Market Report: May 2026

Statistics

Have you noticed that the world is enamored with statistics? Sports, weather, political polling, education…everywhere you look someone is putting together statistical data on virtually every subject imaginable. The thing about statistics, though, is that they can be twisted to support whatever argument the observer wants them to say. In addition, some statistics are looked at differently than others. For example, in baseball, a hitter is considered a phenomenal success if one can get a base hit 30% of the time, while in basketball, if a player makes just 50% of his or her free throws, they are considered a poor shooter. In golf, the higher the number of fairways hit in a round and/or the higher number of greens hit in regulation are considered in determining the success of a player, yet even if a player scores low in those metrics, but scores highly in something called scrambling, they can still be a success.  Perhaps no one looks at more statistics, however, than investors and investment managers. Past performance is obviously the statistic that most people look at, but it certainly does not tell the whole story. Is that performance better or worse than an index? Does the investment carry more risk than a different investment, is it more volatile, or, if considering a fund, does it have higher or lower internal fees than other funds? And on, and on, and on it goes. Things like standard deviation, beta, alpha, the Sharpe ratio, correlation, convexity, up-market, and down-market capture ratios, and many, many more, represent statistical data that investors review and consider when making decisions on whether to invest in, or sell out of, securities. Likewise, there are many economic data points such as GDP, inflation, the unemployment rate, manufacturing data, building permits, and hourly wages that are just a small sample of statistical data used by economists to make their forecasts. We will review and report on the data for many of these statistics as we work through this commentary.

Financial Markets

It is amazing how we fawn over baseball players that achieve success at the plate approximately 30% of the time, yet obsess over the markets when they lose value approximately just 25% of the time. Why don’t we fault the player for having a failure rate of 70% and show more enthusiasm when the markets gain ground, even if just a little bit? While I am no psychologist, I believe it has to do with expectations. It is hard to hit a baseball, and so those that do so at a better rate than the average player (who gets a hit approximately 25% of the time) get all kinds of accolades. The economy generally grows, companies make money (earn profits), and so we expect those companies’ stock prices to go up accordingly, thus driving the markets higher. But, when that does not happen, for whatever reason, it goes against our expectations, and therefore we are more fearful of lower-than-expected results, and especially of negative returns.

Lots of statistical data when looking at long-term averages, yes, but in the shorter-term, April’s results were fantastic! The market data is listed at the end of this commentary, but here are a few of the month’s highlight: The NASDAQ gained 15.31%, the S&P 500 added 10.49%, and the S&P 600 tacked on 10.41% – all just during the month of April! All other indices that we follow gained during the month, and all are now in the black year-to-date as well. I do not have the statistical data, but I do know months like this do not come along very often and should be celebrated!

The outlook, however, continues to be cloudy, as valuations remain elevated (see below) and the war adds uncertainty to the mix.  The speed at which the markets falter and then recover from negative events seems to be increasing. How fast the markets recovered from the COVID meltdown in 2020 was spectacular, while the quick recovery from tariff related selling in 2025 and from the volatility associated with the war (and related energy price fluctuations) have been remarkable as well . The markets are back to setting new, all-time highs, but that raises those concerns over valuations, as statistics do not lie. Helping to mitigate some of these concerns, however, is the fact that profit margins are growing faster than P/E ratios, and that is good news for stocks.

Here is the most recent data regarding several market valuation indicators. Note that the data is as of April 30th, 2026 (Buffet Indicator as of May 5^th, 2026), and all have become more pronounced in how far overvalued they are. This is due to the very strong equity performance during the month of April, even with strong earnings performance. Note that all statistical measures here indicate that the markets are strongly overvalued.

The Economy

There is no doubt that statistics tell the economic story. The problem is that there are so many different and differing data points, that gleaning a clear picture of the economy is not easy. We can look at GDP and see steady, but slow growth, we can look at tax revenues to see if people are working and spending and see that government revenue in fiscal year 2025 was 20% higher than in 2019 prior to the pandemic and note that the economy has expanded, and we can look at corporate earnings and see that they are rapidly growing as they are expected to grow by 17% or more in both 2026 and 2027.  In addition, many of the manufacturing and services index data show an expanding economy. On the other hand, the University of Michigan’s Consumer Sentiment Index reading of 49.8 in April was the weakest reading on record, even after being revised slightly higher. Perhaps it’s the Iran war, the continued fallout of persistently high inflation (at least compared to the Fed’s 2.0% goal), or because of AI disruption in the labor markets, but the consumer feels threatened, even if they continue to spend. Fed Chair Jerome Powell recently noted that “…the economy has been resilient. It really has, not just this time, but it’s been remarkably resilient for some years now. The U.S. economy has just powered through shock after shock after shock, and consumers are still spending. And that’s what the banks will tell you, credit card companies will tell you, the retail sales numbers that we got most recently. People are still spending.”   Should the consumer stop spending, then we may be in some trouble, but there is no sign of that happening, and as a result, companies are making more money than ever before, and investors are reaping the benefits of higher stock prices.

GDP (Gross Domestic Product) – One statistical measure that is perhaps less impactful to many investors is GDP. Yes, it is paid attention to at times, mainly when it posts two negative quarterly readings in a row, potentially indicating that the economy is in a recession, or when it posts a very large number. Otherwise, it feels like of one of those ho-hum data points that many just take for granted. To be fair, the annual data points have been ho-hum, as the number has been stuck between 2% and 3% for some time now, meaning the economy is running slow but steady. GDP hit 2.8% in 2024, 2.2% in 2025, and is estimated to be slightly more than 2.5% in 2026. First quarter 2026 data points to a 2.0% (advance estimate) rise in GDP, and GDPNow is currently estimating second quarter growth to come in at a robust 3.7%. Like all the other statistics being discussed here, the GDP results will be impacted by the war.

Inflation – Unlike GDP, the statistical data points that make up all the various inflation figures are something that most people get worked up about, even if they do not fully understand the data. Perhaps because it is talked about so much in the media (and used as a political hot potato) or because of the impact it has on our wallets, inflation is watched more than perhaps any other economic variable. The data point we follow is the CPI (Consumer Price Index) for all items and it rose 0.9% in March and 3.3% over the past twelve months. The bulk of the increase in the rate came from energy prices (led by a 21.2% increase in the price of gasoline). The index for all items less food and energy (the most volatile of the data points surveyed) showed an increase of 0.2% in March and an increase of 2.6% over the past year. As of April 30^th, Truflation was reporting a rate of 1.95%. Clearly, the war and its impact on the price of oil and gas is having an outsized effect on the rate of inflation and, like most volatile metrics, once that settles back down, the overall rate of inflation should cool as well.

Employment – Using employment data as an ongoing measuring stick for the economy has become messy in recent years, and can be more akin to following the bouncing ball. The data at times seems to contradict other economic news, and because it is constantly being adjusted (some would say manipulated), it can be harder to strategize over in the short-term. Nationally, the unemployment rate ticked lower in March to 4.3%, as 178,000 jobs were added during the month. Jobs were added in several sectors including health care, construction, transportation, and warehousing, while the federal government continued to shed positions. Note: April data won’t be released until after this commentary is published. Wisconsin (3.5% in March) and Madison (3.3% in February) unemployment data have finally been somewhat updated, although both numbers are preliminary. The Sahm Rule has not been released yet either, after ticking lower to 0.20 in March. Because the updated data is not available yet, it is hard to gauge the impact of how the employment picture is affecting the economy right now. But do not worry, government statisticians are working hard to get us the information!

The Fed Watch

While there are changes coming soon to the Fed, namely a new Chairman (Kevin Warsh), what will not change is the fact that the Fed is driven by statistics. The main two that the public sees cited most often are the unemployment rate and the rate of inflation, but the Fed reviews and considers just about every economic variable out there in helping set its’ policies. At this point, the Fed remains on pause in terms of cutting interest rates, but should the war get resolved sooner than later and Kevin Warsh get appointed as Fed Chair, do not be surprised to see a rate cut or two this year. That would do wonders for the economy and the markets according to Calamos Investments President and CEO John Koudounis on a recent “Mornings with Maria” show on Fox News citing the strength of the economy (earnings, tax refunds, etc.) and the potential once energy prices stabilize, stating “When that happens, we’re off to the races again” adding that “the market really, really wants to run.”  We will see, but in the end the statistics will define what the Fed does with interest rates.

Outlook/Summary

As noted above, one of the problems with statistical data is that it can be twisted to tell the story that the presenter is trying to tell. That usually works with limited data, whereas a larger pool of data points is harder to manipulate. Fundamental analysis follows the data to see where it may lead and then decisions are made based on what that data tells us. From that point of view, investors should be happy with the state of the economy, corporate earnings results (it is notable that recent reports show the lowest frequency of EPS misses in 25 years, not counting the COVID reopening period), and a rosy outlook for earnings. But, before we get too far ahead of ourselves, consumer spending data is strong, but a lingering spike in energy prices could force the consumer to make some difficult spending decisions and that could alter the outlook. In fact, the war’s impact on oil prices is going to be even more noticeable this summer as global oil inventories could implode and cause rationing in some parts of the world. To some degree, we are beginning to see the impact, as gas prices have surged and plane fares are expected to spike this summer as well. Yes, the U.S. is better positioned than others, but because oil prices are set in a global marketplace, we will feel the pain as well. The hope is obviously for peace and a reopening of the Strait of Hormuz to minimize the pain.

The divergence in stories – optimism over current and future earnings data offset by higher inflationary expectations due to the impact of the war on energy prices – feeds our narrative of staying diversified, protecting the downside, and then looking for upside returns – with an eye on the stats!

Should you like to discuss your portfolio or learn if our strategy can work for you, please call the Wealth Management division of Lake Ridge Bank at (608)826-3570. We look forward to speaking with you.

Market/Economic Data

As of April 30th, 2026…. Unemployment data is through March for national, March for Wisconsin (preliminary) and February for Madison (preliminary); inflation data is through March, Truflation as of 4/30/26:

Thank you for your business – we look forward to speaking with you soon. (Note – this commentary used various articles from JP Morgan, Morningstar, the Wall Street Journal, Investor’s Business Daily, Northern Trust, CNNMoney.com, msn.com, Kiplingers.com, nytimes.com, Fidelity Investments, American Funds, LPL Financial and other tools as sources of information.

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