Savvy Portfolio Perspectives | May 2026

Contents Under Pressure

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Executive Snapshot

Markets entered May with meaningful support from corporate earnings, but also with renewed pressure from inflation and rising interest rates. Q1 results have continued to come in ahead of expectations, particularly across Technology and AI infrastructure. At the same time, April CPI and PPI pointed to firmer price pressure, pushing Treasury yields higher as investors reassessed the path of Fed policy. FactSet’s May 8 data showed that 84% of reporting S&P 500 companies beat EPS estimates, while Reuters reported that the 10-year Treasury yield climbed to roughly 4.6% by May 15, its highest level since May 2025.

That rates move is significant. A higher 10-year yield raises the hurdle for future equity returns, pressures valuation multiples, and suggests that bond investors may be less willing to look through sticky inflation data. We do not view this as a recession signal. We view it as a reminder that the market’s margin for error narrows when strong earnings are paired with rising rates.

Against that backdrop, we remain constructive, but selective. We continue to favor equities over fixed income, with an emphasis on areas where earnings visibility, balance sheet quality, and market leadership remain strongest. On May 8, we made a modest tactical refinement within equities, moving Healthcare from overweight back to neutral and reallocating the proceeds equally to broad S&P 500 exposure and Technology. This was not a broad positioning shift. It was a reassessment of where active risk is best deployed.

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Portfolio Stance

Equities: Overweight. We continue to emphasize U.S. Large Caps while using Emerging Markets as a diversification complement.

Fixed Income: Underweight. We continue to prefer higher-quality, short-to-intermediate duration exposures.

Healthcare: Neutral. We moved Healthcare from overweight back to neutral following our May 8 trade.

Technology: Overweight. We added to Technology using a portion of the proceeds from our Healthcare trim.

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The Verdict

We remain constructive, but disciplined. Strong corporate earnings are helping equities absorb pressure from sticky inflation, elevated oil prices, and policy uncertainty. Even so, the recent increase in Treasury yields is an important warning signal. If yields continue to move higher because investors are pricing more persistent inflation or a less accommodative Fed, equity valuation multiples could face additional pressure.

Our May 8 portfolio change should be viewed in that context. It was not a retreat from risk. It was a refinement of risk. We reduced exposure to a sector where our thesis had weakened and redeployed capital toward areas with stronger earnings visibility and market leadership.

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Core Driver

The market’s “contents under pressure” are clear: better-than-expected corporate earnings on one side, sticky inflation and rising interest rates on the other. Q1 earnings have surprised to the upside, with Technology and AI infrastructure doing much of the heavy lifting. At the same time, energy prices are keeping inflation elevated, pushing Treasury yields higher and narrowing the Fed’s room to ease. In our view, the path forward depends on whether earnings strength can continue to offset inflation, policy, oil, and rates-related pressure.

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Macro Thoughts

Earnings are carrying more of the market

The strongest support for equities remains corporate profitability. The Q1 earnings season has been meaningfully better than expected. FactSet’s May 8 update showed that, with 89% of S&P 500 companies reporting, 84% had beaten EPS estimates. The blended Q1 earnings growth rate rose to 27.7%, up from 13.1% on March 31.

That fundamental strength is meaningful because the macro backdrop is more complicated. Valuations are elevated, rates are moving higher, and inflation has re-accelerated. In that environment, earnings delivery becomes even more important.

The quality and distribution of earnings also matter. Technology remains the standout, with Information Technology posting the strongest year-over-year earnings growth across S&P 500 sectors. Healthcare, by contrast, has lagged, which supported our decision to move that exposure back to neutral.

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Chips are still doing the heavy lifting

One reason we remain comfortable with our Technology overweight is the continued strength in semiconductors and AI infrastructure. The chip complex has been one of the clearest beneficiaries of the current earnings cycle, supported by AI-related capital spending, data center demand, advanced memory, networking, and semiconductor equipment.

FactSet’s May 8 Earnings Insight showed Information Technology leading the market with 50.7% earnings growth. NVIDIA and Micron were meaningful contributors to that figure, but even excluding those two companies, the sector still posted 28.5% growth. That suggests the Technology earnings story is broader than one or two individual companies.

The underlying driver has also changed. The semiconductor cycle is no longer only about end-demand for PCs or smartphones. It is increasingly an infrastructure story, tied to accelerated computing, AI training and inference, cloud investment, memory, networking, and the specialized equipment required to build out capacity.

That said, we do not view chips as a risk-free expression of AI. Sentiment is strong, expectations are high, and the group can be sensitive to interest rates, export restrictions, supply constraints, and any moderation in hyperscaler capital spending. We are not chasing the sector indiscriminately. Rather, we recognize that semiconductor strength remains an important earnings engine for Technology and a key reason we remain comfortable maintaining, and modestly adding to, our Technology overweight.

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Inflation has re-entered the conversation

The inflation data released over the past few weeks has complicated the macro narrative. April CPI and PPI both pointed to firmer price pressure, with energy remaining the key transmission channel. Higher oil and gasoline prices flow through headline inflation, consumer sentiment, transportation costs, corporate margins, and ultimately the Fed’s policy path.

The rates market is starting to reflect that concern. Following the hotter inflation data and renewed oil pressure, Treasury yields moved higher. On May 15, the 10-year yield reached roughly 4.6% and the 30-year yield moved to about 5.1%, levels last seen in May 2025.

That is notable because it suggests investors may be demanding more compensation for inflation and policy uncertainty. For equities, the issue is not only the absolute level of interest rates. It is that higher yields can pressure valuation multiples at the same time companies are being asked to prove that margins and earnings can withstand higher input costs.

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The Iran truce story is helpful, but not enough

Reports of a possible U.S.-Iran peace framework were directionally positive, but they have not resolved the underlying oil shock. Early May truce headlines helped pull crude prices lower, but the ceasefire remained fragile and the Strait of Hormuz continued to face disruption. Reuters reported on May 11 that oil rose nearly 3%, with Brent settling at $104.21, after President Trump described the ceasefire talks as “on life support.”

Markets need confirmation that physical shipping flows are normalizing, not just that diplomatic headlines are improving. By May 15, Reuters reported that wartime disruptions had effectively shut down the Strait of Hormuz, stranding hundreds of cargo ships and disrupting energy supplies. If a durable agreement takes hold and traffic begins to normalize, that would be supportive for inflation expectations, consumer purchasing power, and equity valuations. If negotiations stall and the strait remains a bottleneck, oil could remain a persistent source of pressure.

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The consumer is still holding up, but confidence is weak

The consumer backdrop remains mixed. Hard spending data suggest households are still spending, but higher gasoline prices and broader inflation pressure are weighing on confidence and influencing where spending is occurring.

Our view is that the consumer is under pressure, but not broken. That supports selective exposure to Consumer Discretionary, while keeping employment trends, consumer sentiment, gasoline prices, and financing costs as important watchpoints.

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What this means for the global economy

The macro implication is fairly intuitive. A sustained energy shock acts like a tax on consumers and businesses, especially for energy-importing economies. It can slow growth, lift inflation, and complicate the path for central banks. We are not yet treating this as a wholesale change to the medium-term investment backdrop, but it does raise the bar for equity multiples, keeps us cautious on duration, and reinforces the value of diversification and disciplined implementation. That is also consistent with the historical framing in our March market brief, which emphasized that geopolitical events often create volatility more than lasting structural change unless they spill over into the core macro variables.

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The Savvy Macro Dashboard

Data as of May 15, 2026 unless otherwise noted.

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Dashboard Sources: FactSet, BLS, FRED, Chicago Fed, ICE BofA/MOVE, University of Michigan, and Reuters. FactSet reported the Q1 earnings figures cited above, while Reuters reported the May 15 move in Treasury yields and ongoing disruption in the Strait of Hormuz.

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Question of the Month

“Can strong earnings keep offsetting sticky inflation and rising rates?”

From our seat, this is the central question facing markets right now. Over the past several weeks, equities have leaned on a powerful fundamental support: earnings. Q1 results have come in well ahead of expectations, with Technology, AI infrastructure, and large-cap growth companies doing much of the heavy lifting. That helps explain why stocks have remained resilient despite oil above $100, sticky inflation, and a Fed that has less room to ease.

But we should not confuse earnings absorbing macro pressure with earnings making that pressure disappear. Inflation still matters because it affects margins, consumer purchasing power, discount rates, and central bank policy. The recent climb in Treasury yields makes that connection more direct. If yields are rising because economic growth is improving, equities can often absorb that. If yields are rising because inflation risk is becoming more persistent, the market’s margin for error narrows.

We believe corporate profits can continue to support equities, but that support rests on three conditions:

Margins need to hold. Companies have done a good job managing higher input costs, but a prolonged energy shock would test that resilience.

Bond yields need to stabilize. With valuations already elevated, another sharp move higher in rates would make it harder for earnings growth to support valuation multiples.

Earnings power needs to broaden. Technology and AI infrastructure remain powerful growth drivers, but a more durable market backdrop would benefit from broader sector participation.

That is why we remain constructive, but selective. We favor equities over fixed income, but we want active risk concentrated where earnings visibility, balance sheet strength, and market leadership intersect.

On May 8, we reflected this view by moving Healthcare back to neutral and reallocating those proceeds equally into broad S&P 500 exposure and Technology. Healthcare remains an important long-term sector, but its expected defensive characteristics did not show up as clearly during the March pullback, and the regulatory backdrop remains difficult to underwrite as a tactical overweight. Broad U.S. large caps and Technology, by contrast, remain better aligned with the strongest parts of the current earnings cycle.

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Within equities, our sector views are now more focused

We continue to favor Technology, Utilities, and Consumer Discretionary, while Healthcare moves back to neutral.

Technology: We continue to favor high-quality companies with durable earnings power, strong balance sheets, and direct exposure to secular innovation trends. The latest Q1 results support this view, with Information Technology leading all S&P 500 sectors in profit growth.

Utilities: We continue to see an attractive setup tied to structural power demand from AI data centers and broader electrification trends. For us, Utilities are not simply a defensive allocation. They also provide exposure to a durable infrastructure theme.

Consumer Discretionary: The U.S. consumer is under pressure, but not broken. Stable labor markets and resilient retail sales support selective exposure, though consumer sentiment, higher rates, and gasoline prices remain key watchpoints.

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Savvy Total Portfolios: Tactical Asset Allocation Positioning

Views updated to reflect the May 8 trade.

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Risks We’re Watching

Rising rate pressure: The recent increase in Treasury yields suggests bond investors may be less willing to look through sticky inflation data. If yields continue to rise because inflation expectations move higher or Fed cuts get pushed further out, both equity valuations and bond returns could face additional pressure.

Energy-driven inflation persistence: April CPI and PPI showed that higher energy costs are flowing through the inflation data. If oil prices remain elevated, the Fed may have less room to ease and could be forced to keep policy restrictive for longer.

Truce durability and Hormuz flows: A potential U.S.-Iran peace framework is directionally positive, but not yet decisive. We are watching actual vessel traffic through the Strait of Hormuz, not just diplomatic headlines.

Semiconductor expectations risk: Semiconductors remain an important earnings engine for Technology, but expectations are high. Export controls, supply chain bottlenecks, or greater discipline around capital spending could create volatility after a strong run.

Earnings concentration: Corporate profits look strong at the index level, but that strength remains concentrated in Technology, Communication Services, and a handful of mega-cap companies. We are watching whether earnings strength broadens across other sectors.

Consumer pressure: Consumers are still spending, but sentiment remains fragile as gasoline prices and inflation pressure weigh on confidence. The hard data are stable, but the consumer cushion may be narrowing.

Valuation sensitivity: With the forward P/E ratio near 21x and the 10-year Treasury yield near the top end of its recent range, the equity risk premium remains thin. Strong earnings can bridge that gap, but continued execution is important.

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Closing Thoughts

As we move through May, the market story has become more nuanced. Corporate earnings are coming in better than expected, financial conditions remain generally supportive, and large-cap U.S. companies continue to show solid fundamental momentum. Technology remains central to that story, with demand for AI infrastructure and semiconductors translating into real revenue and earnings growth.

At the same time, inflation and interest rates have re-entered the conversation. April CPI and PPI showed that energy costs are flowing through the broader economy, while the recent move higher in Treasury yields suggests fixed income investors may be growing less willing to look through that pressure, especially with oil still elevated and the Fed’s room to ease more limited.

Our May 8 asset allocation adjustment reflects this balance. We are not moving defensively or making a broad change in risk posture. We are sharpening our focus. Healthcare did not provide the defensive cushion we expected during the March drawdown, and the sector faces enough regulatory and policy uncertainty that we no longer believe it warrants a tactical overweight. We chose to redeploy that capital toward areas where earnings visibility and market leadership are stronger.

The contents of this market are still under pressure, but not under strain. The market can continue to work if corporate profits hold, oil pressures ease, bond yields stabilize, and liquidity remains supportive. But the cushion is smaller than it was a month ago. That reality calls for discipline: staying invested, staying diversified, and being precise about where active risk is taken.