Economic Update 5-18-2026

Economic data included gains in industrial production and retail sales, while consumer and producer price inflation moved higher along with recent higher oil prices.

Equities ended flattish to lower in the U.S., and negative in international markets, along with little progress in U.S.-Iran and U.S.-China talks. Bonds fell in line with high inflation readings, raising yields. Commodities saw gains, led by another rise higher for crude oil.

U.S. stocks ended generally flat on the week, with growth slightly outperforming value. Sentiment was driven by especially strong consumer and producer price inflation reports, led by Middle East-conflict driven oil price spikes. Despite hopes for conflict resolution, proposals from the Iran the prior weekend were dismissed as “totally unacceptable.” The U.S.-Iran negotiations have come down to U.S. demands for full opening of the Strait of Hormuz and full end to the Iranian nuclear program, while the Iranians are asking for war reparations, full sovereignty over the Strait, and release of seized assets. By Friday, markets fell back over a lack of results from the U.S.-China talks that led to fears of further inflation. At some points, after a strong positive run, markets just need an excuse to take a breather. However, generally positive momentum has been sustained in recent weeks from very strong S&P earnings growth and continued exuberance over the potential benefits of artificial intelligence.

By sector, gains were led by energy, up 7% along with higher oil prices, followed by defensive consumer staples and technology, with AI positivity continuing. Most other groups ended up in the negative, led by consumer discretionary and materials, each down by a few percent. Real estate also fell back by over -2% with interest rates moving higher.

Foreign stocks suffered worse than U.S., with stronger effects in Europe and Asia from the continued Middle East oil supply closures and high prices, which outweighed the mixed economic results around the regions. Emerging markets fared worse than developed, especially affected by a stronger U.S. dollar for the week.

Bonds fell across the board, as yields rose in line with prospects for potentially higher-for-longer inflation readings. The 30-year U.S. Treasury bond yield rose to its highest level in almost 20 years, at 5.12%, with inflation pressures highlighting the week. Markets weren’t enthused by comments from Chicago Fed President Goolsbee, who noted that the U.S. has an “inflation problem,” with prices going the “wrong way,” and not just in “oil-related” and “tariff-related” things, which hinted at a tighter policy for longer potentially. Internationally, a stronger dollar especially punished unhedged developed market debt, while emerging market bonds fell along with weaker risk sentiment.

Commodities experienced gains on net last week, with strength in energy outpacing declines in agriculture and precious metals. West Texas crude oil rose another 11% last week to $106/barrel, due to the U.S.-Iran stalemate noted earlier.

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Sources:  LSA Portfolio Analytics, American Association for Individual Investors (AAII), Associated Press, Barclays Capital, Bloomberg, Deutsche Bank, FactSet, Financial Times, Goldman Sachs, JPMorgan Asset Management, Kiplinger’s, Marketfield Asset Management, Minyanville, Morgan Stanley, MSCI, Morningstar, Northern Trust, Oppenheimer Funds, Payden & Rygel, PIMCO, Rafferty Capital Markets, LLC, Schroder’s, Standard & Poor’s, The Conference Board, Thomson Reuters, U.S. Bureau of Economic Analysis, U.S. Federal Reserve, Wells Capital Management, Yahoo!, Zacks Investment Research.  Index performance is shown as total return, which includes dividends, with the exception of MSCI-EM, which is quoted as price return/excluding dividends.  Performance for the MSCI-EAFE and MSCI-EM indexes is quoted in U.S. Dollar investor terms.

The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness.  All information and opinions expressed are subject to change without notice.  Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product.