Broader Participation Emerges as AI Trade Continues

It was another positive week for US stocks with the S&P 500 rising for the eighth consecutive week. Upside participation broadened out considerably last week as the equally weighted S&P 500 index outperformed the cap weighted index by 1.6%, while the Russell 2000 index (generally small cap stocks) was the best performing index, up 2.72%. Several defensive sectors performed the best, like healthcare, utilities, and real estate – all up at least 3%.

It was a quieter week compared to the past couple months, giving several earnings reports the spotlight. It was a busy week for retailers with many big box retailers reporting. Walmart met expectations on earnings and comparable store sales growth but shares fell over its sales forecast.

The company cautioned the extended shutdown of the Strait of Hormuz could send retail prices higher due mostly to higher fuel prices. It also noted continued growth but particularly among upper income households, with the CFO saying higher income customers are “spending with confidence into many categories while the lower income consumer is more budget conscious and perhaps navigating financial distress."

Home Depot and Lowe’s reported as well, results were largely mixed on both ends. Home Depot said underlying demand in the business was basically similar to what it saw throughout 2025, this coming despite more consumer uncertainty and worsening housing affordability, while adding that homeowners are putting off large projects. In addition, last week mortgage rates rose to the highest since last August.

But markets have done a great job looking past the threat of higher inflation and slower consumer spending/consumer uncertainty, instead focusing on the AI narrative and the growth seen here. Nvidia was the latest example last week.

The largest company in the world, with a market capitalization of approximately $5.3 trillion, announced another blowout quarter. Its revenues were $81.6 billion in the three month period, $2.7 billion more than what was expected. Even at these levels, growth is expected to remain explosive - its data center segment, which includes sales of its AI chips, saw substantial growth of 92%, accelerating from 75%.

It is forecasting revenues in the current quarter of $91 billion, about $4.1 billion above analysts’ expectations. In addition, it said it sees revenue from its next generation AI chip platforms Blackwell and Rubin of $1 trillion by 2027. It is not including potential China sales in its calculations. Overall, there were few areas of scrutiny, despite shares falling 4.5%.

After last week’s batch of earnings, the projected earnings growth rate for the first quarter increased to 28.4%, up from 27.1% May 1 and up from the expected 13.2% growth rate when the quarter began April 1.

The conflict in Iran continues to be a noisy situation with a lack of a longer-term ceasefire agreement extending into this week. After threats from the US on additional airstrikes, Iran failed to make a workable deal, but strikes were postponed after requested by Middle East leaders. Later in the week, President Trump said both sides are in the “final stage” with reports saying the gap of disagreement has narrowed. The sticking points now sound to be Iran’s enriched uranium and tolls on ships passing through the Strait.

With the catalyst from earnings season basically past, we would expect more volatility in stocks over the next several weeks, particularly as we enter a seasonally weaker period of the year and mid-term election cycle. However, past this we expect continued market gains, lifted by the AI growth and greater market sentiment via upcoming high profile IPOs (initial public offerings).

This week will see one of the last notable weeks of earnings season, with several retailers and a group of tech companies reporting results (mostly software). The economic calendar will give us an update consumer spending and inflation, with the personal income and consumer spending report Thursday morning.



Week in Review:

All four US stock indices were higher last week while volatility fell 9% through the week. Upside was led by small caps as breadth showed a big improvement, while the S&P 500 moved higher for the eighth straight week, the longest since 2023. The S&P 500 equal weighted index outperformed the S&P 500 by 1.6%. The four major indices finished as follows: Russell 2000 +2.72%, Dow +2.13%, S&P 500 +0.88%, and Nasdaq +0.45%. Treasuries were mixed with the short end weaker – the 2-year Treasury yield rose 5 basis points to 4.12% while the 10-year fell 4 basis points to 4.56%. The dollar index was relatively unchanged while gold fell slightly. Bitcoin lost 4.52%. Meanwhile oil fell 8.37% over continued hopes of a Iran ceasefire and eventual reopening of the Strait of Hormuz shipping lane. 

Recent Economic Data



• Housing Market Index: The housing market index, an index on homebuilder sentiment, improved slightly in May, with the index up 3 points to 37, however still remains well below the level of 50 that represents breakeven and has for several years now. The three of the subindexes rose 3 points with the index on the present situation at 40, the index on expected sales over the next six months at 45, and the index on traffic of prospective buyers still lagging at 25.

• Housing Starts & Permits: The number of housing starts in April was at a seasonally adjusted annual rate of 1.465 million, down about 2.8% in the month but 4.6% above the level a year ago. Meanwhile, the number of permits for new home builds declined 5.8% in the month to a seasonally adjusted annual rate of 1.442 million, relatively unchanged from a year ago. The number of housing completions jumped in the month but still fell 2.0% from a year ago to an annual rate of 1.449 million. At the same time, the number of homes currently under construction remains low, falling to 1.275 million annualized, down 8.5% from a year ago.

• Philly Fed Manufacturing Index: The Philly Fed manufacturing index was -0.4 for May, falling from a quite strong 26.7 in April, reflecting a sharp deterioration in manufacturing activity in the Philly region in May after four straight months of improvements. The new orders index fell 35 points to -1.7 with the number of firms reporting declines jumping from 8% to 30%. Employment remained negative while cost pressures remained elevated, although eased somewhat.

• Jobless Claims: For the week ended May 16 there were 209,000 unemployment claims, down slightly from the week prior. The four-week average fell slightly to 202,500. The number of continuing claims increased only 6,000 to 1.782 million with the four-week average down 6.5k to 1.773 million.

• Mortgage Rates: The average mortgage rate for a prime borrower on a 30-year mortgage was 6.51% last week, a 15 basis point jump from 6.36% the prior week. Since bottoming at 5.98% in February, higher inflation concerns has led to higher Treasury yields and therefor higher mortgage rates. 

Company News



• OpenAI Lawsuit: Elon Musk sued OpenAI and Sam Altman claiming they abandoned OpenAI’s original nonprofit, open-source mission by turning it into a highly commercialized company closely tied to Microsoft. Musk argued OpenAI betrayed its founding agreement and prioritized profit and corporate control over benefiting humanity. A California jury ultimately dismissed Musk’s claims in 2026, largely because they found he waited too long to sue under the statute of limitations, rather than fully ruling on whether OpenAI’s transformation itself was improper. The case still intensified public debate over AI governance, corporate influence, and whether OpenAI became the kind of centralized AI company it was originally created to prevent.

• Apple: Bloomberg reported Apple is preparing an AI-focused overhaul of Siri in iOS 27, turning it into more of a standalone ChatGPT-style chatbot app with stronger generative AI features. Apple is reportedly emphasizing privacy as its differentiator, including options for chats to automatically delete after a set period instead of being stored indefinitely like many competing AI assistants. The report also says the new Siri may still launch labeled as a “beta” product because Apple has struggled to catch up in AI after delays and technical setbacks. At the same time, Apple is planning smaller AI upgrades like smarter Genmoji suggestions based on photos and user behavior, while potentially relying more heavily on Google’s Gemini models behind the scenes to strengthen Siri’s capabilities.

• Amazon: The Information reported Amazon is gaining traction with its Trainium AI chips as some developers seek alternatives to NVIDIA GPUs, which remain in short supply amid massive AI demand. Developers cited improved software support and lower costs — with one company seeing inference costs fall by up to 35% versus Nvidia’s H100 chips — though Nvidia is still generally viewed as the preferred option for training large AI models. The report also highlights Amazon’s growing AI infrastructure ambitions, with CEO Andy Jassy recently stating the company’s custom silicon business could eventually generate $50 billion annually and is already among the world’s top three data-center chip businesses.

• Dominion Energy: Dominion and NextEra Energy confirmed they have agreed on a merger in an all-stock transaction valued at $67 billion, which would create the largest regulated electric utility. Dominion shareholders will receive 0.818 shares of NextEra for each share of Dominion owned resulting in its shareholders owning 74.5% and NextEra shareholders owning 25.5% of the combined company.

• Bloom Energy: Shares of fuel cell energy provider Bloom Energy moved 8% higher after AI infrastructure provider Nebius said it has entered into an agreement where Bloom Energy will supply fuel cell capacity worth as much as $2.6 billion in monthly service fees. Bloom Energy will install, operate, and maintain the fuel cell power supply system in which Nebius will purchase the capacity and electricity generated by the systems.

• Kroger: Bloomberg reported that Kroger is preparing its largest round of price cuts in years as new CEO Greg Foran looks to regain market share from rivals like Walmart and Costco. The company plans to test and gradually roll out lower pricing across multiple product categories, signaling a more aggressive competitive stance amid growing consumer price sensitivity. Kroger is also investing in AI-driven supply chain efficiencies and evaluating expansion opportunities, including as many as 80 new stores, as it attempts to reposition itself as a stronger value-oriented grocer following increased competitive pressure in the grocery industry.

Other News



• Quantum Computing Grants: Quantum computing stocks were higher after the WSJ reported, and several companies confirmed, that the Trump administration is awarding $2 billion in grants to nine firms in exchange for an equity stake in effort to accelerate quantum computing development. The funding will come from the 2022 CHIPS and Science Act.

• AI Regulation: Reuters reported President Trump is expected to sign an executive order establishing a federal framework for oversight of AI models, a shift from the previously hands-off stance toward AI regulation. The proposal would encourage AI companies to provide the government and critical infrastructure operators access to frontier AI models up to 90 days before public release, amid rising concerns that increasingly powerful systems could enable sophisticated cyberattacks or national security threats.

• Gas Tax Holiday: The Trump administration is reportedly working with Congress on a temporary “gas tax holiday” that would suspend the federal gasoline and diesel taxes — mainly the $0.184 per gallon federal gas tax — to help offset rising fuel prices. Officials are considering language that gradually brings back the taxes to avoid panic buying or fuel supply disruptions. There is debate whether the policy would actually help consumers much with supporters arguing anything helps and opponents saying much of the savings may not fully reach drivers and that suspending the tax could cost the government billions in lost infrastructure funding each month.

• Iran Conflict: At the request of leaders in the Middle East, Trump reportedly postponed attacks on Iran that were scheduled for Tuesday. A report from Bloomberg said NATO officials are actively discussing a military operation to assist ships passing through the Strait of Hormuz if it is not open by early July. The proposal has received support from several NATO members, but not yet at the unanimous support required for NATO action. 

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