Published May 22, 2026
Stocks continue to largely ignore the rising bond yields that typically raise warning flags for markets. Below, we provide a series of recent notes from Delta Research regarding recent market action:
“Federal Reserve Chairman Jerome Powell said in his last public address as Chair: “…the economy has been resilient. It really has, not just this time, but it’s been remarkably resilient for some years now. The U.S. economy has just powered through shock after shock, and consumers are still spending. And that’s what the banks will tell you, credit card companies will tell you, the retail sales numbers that we got most recently. People are still spending.”
The S&P 500 has been resilient as well. Earnings strength, which reflects strong consumer spending and even stronger spending on Artificial Intelligence (AI) capital expenditures, is lifting the stock market to all-time highs. That earnings strength has overpowered potential weakness stemming from higher oil prices and the uncertainty surrounding war with Iran.
The headline year-over-year earnings growth rate is almost absurd. On March 31, the estimated (year-over-year) earnings growth rate for the S&P 500 for Q1 2026 was 13.1%. Today, with 63% of the S&P 500 having reported earnings, the growth rate is 27.1%. In addition, the blended earnings growth rate for the “Magnificent 7” companies has jumped to 61.0%, up from expectations of 22.4% on March 31.
The movement in the chart above can cause the heart to skip a beat. The reality is earnings reports have been good, but not that good. Google (Alphabet), Amazon and Meta had one-time GAAP accounting adjustments (on gains in non-marketable securities) that inflate the aggregate. Backing those out brings the overall earnings growth closer to ~16% rather than 27%.
One metric that is difficult to “manage” with accounting is sales. So far, 81% of S&P 500 companies have reported revenues above estimates, which is above the 5-year average of 70% and above the 10-year average of 67%. There has also been the lowest frequency of EPS misses in 25 years outside of the COVID reopening period.
Much of the upside is coming from the “Hyperscalers” – Amazon, Google, Meta, Microsoft and Oracle. Morgan Stanley’s 2027 estimate for capex from these five companies is now $1.1 trillion, up from $765 billion at the start of the year and $805 billion at the start of earnings season.
As AI becomes more sophisticated and effective (“Agentic AI”), it is expected to be used for a wider array of applications. Users purchase processing power in a quantity measured by “tokens.” There are estimates that Agentic AI will drive token consumption of 24x or roughly 120 quadrillion tokens per month by 2030. This intense demand for tokens is described as a step-function change. It is also expected to drive lower computing costs which can expand margins and profitability for many AI-involved companies.
The investment world is migrating from AI skepticism to AI-everything, all-the-time. There is still uncertainty regarding the AI return on investment. But this potential problem is unlikely to derail the AI freight train in the intermediate term. Whether AI ultimately proves a blessing or a curse, it is currently bolstering the resilience of both the stock market and economy. Last week, we saw the lowest initial jobless claims print since 1969.
The headline S&P 500 has been making new highs. But when markets do well, we’ve found it’s rarely enough to look at the averages. One of the most important questions is: how broadly is the advance being shared?
Since the March 30 lows, breadth has been narrow. How narrow? Very narrow. Only 20% of S&P 500 companies have outperformed the index over the past six weeks, and about 40% of constituents are negative even as the S&P 500 has rallied ~17%. That’s not a condemnation of the rally (markets can rise on narrow leadership for longer than people expect) but it does change the character of what’s being offered. In broad rallies, you’re often paid simply for being invested. In narrow rallies, you’re paid for being in the right places.
Some of the biggest winners include Intel, SanDisk, Micron, Advanced Micro Devices, Seagate Technology and ON Semiconductor – all up more than 100% in six weeks. Meanwhile, several well-known names have sold off and not participated, including: Accenture, Abbott Labs, AT&T, Exxon, Chevron, Home Depot, Johnson & Johnson, and McDonald’s. And even within tech, which has been white-hot and up 2x the S&P, participation isn’t universal: IBM, Salesforce, and Palantir are also negative since the end of March.
We’ve talked about the widening wedge between the AI narrative (energy, infrastructure, semiconductors, and the handful of companies driving capex) and “everything else.” Yet Q1 earnings growth has been superb. Markets are weighing machines for cash flows and discount rates, and increasingly those cash flows are concentrated in a subset of businesses. When concentration rises, dispersion rises and stock picking begins to matter more than it has in years.
Money Supply Check
As of March 2026, the M2 money supply is roughly $23 trillion. M2 is growing about 4.6% year-over-year, still below the 20-year average 6.4% but continues to re-accelerate.
The path here matters. During the pandemic, M2 growth peaked at an extraordinary 26.8% YoY in February 2021, driven by fiscal stimulus and quantitative easing adding roughly $6 trillion in less than two years. Then came a historic contraction from 2022 into 2023. M2 fell by roughly $1 trillion, with YoY growth bottoming near -4.6% in April 2023. M2 turned positive again in mid-2024 and has been steadily rising since.
The takeaway is not that “money is tight” or “money is loose,” but that we may be in a more interesting middle ground: pandemic liquidity remains in the system, the money supply is growing again, but it isn’t overheating. That’s the kind of environment that can be consistent with steady nominal growth, what people like to call “Goldilocks.”
High-Yield Credit Spreads Tightrope
At roughly 2.82%, the high-yield credit spread is extraordinarily tight by historical standards (median ~4.53%). In plain terms, the market is pricing in very little credit stress. Many experienced managers consider 300 bps “very tight,” because it leaves companies and the economy little room for error.
Beneath the headline narrow spread, the market is increasingly differentiating between borrowers. In early 2025, the CCC–BB spread gap was about 530 bps. Today it’s roughly 762 bps.
BB spreads near 1.7% are historically tight. This section of high yield is almost investment-grade. CCC spreads above 9% imply meaningful stress for the weakest borrowers. This is classic credit bifurcation: investors are willing to lend to stronger credits at razor-thin premiums, while demanding substantial compensation for exposure to the most leveraged and most fragile companies.
That pattern is often seen when markets sense that if trouble arrives, it will not arrive evenly. Stronger firms can endure. Weaker ones may not.
Back to earnings: corporate earnings can keep supporting stocks as bond yields rise. So far, earnings have been strong with ~95% of the S&P 500 reported. Companies are reporting the best growth since 2021. The Magnificent 7 continue to deliver exceptional results, but the strength was broader; the other 493 S&P 500 companies reported 17.4% Q1 earnings growth.
Bond Yields Move Higher
A prolonged and unresolved conflict threatens to push costs higher across the global economy, particularly through energy, while also weighing on growth. That is an uncomfortable mix for markets. Bond volatility is rarely friendly to equities, and we are seeing that tension now.
At the end of February, the 10-year Treasury yield was below 4.00%, and the market was still pricing in two rate cuts this year. Over the past three months, the expected cuts have effectively disappeared, and the 10-year yield has risen to 4.70% this week. The 30-year bond yield has climbed to its highest level since 2007, just shy of 5.20%.
The key policy question is whether the Fed should respond to inflation caused largely by higher energy prices. Wars are inflationary, but their effects are often temporary. Monetary policy, by contrast, works with long and variable lags. That makes the response difficult.
Some argue higher nominal yields reflect stronger expected growth and a higher-for-longer Fed. That explanation deserves scrutiny. Real disposable consumer income is growing at roughly 0% year-over-year. If incomes are flat and energy costs are rising, it is hard to see how consumption can accelerate meaningfully.
The CBOE Volatility Index peaked this year on March 27th at 31.66, but has since fallen below 17, near its lows for the year. Bond volatility is rising while stock volatility is falling. There appears to be a disconnect. The bond market appears to be pricing stronger nominal growth, while the household income data points to a more fragile real economy.
Bottom Line
This remains a market in which the winners are still winning. Importantly, much of that leadership has been supported by earnings growth, not just multiple expansion and speculation.
But rising yields raise the bar. In markets like this, the goal is not to predict the next headline. It is to recognize the range of possible outcomes and insist on a margin of safety.”
Market Update
Stocks posted a mixed close Monday as oil prices and interest rates ticked higher while investors eagerly awaited Nvidia’s earnings announcement mid-week. The rise in interest rates pressured stocks Tuesday sending the Nasdaq down -0.8%. The growth-oriented index had been down double that amount earlier in the day. A massive jump oil prices and a resumption of higher inflation have sent long-term interest rates to the highest levels in twenty years, delivering a startling about-face for investors who came into the year looking for lower rates. But stocks have remained resilient as sharply rising earnings have more than offset the interest rate concerns for now. President Trump hinted at a possible peace deal with Iran Wednesday to calm investors sending oil prices and interest rates lower which, in turn, pushed stocks upward by over +1%. After the bell, Nvidia delivered sparkling earnings to keep the AI trade hot. A mixed bag of news Thursday left indexes with slight gains. Though investors failed to reward Nvidia for its strong earnings, growth investors were enthused by SpaceX filing its IPO paperwork, with ChatGPT maker OpenAI’s IPO potentially soon to follow. Further fanning the rally flame for growth investors, the federal government announced a significant investment in a menu of quantum computing companies sending shares of IBM and other recipients sharply higher. By contrast, Walmart’s earnings were met with selling as consumers struggle with higher prices. Strength in a range of tech companies along with continued hope for a near-term peace deal brought in buyers Friday. Indexes rose +0.4% to close the week near record highs.
A dip early in the week was bought sending stocks higher once again. The Nasdaq 100 (QQQ) rose +1.21% while the S&P 500 ticked higher by +0.88%. Small cap stocks (+2.71%) got a boost from strength in finance shares as interest rates fell back a bit.
Warm wishes and until next week.