 20 all-time highs so far in 2026, and the record for new highs in the first 100 days of a year is 39, set in 1964. Twenty is not thirty-nine, but the year is young enough to make the comparison interesting. The breadth numbers tell a clean story. On the most recent session, 42 S&P 500 components hit new 52-week highs, while just 1 made a new low. The S&P 500, Nasdaq-100, and Dow equal-weight all made new highs. The Dow closed above 50,000 on May 26, 2026, exactly 130 years after it debuted at 40.96 points on May 26, 1896. May 26, 2026 is a nice round anniversary for a nice round number. What is driving this? Earnings growth is running at 16% year over year, with earnings and margins making new highs. P/E-multiple: 12%. Term premium: 88 bps. Of the 15 companies worldwide now worth more than a trillion dollars, 6 come from the semiconductor industry. Micron $MU, up 860% over the past year and another 7% in premarket after a 20% surge the prior session, has cracked top 10 market cap in the S&P 500. The trillion-dollar club, in other words, is becoming a chip club. You could call this concentration risk. You could also call it the market telling you what it thinks the next decade looks like.
The economy is sending two signals at once, and they do not agree with each other. On the manufacturing side, things look surprisingly firm. The Richmond Fed Manufacturing Index May printed at 13, well above the 4 estimate. The Dallas Fed Manufacturing Index (adjusted for ISM methodology) came in at 50.54, still holding in expansion territory. The Chicago Fed National Activity Index for April registered 0.14 against an estimate of 0.03, with the prior month revised up to 0.15. Then there is inflation, which is not cooperating. Core PCE 6-month annualized rate: 3.8%. Housing is where the mood turns. Home prices in major US cities have dropped for two consecutive months. Annual US home prices growth slowed to 0.7%, the lowest since June 2023. The explanation is straightforward: moderating due to more sellers than buyers. Meanwhile mortgage rates are going up as bond yields rise. The MBA Mortgage 30-year mortgage rate climbed 9 basis points to 6.65%, the highest since August. Consumer confidence has dropped to historically low levels, and the Conference Board Consumer Confidence spread between expectations and present situation has largely remained stagnant since late last year. The labor market picture embedded in the confidence data is not encouraging either, with the jobs-hard-to-get minus jobs-plentiful spread pointing to renewed upward pressure on the unemployment rate. Despite all this, nearly 55% of consumers expect higher stock prices a year from now, the highest since Dec. 2024. U.S. large caps recorded the largest ETF inflows for the third consecutive week in the week ended 5/22/26, even as U.S. small caps had the largest ETF outflows. The consumer is gloomy about everything except the portfolio.
Start with the headline number: China's foreign exchange settlement surplus is running at $1.2 trillion on an annualized basis. That is a lot of dollars flowing in. The trade surplus itself is, in the technical parlance, crazy big. And yet the official current account data does not fully reflect this. The argument is that China is understating its current account, which implies a higher level of private financial outflows — but the surplus is so large that private outflows have not kept up. The balance of payments data tells a layered story. It shows elevated private outflows, including quasi-official equity outflows, alongside a large net build-up of state bank assets over time. Chinese banks have accumulated over $2 trillion in net foreign assets via portfolio debt and policy bank channels. Settlement data has historically been reliable, and it tells a clear story: private outflows no longer map to the inflows from the trade surplus. On the import side, the picture is bleak. Over the past five years China has exhibited no real import growth and massive export growth. Auto imports stand at just 0.45 million vehicles over the trailing twelve months. Germany's exports to China are dropping like a rock. Back in 2015, the settlement balance showed $600 billion in outflows; the latest twelve months show $500 billion. The run-up in US equities has pulled foreign funds into the US, even as foreigners were net sellers of booming Korean and Taiwanese markets. The US, for its part, showed little interest in the G-7 discussion of imbalances this year. Standard calculations suggest the US fiscal deficit — running at 6 points of GDP — accounts for roughly half of the 4-point trade deficit.
The Strait of Hormuz has now been effectively closed for 13 weeks, which is many weeks more than markets were pricing in at the time. When the closure began, markets were pricing in a much shorter duration. WTI, for its part, is now trading below $90 a barrel, notably lower on recent sessions. Under the terms aired in the MOU draft headlines out of Tehran, Iran will allow commercial vessel transit via Strait of Hormuz to return to pre-war levels within 30 days, while the US will lift blockade and withdraw from Iran's waters. Markets responded with a Brent selloff of only $2-3 per barrel following the MOU draft headlines — much less than previously seen for much less news. Recently, 2 VLCCs exited carrying roughly 4 million barrels of crude. This is a trickle. The downstream effects on fuel prices are tangible. US retail gasoline has remained above $4 per gallon for the last two months, sitting around ~$4.5 per gallon. Wholesale prices are dropping today toward $3 per gallon, which should push the retail average down roughly 10% in the next few days. Then there is China, which has managed to reduce oil imports sharply without (based on available data) tapping stocks. One alternative to the 'China-is-secretly-tapping-its-SPR' narrative focuses on refinery yield shifts, suggesting the answer may be more mundane.
Here is what your portfolio did this session.
S&P 500: 7,520.36, up 0.02% on the day
10-Year Treasury yield: 4.48%, down 1 bp on the day
30-Year Treasury yield: 5.01%, down 1 bp on the day
13-Week T-Bill yield: 3.58%, up 0 bp on the day
Gold: $4,485.00, down 0.34% on the day
Fed funds rate: 3.75%, flat 0.00% on the day
Long bonds (TLT): $85.30, up 0.24% on the day