Capital Markets Update #22

The past 100 days have been remarkable in what they have both proved and disproved about US macroeconomic resilience, US investor risk tolerance, US consumer health and broader US capital markets volatility.  The topic is too big and nuanced to expand globally in this piece. Nearly every country has experienced the past 100 days with a varied degree of insecurity, realized pain or opportunity. 

Starting with US macroeconomic resilience, the facts are as follows: Core CPI rose from 334.165 to 336.121, a 0.58% increase during the March to May measurement period, or 2.32% growth annualized (BLS / FRED data).  Actual CPI rose from 330.293 to 333.979, a 1.12% increase over the same period, equating to a 4.46% growth rate annualized .  Orders of core capital goods hit an all-time high of $83.3B in March 2026 (Census data) before falling slightly to $82.5B in April.  For reference, core capital goods orders are up from $76B in January 2025, a huge 8.5% increase in 16 months.  US Manufacturing PMI has increased from 46.5 In October 2024 to 52.7 in March 2026 to 54.0 in May 2026 (ISM data).  That’s a move from contraction to meaningful expansion in ~20 months.  The Atlanta Fed GDPNow forecast shows annualized GDP growth of approximately 3.0% in Q2 2026.  The 10-year Treasury is up 35bps from 4.05% to 4.40% since the beginning of March, while US Dollar price has risen from a low of 97.2 in 2025 to 100.4 in March 2026 to 101.7 today.  The labor market remains strong on nearly every front, exemplified by a 4.3% unemployment rate.

US consumer health, a known favorite topic of ours, continues to exhibit durability and fortitude.  Despite the unfortunate, pandering, consistently factually incorrect narrative pushed by many media outlets, hard data shows that both the median and lower-income consumer continues to exhibit stable, potentially expansionary spending and wealth trends.  For the roughly 65% of Americans which own a home and 65% which own stocks (often, both), investment portfolios are up nearly 130% since 2019 (S&P 500), while average home values are up nearly 35% (FRED) over the same period.  According to Gallup, approximately 65% of middle-income households own stock.  We mention this data given its relevance to the facts at hand.  According to Bank of America Consumer Checkpoint, likely the purest consumer data available at the moment, total card spending in May was up 5.1% YoY.  Spending excluding gas was up 3.9% YoY in May vs about 3.5% YoY growth in March.  Generic US Census Advanced Retail Sales delivered gains of 4.2% from March 2026 to May 2026 (not annualized – that’s a 3-month increase), while sales excluding gasoline were up 3.2% over the same period.   Comparing retail sales data to actual CPI throws into stark relief the consumer confidence exhibited via aggregate consumer spending habits ~3x inflation.  According to BofA, higher income household spending grew 5.4% YoY in May 2026 as compared to 4.1% YoY growth for low-income households.  Discretionary spending for low and middle-income households was up about 4.0% YoY.  Our biggest concern remains tepid average hourly earnings data out of the BLS which has seen flat 3.4% YoY growth since March 2026.  You pay for gas hikes with hourly earnings, so we’ve seen negative real wages for the last 100 days.  Generically, we think an economy in balance produces approximately 1.5% YoY real wage growth.  Thus, in theory, we need both sides of the inflation vs wages dynamic to perform going forward, which is a long-haul effort we will monitor closely.  BofA savings balances, buoyed by tax refunds, are elevated at present but should settle back around trend at about +-20% above inflation-adjusted pre-coved levels for consumers earning less than both $50k and $100k/year.   Consumer debt service as a percentage of disposable income sits at approximately 11.2% (most recent Q1 2026 Fed data) down from 11.7% in Q4 2019 and 15.7% in 2007.  Personal bankruptcies are very close to an all-time low at 565k over the trailing 12-month period ending March 2026, down from about 752k in December 2019, 2,000k in 2005, 1,500k in 2010 and 800k in 2016 (US Federal Courts data). 

Market signals show US Investor risk tolerance has remained remarkably bullish since March.  For instance, the S&P is up 8% in the last 100 days alone, while high-yield credit spreads are near all-time lows at around +270bps (ICE).  Total corporate bond new issuance YTD is up 21% YoY (SIFMA).   What likely gets less attention is the fact that capital flows into US equities are just below all-time highs at $630B (trailing 12-months) as of April 2026 vs a peak of about $650B in Q4 2021 / Q1 2022 (Yardeni).  It’s probably not ironic that the previous peak US equity ETF flows occurred as Russia built up forces and ultimately invaded Ukraine – another war leading to a global oil shock.  Despite the magnitude of the physical oil shock, the US volatility index peaked at 31 at the end of March.  To put this into perspective, volatility jumped to 45 as tariffs were announced in 2025, bounced around the 30’s often in 2022 associated with the invasion of Ukraine and even touched 30 a few times in 2018 / 2019 associated with the Fed’s taper tantrum.  An interesting fact - according to Nationwide, the forward 12-month return on the S&P 500 once volatility hits 30 is approximately 18% (we can’t determine the analysis period for this data). Regardless, we have a materially stronger secondary market bid for high-yield bonds today at 95 cents vs the trailing 12-month low of 92 cents printed in November 2025.  Today’s bids are proximate to March highs of around 96 cents (Pitchbook data). 

In summary, regardless of the externalities associated with the US war against Iran, it’s incredibly important to inventory the actual and practical impact of a 50% oil price shock, 20% drop in physical oil supply and a global inflationary impulse on both the US economy and US capital markets.  Data shows that, at a minimum, both the economy and investors are pretty inelastic to 100 days worth of insecurity and/or pain.  As we wrote previously, we firmly believe markets were willing to look through the real risks and actual damage taking place within the US economy largely because a powerful member of the US Government ultimately held some sort of “get out of jail at an acceptable cost” card.  Thankfully, since Covid, we’ve yet to find a crisis the Fed or Executive branch couldn’t solve relatively quickly.  We believe the market has been largely willing to expand its forward multiple according to this new dynamic, along with higher forward earnings.  Evaluating the practical solvability of future crises by US institutions will be critical to determining a view on forward risk to markets and the US economy.