The Top Line
Stocks hit new all-time highs Thursday, driven by a blockbuster earnings report from Dell that showed explosive demand for artificial intelligence technology. The big question heading into the weekend is whether a fragile peace deal between the U.S. and Iran can hold — because the answer will determine where oil prices, and inflation, go next.
We are operating in a Transitional/Mixed regime characterized by decelerating growth, persistently elevated inflation, and a geopolitical risk premium that is actively unwinding but not yet resolved. The S&P 500 closed at a new all-time high of 7,563.62 on May 28th — its ninth consecutive week of gains — despite Q1 GDP being revised down to 1.6% and April PCE printing at 3.8% YoY, the highest reading in nearly three years; the market's ability to absorb "bad" inflation data and shrug it into new records reveals a structural bull thesis anchored in AI infrastructure earnings power rather than the macro cycle. Dell's Q1 FY27 results — $43.8 billion in revenue (+88% YoY), $16.1 billion in AI server sales (+757% YoY), and a raised FY27 outlook to $167 billion — are the single most important data point for the AI capex supercycle narrative and represent a powerful counterweight to the Salesforce guidance miss of the prior session. The Iran-Hormuz ceasefire MOU remains unsigned and legally contested, with Trump issuing fresh demands on Friday and Iranian ballistic missile strikes continuing Thursday against U.S. positions in Kuwait; the incomplete peace architecture means the energy risk premium is neither fully extinguished nor fully priced.
Inflation
Prices are still rising faster than the Federal Reserve — the central bank that controls interest rates — would like to see. The government's preferred inflation gauge showed prices up 3.8% over the past year in April, the highest reading in nearly three years, largely driven by higher gasoline costs stemming from the conflict in the Middle East. The somewhat encouraging news is that on a month-to-month basis, price increases came in a little softer than expected, which hints the worst of the surge may be leveling off. But here's what's worrying: a major consumer survey found that everyday Americans now expect prices to keep rising at 4.8% over the next year — when people expect higher inflation, they often demand higher wages, which can make inflation harder to bring down. Until energy prices fall more meaningfully and stay down, the Fed is very unlikely to lower borrowing costs on mortgages, car loans, or credit cards.
Key Takeaway
Inflation is still too high for the Fed to cut interest rates — relief on borrowing costs is likely at least a year away.
Thursday's data confirmed what the prior day's PCE release had already established: inflation is sticky, above target, and reaccelerating on a YoY basis. Headline PCE rose to 3.8% YoY in April — up from 3.5% in March and 2.8% in February — driven by energy price pass-through from the Hormuz disruption. Core PCE held at 3.3% YoY with a softer 0.2% MoM print, below the 0.3% consensus, offering the one genuinely constructive signal in the inflation complex. The Q1 GDP second estimate embedded a PCE price deflator of 4.5% annualized (unchanged from the advance estimate), with core PCE revised up 0.1pp to 4.4%. Crucially, the University of Michigan's final May consumer sentiment reading — released May 22nd but printing at a record low of 44.8, down from the preliminary 48.2 — showed year-ahead inflation expectations at 4.8% and long-run expectations at 3.9%, the latter well above the 2.8%–3.2% range seen throughout 2024. Anchoring risk is real and building.
The composition of inflation continues to shift in a structurally challenging direction for the Fed. Energy goods remain the dominant impulse — gasoline was April's single largest spending category contributor at +$28.8 billion — while core services, shelter, and wages carry persistent upward pressure that is far stickier than goods-side relief. The annual PCE trajectory tells the more alarming story: headline PCE has accelerated 100 basis points in just two months (February to April). Meanwhile, personal saving collapsed to 2.6% in April, below historic equilibrium levels, as consumers draw down reserves to maintain nominal spending in the face of real income erosion. If the Iran ceasefire holds and energy prices recede, there is a plausible disinflation path over the summer. If it fractures, PCE could push through 4.0% YoY by June's print.
The market reaction to Thursday's data was constructively dismissive: equities rallied, the 10Y yield fell 3 basis points to 4.453%, and the dollar softened. The market appears to be pricing ceasefire-driven oil disinflation forward, treating the monthly core softness as evidence the underlying ex-energy trajectory can hold. New Chair Warsh inherits an FOMC that produced four dissents at April's meeting — the most divided in 34 years — and faces a committee with rising internal pressure to shift the policy statement from neutral to a tightening bias at the June 16–17 meeting. Markets are pricing a 40% probability of a rate hike by year-end; Bank of America has pushed rate cut expectations to the second half of 2027.
Key Takeaway
Core PCE's monthly deceleration to 0.2% is a fragile constructive signal, but annual rates are reaccelerating, consumer inflation expectations are at multi-year highs, and the Fed under Warsh faces a divided committee with rising internal pressure to pivot toward tightening. The June 17 press conference is the next major policy inflection point; rate cuts are effectively off the table for 2026.
Risk and Positioning
Think of Thursday's market as a day where good corporate news drowned out bad economic news — and investors chose to focus on the good. The market's fear gauge dropped to 15.73, one of its calmest readings in weeks, as stocks hit records despite higher-than-expected inflation and fresh military strikes in the Middle East. The reason for the optimism was a single company: Dell Technologies reported sales nearly double what analysts expected, fueled entirely by demand for artificial intelligence servers — the powerful computers that run AI programs. That one report was enough to lift the entire technology sector and push the broader market to new highs. Gold also ticked up slightly, which tells us that not everyone is fully convinced the geopolitical risks have gone away — and they're right to be cautious, since the Iran peace deal still hasn't been finalized.
Key Takeaway
Markets are calm and confident right now, but that confidence rests heavily on AI company earnings holding up — and on the Iran situation not getting worse.
The May 28th session was a textbook "bad news is good news" day: the market absorbed the highest PCE reading in nearly three years, a downward GDP revision, and fresh U.S.-Iran military strikes — and still closed at all-time highs across the S&P 500 and Nasdaq, with the Dow pushing toward 51,000. The VIX closed at 15.73, down 3.44% on the session and at its lowest level in weeks, signaling genuine near-term complacency. The mechanism is clear: Dell's blowout earnings after Wednesday's close ($43.8B revenue, 88% YoY growth, $16.1B in AI server sales, FY27 guidance raised to $167B) provided a structural "AI earnings > macro headwinds" narrative that overwhelmed the inflationary data. Dell rose approximately 33% on the session — its best day on record — and served as the proximate catalyst for tech and financials to lead the market higher, reversing the sector rotation of the prior session.
The risk positioning environment reveals a market that is increasingly bifurcated between macro risk (inflation, rates, geopolitics) and micro risk (AI earnings power, corporate fundamentals). The forward 12-month P/E of approximately 20.9x at early May has likely re-rated higher given the index's ~5.7% monthly gain and Dell's massive earnings revision. Credit markets remain well-behaved, with IG and HY spreads tight and no distress signals in corporate funding. Gold rose 0.89% to $4,495.83 on May 28th — a constructive signal that some geopolitical risk premium persists even as equities celebrate ceasefire optimism, suggesting the two asset classes are pricing different components of the Iran situation: equities pricing the peace outcome, gold hedging against the possibility of failure. WTI fell 1.06% to $91.11 while the front-month CL1! contract actually rose 0.25% to $88.90, reflecting near-term supply uncertainty as ballistic missile strikes continued on May 28th even as the MOU negotiations progressed.
The May 28th session confirmed that market breadth is improving: the Nasdaq gained approximately 8% for the month (best monthly performance of 2026) with the S&P 500 up ~5.7%. The Snowflake (+36%), ServiceNow (+14%), Datadog (+10%), and Palantir (+8%) moves on software sector tailwinds from Dell's AI print confirm that the AI infrastructure trade is broadening from hardware to software — a bullish breadth signal for the tech complex. However, the S&P 500's advance remains megacap-concentrated, with the equal-weight index trailing the cap-weighted benchmark meaningfully, and consumer-facing sectors (Gap cut annual guidance; American Eagle failed to reassure) continue to indicate demand pressure at the lower-income consumer level.
Key Takeaway
VIX at 15.73 and all-time highs across major indexes signal near-term risk-on confidence anchored by AI earnings, but the divergence between gold (+0.89%) and equities at record highs reflects unresolved geopolitical tail risk. If the Iran MOU fails to achieve Trump's sign-off, the geopolitical risk premium that equities have already unwound would need to be rapidly repriced. Watch SPX 7,500 as near-term support.
Sector and Cross-Asset Analysis
Thursday was a day where tech companies (XLK) and banks and financial companies (XLF) led the market, bouncing back sharply after lagging the day before. Dell's stunning results — the company booked more AI server orders in one quarter than most companies generate in years — lifted the entire technology sector, with cloud software companies like Snowflake (+36%), ServiceNow (+14%), and Datadog (+10%) all surging on the belief that AI spending is accelerating across the board. On the other side, oil and gas companies (XLE) continued to slide as the prospect of a Middle East peace deal kept energy prices under pressure. There was also a rare bright spot in retail: Kohl's jumped 15% after reporting its best sales trends in four years, while Best Buy beat expectations by citing strong demand for AI-powered gadgets — a sign that AI is starting to show up in everyday consumer purchases, not just corporate data centers.
Key Takeaway
AI is the engine driving markets right now — from the servers powering it to the software running on it to the gadgets consumers are buying because of it.
Technology (XLK) and financials (XLF) led the May 28th session higher, a reversal from Wednesday's laggard status and a reflection of Dell's after-hours print from the prior session cascading through the AI infrastructure complex. Dell surged approximately 33% on the session — its best day on record — pulling semis, cloud software, and AI-adjacent names higher with it. Snowflake jumped 36% on a Q1 earnings beat paired with a $6 billion multi-year AWS partnership. ServiceNow gained 14%, Datadog rose 10%, and Palantir added 8% on the software sector AI tailwind. The Nasdaq posted its best monthly performance of 2026 at approximately +8.5%, and all three major averages notched record closing highs on May 28th. The AI capex supercycle narrative — which Salesforce's guidance miss had briefly threatened — was comprehensively rehabilitated by Dell's results, which showed $24.4 billion in AI orders booked in a single quarter and a FY27 AI server revenue forecast of $60 billion ($8.6 billion above even Dell's own prior guidance midpoint).
Energy (XLE) extended its decline into a second session as the ceasefire MOU narrative continued to drive oil lower, with WTI ending at $91.11 and Brent approaching $92-93. The month of May saw Brent fall approximately 19% — its worst month since the COVID-19 pandemic — as the market priced the reopening of Hormuz shipping lanes from their wartime near-shutdown. However, the geopolitical picture remains unresolved: Iranian ballistic missiles struck a U.S. air base Thursday and targeted Kuwait's territory before being intercepted, and the Persian Gulf Strait Authority vowed to continue operations "without interruption" despite being added to the U.S. Treasury sanctions list. The CL1! front-month contract's 0.25% gain against WTI's 1.06% decline reflects near-term supply disruption risk even as longer-duration oil pricing declines. Defense stocks (LMT, NOC, GD, RTX) received S&P positive outlook revisions — all four on the same day — a structural credit call suggesting the Iran conflict's long-term defense spending implications are being baked in regardless of the ceasefire outcome.
Cross-asset dynamics presented a constructive but nuanced picture on May 28th. The DXY fell 0.23% to 98.992, consistent with risk-on positioning and slight dollar softening as yields declined. The 10Y Treasury at 4.453% (down 3bps) and the 10Y/2Y spread at approximately +43 basis points reflect a modestly steepening, positively sloped curve — a structural improvement for bank net interest margins that provided a tailwind for XLF. South Korea's Kospi and Japan's Topix both hit record highs on May 28th, confirming the global equity risk-on impulse from AI earnings and ceasefire optimism was not a US-only phenomenon. Retail names provided a domestically positive signal: Kohl's surged 15% on maintained guidance and improving comparable sales trends, partially offsetting the Gap and American Eagle demand softness; Best Buy beat on Q2 guidance citing AI gadget demand, confirming that the consumer electronics hardware refresh cycle tied to AI is underway at the mass market level.
Key Takeaway
Tech leadership is back, driven by AI infrastructure earnings power that has proven more durable than the Salesforce warning suggested. The AI trade is broadening from hardware (Dell) to software (Snowflake, ServiceNow, Datadog) — a positive breadth signal for XLK. Energy remains the structural underperformer on ceasefire pricing, though the MOU's incomplete status and ongoing military exchanges keep tail risk alive for a sudden reversal.
Economic Data & Events
- 7:45 AM MT — Chicago PMI (a monthly survey of business activity in the Chicago region — readings above 50 signal growth) — High Impact
- 8:00 AM MT — University of Michigan Consumer Sentiment, May Final (a monthly survey of how confident Americans feel about their finances and the economy) — High Impact
Today's two reports tell a striking story about the divide in the U.S. economy right now. On one hand, the Chicago PMI surged to 62.7 — a four-year high and well above the 50.6 that analysts expected — signaling that businesses in the region are expanding at a strong clip. On the other hand, the University of Michigan's final read on consumer confidence for May came in at 44.8, a record low, as everyday Americans continue to feel squeezed by high gas prices and the cost of living. The gap between business confidence and consumer confidence is unusually wide, and it reflects a market where corporate America is riding an AI wave while households are still fighting higher prices at the pump.
Key Takeaway
Watch next Friday's jobs report (June 5) — it's the last major data point before the Fed's June 17 meeting, where the new chair will signal where interest rates are headed.
Today's Calendar
- 7:45 AM MT — Chicago PMI (May) — High Impact
Actual: 62.7 | Consensus: 50.6 | Previous: 57.7 (February)
- 8:00 AM MT — University of Michigan Consumer Sentiment (May Final) — High Impact
Actual: 44.8 | Consensus: 48.2 (preliminary) | Previous (April Final): 49.8
Week Ahead
Next week's calendar is lighter following this week's heavy macro data dump; no major tier-1 U.S. releases are scheduled before June 5th's May Nonfarm Payrolls report, which will be the next critical data point feeding into the June 16–17 FOMC. May CPI releases June 10th and the SpaceX (SPCX) IPO roadshow is expected to begin around June 4th, with pricing targeted as early as June 11th. Warsh's inaugural FOMC press conference on June 17th remains the dominant market event for the month.
The Bottom Line
Stocks are finishing the week — and the month — at record highs, powered by remarkable AI earnings and fading fears about the Middle East conflict. The one thing to watch this weekend is whether the Iran peace deal gets signed, because that single event could move oil prices, inflation expectations, and your portfolio more than anything else right now.
The market enters Friday riding record highs and nine consecutive weeks of gains, with the AI earnings narrative — headlined by Dell's historic beat — comprehensively overriding the macro headwinds of sticky inflation, slower growth, and unresolved geopolitics. The Chicago PMI's surge to 62.7 (consensus 50.6) is a powerful regional activity surprise that reinforces the "soft landing" growth narrative for Q2, while the UMich final sentiment at 44.8 — a record low — underscores the disconnect between equity market optimism and consumer-level strain at the pump. Today's tactical bias is modestly bullish on the open given the Dell-driven tech momentum and PMI beat, with SPX resistance at 7,600 and support at 7,500; watch whether XLK sustains Thursday's gains into the weekly close and whether oil stabilizes above $90 WTI, which is the key technical level for energy sector positioning ahead of the weekend's Iran MOU news flow.
Disclosure — AI-Assisted Content & Regulatory Notice
This briefing was drafted with the assistance of artificial intelligence tools. All content has been reviewed and approved by Thomas MacPherson, Investment Adviser Representative (Series 65) and Chief Compliance Officer, River Rose Financial, LLC, prior to publication. AI systems may produce errors, omissions, or outdated information; readers should independently verify data.
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