To Summarize: Markets moved higher in May, powered by the strongest corporate earnings growth in five years. AI continues to fuel this growth, driving gains across markets, surging new business formation, and reshaping how companies compete. The labor market remains healthy without significant wage pressure, but borrowing costs have climbed across every maturity, pushing conversation from rate cuts to potential rate hikes. Inflation is back and businesses that plan will be better positioned than those who don’t.
The big takeaway – AI is reshaping the economy from the ground up. Companies embracing it are pulling ahead, and the window to adapt is narrowing.
In the Markets: Market rose broadly in May, with AI fueling gains across almost every index. The S&P 500 returned 2.8% and the Nasdaq surged 5.4%, reflecting strength well beyond the largest technology companies. Emerging markets climbed 4.4%, and stocks globally gained 2.8%. Corporate earnings told a compelling story: companies delivered the best earnings growth in five years, coming in with growth rates more than double analyst estimates. Seven of the 11 S&P 500 sectors posted double-digit earnings gains. Just 44 AI-related companies drove 71% of total earnings growth, rising three times faster than the rest of the market.
Rates Rising as Inflation Returns: Treasury yields moved higher across every maturity over the past 90 days as oil prices climbed and commodities signaled a new inflation regime. The conversation has shifted from when the Federal Reserve will cut rates to whether rate hikes are back on the table. With concerns about inflation, bonds struggled as the Bloomberg U.S. Aggregate Bond Index returned -0.8% for the month. For businesses, this means financing costs for loans, and capital expenditures deserve careful attention.
Labor, Entrepreneurship, & the AI Effect: The labor market is healthy without being overheated. Young worker unemployment rates have returned to near pre-pandemic lows, and while significant wage pressure has yet to appear, businesses should plan for steady labor costs growth through the rest of 2026. Job switchers are seeing accelerating wage growth as companies compete to attract talent in tighter pockets of the market. Meanwhile, AI continues to fuel a surge in American entrepreneurship as weekly business applications climbed from roughly 50,000 in 2019 to more than 120,000 today. Businesses and workers are using AI to pull ahead of the competition, creating more jobs, not fewer.
Top Headlines: We’re reading about where AI will create value and where it won’t, a potential $400 billion AI-driven utility merger, steady gains in the apartment market, and recent restaurant closures signal for the industry.
Related resources:
- AI: Where AI will create value—and where it won’t
- Power: How a potential $400 billion AI-driven utility merger could shape power and data centers for decades
- Commercial Real Estate: Small but steady gains define the U.S. apartment market in 2026
- Restaurants: Market reset—recent restaurant closures signal market correction
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