Weekly Investment Update (05/29/2026)

Markets delivered another strong week, with equities moving higher while bond yields and oil prices declined. This marks the ninth consecutive week of gains for equities since the late March lows. Participation has remained broad across market capitalizations and sectors, though AI and technology continue to lead the market higher. Semiconductor and memory-related companies have been among the biggest beneficiaries, with several reaching record market capitalizations. Earnings season has been notably strong, confirming healthy corporate fundamentals while simultaneously raising expectations for future profit growth. Despite the market's advance, the S&P 500’s valuation multiple has declined this year as earnings growth has outpaced price appreciation.

The drop in oil prices came amid growing optimism around U.S.-Iran negotiations, with at least an extension of the current ceasefire appearing to be on the table as negotiations on key sticking points continue. Markets were also encouraged by reports that some ships have resumed passage through the Strait of Hormuz, although traffic remains well below pre-conflict levels. The average price of gasoline in the U.S. has retreated from its recent peak, helping ease pressure on consumers.

Inflation data were largely uneventful, with the Fed’s preferred inflation gauge, core PCE, coming in broadly in line with expectations. Combined with lower energy prices, the report helped support a modest decline in Treasury yields despite hawkish commentary from Fed speakers during the week.

Above-Consensus First-Quarter Earnings Support a Strong Fundamental Backdrop

What is happening: With first-quarter earnings season nearly finished, U.S. corporate results have come in much stronger than expected. About 94% of S&P 500 companies have reported results for the quarter, and 84% delivered positive EPS surprises, above both the five- and ten-year averages. 

At the index level, the S&P 500 is now reporting year-over-year earnings growth of 28% for the first quarter, an increase from 13% at the end of March. Assuming the growth rate holds, it will mark the strongest earnings growth since 2021 and the sixth straight quarter of double-digit growth. AI-related sectors continued to drive overall growth, with the information technology sector posting 53% year-over-year growth and the Magnificent 7 reporting 63% year-over-year growth in the first quarter. At the same time, however, when excluding the Magnificent 7, earnings growth for the other 493 companies in the index is 17%, also the highest growth since 2021, suggesting fundamental strength continued to broaden throughout the first quarter. 

Why it matters: As the geopolitical backdrop continues to move in a constructive direction, we believe fundamentals will return as the primary driver of market performance. Earnings estimates have been revised higher through the reporting season, profit margins are elevated, and guidance has generally been positive. For example, the percentage of companies issuing negative earnings-per-share guidance for the second quarter is below both the five- and ten-year averages. Consensus expects S&P 500 earnings to grow 22%  in 2026, along with double-digit revenue growth. The strong fundamental backdrop at the index level, along with increasing participation from sectors outside of technology, should provide support for the market going forward.   

At the same time, stronger fundamentals are raising the bar for companies to beat expectations. In the first quarter, stocks missing earnings estimates have been punished more severely than usual, while the reward for positive surprises has been only slightly above average. Additionally, we remain cognizant of risks that may cause sentiment to decouple from fundamentals, such as AI disruption fears and scrutiny over the AI capital expenditure buildout. However, we remain focused on the constructive fundamental backdrop, looking beyond short-term noise to the longer-term drivers of markets. In our view, robust earnings, rising margins, and healthy guidance continue to provide a solid foundation for the second half of the year.

Mega IPO Season Set to Commence in June

What is happening: Significant equity supply is set to hit the market this year with a trio of mega IPOs (SpaceX, OpenAI, and Anthropic). SpaceX is poised to be the first to debut after filing its S-1 on May 20. The first day of trading is scheduled for June 12. 

SpaceX is targeting a $75 billion equity raise at a $1.8 trillion valuation with an aspirational total addressable market of $28.5 trillion, about a quarter of world GDP. The core business lines are space, connectivity, and AI. The connectivity segment, primarily reflecting Starlink services, can be viewed as the funding source for the space and AI segments, with the latter driving most of the company’s capex through datacenter buildout. 

Next is OpenAI, which confidentially filed its IPO on May 22. Commentary suggests targeted IPO proceeds of $60 billion with a valuation of $1 trillion. Anthropic is also considering an IPO later this year targeting an equity raise of $60 billion and a valuation of $900 billion. For perspective, the previous record IPO was Saudi Aramco ($1.7 trillion raising $26 billion) in 2019. 

About 100 total U.S. IPOs are also expected to come to market this year, the highest since 2021 but still below longer-run averages. Year-to-date, there have been 25 IPOs totaling $14 billion in gross proceeds, representing an 80% increase relative to this time last year. The largest share are industrial companies, indicative of an improving cyclical backdrop. Moreover, the current macro environment remains conducive for IPOs based on CEO confidence, equity valuations, and interest rates despite recent geopolitical uncertainty and market volatility.

Why it matters: While the number of U.S. IPOs is expected to remain below average, aggregate IPO proceeds could hit a record $160-200 billion vs the previous high of $120 billion set in 2021. The market capitalization of SpaceX, OpenAI, and Anthropic could easily exceed $3 trillion, with aggregate IPO proceeds eclipsing the total amount raised in U.S. IPOs annually since 1980. SpaceX, the largest among the three, has a valuation more than 10 times greater than those of the largest IPOs in history outside of Saudi Aramco, such as Alibaba and Facebook. Once publicly traded and assuming expected valuations, SpaceX would be the sixth largest company behind Nvidia, Apple, Alphabet, Microsoft, and Amazon, while OpenAI would rank 15th behind Berkshire Hathaway and Walmart. 

Understandably, there is concern over how well equity markets will absorb this supply. All three IPOs are expected to float only 5%10% of their market capitalization vs 15%-20% typically. Large-scale IPOs with low float mean relatively small weights of less than 1% in major indices like the S&P 500, helping to limit selling pressure in existing constituents. The respective weights in Nasdaq are slightly larger but still below 2%. The impact of these new entrants on aggregate index valuation metrics, such as price to earnings, is also not meaningful. For example, the S&P 500 multiple is essentially an earnings-weighted average rather than market cap-weighted. That implies that even SpaceX’s lofty valuation will not significantly alter the index multiple. 

Historically, there is limited evidence of selling pressure ahead of major IPOs in the largest names in the S&P 500. Equity markets tend to stall ahead of large IPOs but rally an average of 5% in the subsequent month. Expiration of the IPO lockup period (180 days) historically creates a performance headwind ahead of the expiration date, but strong rebounds tend to follow. However, SpaceX announced a phased structure that could help smooth volatility caused by cliff edge supply entering the market. 

Finally, equity issuance must be considered against corporate demand. Despite surging capex, equity buybacks have remained strong over the last 12 months and on a year-to-date basis. Buyback authorizations stand at $665 billion so far in 2026, led by IT and financials and in line with record 2025 levels. Consensus projects an overall 11% increase in buybacks in 2026. Altogether, this suggests the $1 trillion in gross buybacks expected this year will more than offset mega IPO proceeds along with additional equity issuance totaling $440 billion.