On the Street Monthly – Stocks Rally Despite Continuing Conflict
On The Street NewsletterMay 2026
Stocks Rally Despite
Continuing Conflict
Inside: Earnings Driving the 2026 Rally, AI Capex Acceleration, and What a Strong April Means for the Rest of the Year.
Earnings & Rally
Stocks Rally Despite Continuing Conflict
S&P 500 YTD through April
+5.7%
Despite oil up 70% and Fed debating hikes
Earnings growth contribution
+9.9%
Offsetting -4.6% multiple contraction
The S&P 500 is up 5.7% through month-end April, even as oil prices have surged over 70% in 2026, gasoline has hit $4.23 a gallon, and the Fed is openly debating rate hikes rather than cuts. So why have stocks rebounded? The answer comes down to the fundamental long-term driver in stocks, which is earnings.
Earnings growth has contributed nearly 10 percentage points to the S&P 500’s return this year, more than offsetting a 4.6-point drag from shrinking valuations. In other words, stock prices are not being propped up by optimism; they are being driven by actual profits. Companies are protecting their margins through pricing power, and forward earnings estimates continue to get revised higher.
“When the fundamentals are outpacing the stock price, it is hard to call this market overheated.”
That is a meaningful distinction from the “bubble” narrative some commentators have pushed. None of this means the risks have gone away, as oil, inflation, and rate policy are all real concerns, but for now, corporate America is delivering.
S&P 500 Total Return Drivers — 2026 YTD
Sales growth and margin expansion powering returns, more than offsetting multiple contraction.
Total Return: +5.7%
Earnings View
Total Return: +5.7%
Decomposed View
Earnings Growth Sales Growth Margin Growth Multiple Growth
Source: Carson Insights
Technology
AI Capex Continues to Accelerate
2026 hyperscaler capex
$725B
Up from $515B prior estimate
2027 hyperscaler capex
$848B
~2.4% of U.S. GDP per year
After a week of blockbuster earnings calls, one theme stood out above all others: Big Tech is not slowing down on AI spending, it is accelerating. The five major hyperscalers collectively raised their 2026 capital expenditure plans from roughly $515 billion to $725 billion, and 2027 estimates jumped from $596 billion to $848 billion. These five companies alone now plan to spend the equivalent of roughly 2.4% of U.S. GDP this year.
This is not speculative hype, it is real money flowing into semiconductors, data centers, power infrastructure, and construction. Whether or not you are bullish on AI as a consumer product, the investment cycle is already showing up in earnings across the supply chain. Business investment grew at a 10% annualized rate in the first quarter, and the AI build-out was the primary driver. Strip that out, and the rest of the economy looks notably softer.
For investors, the takeaway is straightforward: the AI capex wave is one of the few genuine growth engines in the economy right now, and the companies feeding that pipeline are seeing it on their top lines.
Big Tech Capital Expenditures (Billions of USD)
Hyperscaler capex history and revised forward estimates.
$71
$97
$131
$158
$154
$239
$390
Prior
$515
Prior
$596
New
$725
New
$848
Actual Prior Estimate New Estimate
Source: Carson Insights. Microsoft, Alphabet, Amazon, Meta, and Oracle combined.
Seasonality
What a Strong April Means for the Rest of the Year
April 2026 return
+9.3%
10th time April >5% since 1950
Avg rest-of-year return
+12.5%
Positive 80% of time after April >5%
With the S&P 500 finishing April up more than 5%, investors are understandably asking: does a strong April actually tell us anything about the rest of the year? Historically, the answer is yes.
In every year since 1950 where the S&P 500 gained more than 5% in April, the index posted a positive return for the rest of the year in the majority of cases, often a significant one. Years like 1997, 2003, 2009, and 2020 saw the market tack on another 20% or more from May through December.
That said, the range of outcomes is wide. 1978, 1983, and 2001 were essentially flat to negative over the remainder of the year, a reminder that a strong April is a favorable signal, not a guarantee. On balance, though, history suggests that momentum heading into May tends to carry forward. For long-term investors, the message remains the same: staying invested through periods of strength has generally been rewarded.
S&P 500 Performance After April >5% (1950 – Current)
Years where April gained more than 5% — May, “Sell in May” period, and Rest of Year returns
| Year | April | May | Apr–Oct | Rest of Year |
|---|---|---|---|---|
| 1968 | +8.2% | +1.1% | +6.0% | +6.4% |
| 1978 | +8.5% | +0.4% | -3.8% | -0.7% |
| 1983 | +7.5% | -1.2% | -0.5% | +0.3% |
| 1989 | +5.0% | +3.5% | +9.9% | +14.1% |
| 1997 | +5.8% | +5.9% | +14.1% | +21.1% |
| 2001 | +7.7% | +0.5% | -15.2% | -8.1% |
| 2003 | +8.1% | +5.1% | +14.6% | +21.3% |
| 2009 | +9.4% | +5.3% | +18.7% | +27.8% |
| 2020 | +12.7% | +4.5% | +12.3% | +29.0% |
| 2021 | +5.2% | +0.5% | +10.1% | +14.0% |
| 2026* | +9.3% | ? | ? | ? |
| Average | — | +2.6% | +6.6% | +12.5% |
| % Higher | — | 90.0% | 70.0% | 80.0% |
Source: ChartStorm. *2026 forward returns yet to be determined.
Market Snapshot
Month Ending April 30, 2026
| United States Markets | ||||
| 1-Month | 3-Month | YTD | 1-Year | |
| Dow Jones Industrial Average | 7.14% | 1.55% | 3.31% | 22.09% |
| S&P 500 | 10.42% | 3.89% | 5.31% | 29.45% |
| The NASDAQ Composite | 15.29% | 6.10% | 7.10% | 42.68% |
| U.S. Mid Cap | 8.36% | 6.08% | 9.24% | 23.65% |
| U.S. Small Cap | 7.65% | 3.30% | 7.25% | 29.78% |
| Global Markets | ||||
| 1-Month | 3-Month | YTD | 1-Year | |
| Nikkei 225 | 16.10% | 11.18% | 17.77% | 64.47% |
| Hang Seng | 3.99% | -5.88% | 0.57% | 16.53% |
| Shanghai Comp | 5.66% | -0.14% | 3.61% | 25.41% |
| FTSE 100 | 1.99% | 1.52% | 4.51% | 22.18% |
| DAX | 7.11% | -1.00% | -0.81% | 7.98% |
| Fixed Income | ||||
| 1-Month | 3-Month | YTD | 1-Year | |
| Corporate Bonds | 0.28% | -0.44% | -0.10% | 5.46% |
| Municipal Bonds | 1.19% | 0.12% | 0.82% | 5.62% |
| High Yield Bonds | 1.52% | 0.55% | 1.16% | 8.39% |
| Market Indicators | Rate |
| 10 Year Treasury | 4.40% |
| Fed Funds Target | 3.50–3.75% |
| Inflation Rate | 3.30% |
| Unemployment Rate | 4.30% |
| Market Indicators | Value |
| WTI Crude Oil | 105.07 |
| Gold – Spot Price | 4,629.60 |
| U.S. Dollar | 98.06 |
| CBOE Volatility Index | 16.89 |
Source: Morningstar, Inc. Corporate Bonds: iShares iBoxx $ Investment Grade Corporate Bond ETF. Municipal Bonds: iShares National Municipal Bond ETF. High Yield Bonds: iShares iBoxx $ High Yield Corporate Bond ETF. Fed Funds Target: FOMC. Inflation Rate & Unemployment Rate: U.S. Bureau of Labor Statistics. WTI Crude Oil: NYMEX. Gold: NYSE Arca Exchange. U.S. Dollar: DXY Index. All returns denominated in USD.
In the News
Articles We’re Reading
■ Did You Know?
The Indianapolis 500 was originally a test for the auto industry, not a spectator event.
First run in 1911, the Indy 500 lasted nearly seven hours, and the winner, Ray Harroun, averaged just 74.6 miles per hour in a car called the Marmon Wasp, which he famously drove without a riding mechanic, relying instead on a rear-view mirror he rigged himself (one of the first ever used in racing). Today’s cars top 230 mph, and the race draws over 300,000 spectators to the Indianapolis Motor Speedway, making it the largest single-day sporting event in the world. This year’s race on May 25th marks the 110th running.
Presented by the Investment Committee of Lake Street, an SEC Registered Investment Adviser
The information contained herein constitutes general information and is not directed to, designed for, or individually tailored to, any particular investor or potential investor. This report is not intended to be a client-specific suitability analysis or recommendation, an offer to participate in any investment, or a recommendation to buy, hold or sell securities. Do not use this report as the sole basis for investment decisions. Do not select an asset class or investment product based on performance alone. Consider all relevant information, including your existing portfolio, investment objectives, risk tolerance, liquidity needs and investment time horizon. Diversification does not ensure a profit or guarantee against a loss. There is no assurance that any investment strategy will be successful. Investing involves risk and you may incur a profit or a loss.
