Are We Finished Celebrating?

*Analyzing the markets with Richie Naso, a Wall Street veteran of over 40 years and former member of the NYSE.

• DJIA 52-wk: +20.73% | YTD: +6.18% | Wkly: +0.90%
• S&P 500 52-wk: +28.22% | YTD: +10.73% | Wkly: +1.43%
• NASDAQ 52-wk: +41.12% | YTD: +16.05% | Wkly: +2.39%
• Russell 2000 | Wkly: ~-2.0% To -2.5% | Lagged Sharply; Yields & Inflation Concerns Weighed Late In Week
  
  Market Close: 29th May 2026

HYG — Junk Bond Watch

HYG finished the week modestly lower as rising Treasury yields and renewed inflation concerns weighed on the high-yield bond market.

Why it matters for stocks:

• When HYG is strong, it suggests investors are comfortable taking risk and credit markets remain supportive of equities.
• When HYG weakens, it often signals growing concern about economic growth, rising default risk, tighter financial conditions, or declining liquidity.

Artificial intelligence is fueling job creation rather than eliminating positions, according to Apollo Chief Economist Torsten Slok, who argues that current labor market data show no sign of AI-driven employment losses.(Source)

Slok pointed to weekly ADP employment figures, which have strengthened steadily in recent months, with hiring momentum accelerating into the spring. The data suggest that businesses continue to add workers even as investments in AI technologies surge across industries.

Instead of replacing large numbers of employees, companies are actively recruiting specialists to deploy and manage AI systems. Demand for AI implementation experts has increased alongside a major wave of spending on data centers, cloud infrastructure, and computing capacity — contributing to higher wages for skilled technology workers and pushing up costs for semiconductors, equipment, and energy.

The trend reflects what economists call the Jevons Paradox, where greater efficiency lowers costs and ultimately drives higher consumption rather than reducing demand. In the case of AI, cheaper and more accessible technology is encouraging broader adoption, leading to additional investment, hiring, and economic activity.

Slok believes the labor market may be stronger than widely anticipated. He noted that May nonfarm payrolls could come in above the consensus forecast of 95,000, reflecting the continued employment boost from the ongoing AI spending boom. This is an analyst projection, not a guarantee of any particular outcome.

Goldman Sachs raised its 2026 year-end forecast for the S&P 500 to 8,000 from 7,600, citing continued strength in corporate earnings. The revised target is approximately 6.4% above the index’s last closing price of 7,519.12.

“Earnings growth has powered the entire S&P 500 return so far this year, and we expect this dynamic to continue in the coming months.” — Goldman Sachs research note

Goldman also raised its S&P 500 earnings-per-share forecasts to $340 for 2026, implying 24% year-on-year growth, and to $385 for 2027, a further 13% increase. These are analyst estimates and are not a guarantee of future results.

Goldman’s move follows a broader wave of positive brokerage calls. UBS GWM also raised its 2026 S&P 500 target to 7,900 from 7,500, citing resilient consumer spending and strong data center infrastructure demand.

It has been a May to remember, with all three major indexes on track to end the month at record highs. After another week of gains, the Dow Jones Industrial Average was set to increase approximately 2.6% for May; the S&P 500 was up around 5.2%; and the Nasdaq Composite was rising roughly 8.4%. The S&P 500 has now rallied for nine consecutive weeks.

But just a moment. While stocks have risen on hopes of a peace deal between the U.S. and Iran, earnings have been the real story. S&P 500 companies posted 28.6% earnings growth in the first quarter compared with the year before — the best result since 2021, according to FactSet.

Now stocks are entering a limbo period — the gap between the end of one earnings season and the beginning of the next. They will need other catalysts to keep rising. A formal end to the Iran war could be one, though the market is already pricing in an optimistic geopolitical scenario. Otherwise, traders will need to follow sector momentum. That proved to be a useful strategy in May, as the Invesco S&P 500 Momentum ETF (SPMO) gained 13%.

For most of May, momentum favored chip stocks. But space stocks seized it this past week. Michael O’Rourke, chief market strategist at JonesTrading, cautions that it can be a warning sign for the broader market when significant amounts of speculative capital begin pouring into small-cap companies with unproven business models. As if on cue, space stocks slipped on Friday, with the Procure Space ETF (UFO) dropping approximately 6%.

“As one bubble blows off and breaks, the next picks up the baton. Fevered enthusiasm to pay 75x to 100x revenues for a trillion-dollar company signals the type of event that ends bull markets.” — Michael O’Rourke, Chief Market Strategist, JonesTrading

With no earnings to drive sentiment, investors are turning to economic data — and the recent readings look challenging. Incomes stagnated in April, and the personal savings rate fell to 2.6%. The Personal Consumption Expenditures (PCE) Price Index, the Federal Reserve’s preferred inflation gauge, rose 3.8% in April. Core PCE, which excludes food and energy, rose 3.3% — its highest reading in nearly three years.

Rising inflation only makes incoming Federal Reserve Chairman Kevin Warsh’s task harder. Warsh had been expected to push for interest rate cuts, on the assumption that AI would boost productivity and dampen inflation. Emily Bowersock Hill, CEO of Bowersock Capital Partners, believes the current AI-driven spending surge may be having the opposite effect.

If that is the case, the start of second-quarter earnings season in July cannot come soon enough.

The items below reflect Richard Naso’s personal areas of focus for the coming week and are provided for informational and educational purposes only. They do not constitute investment advice or a recommendation to trade any security.

WATCH LIST — WEEK OF JUNE 2, 2026

• Treasury Yields — The Most Important Indicator
  Continued moves higher could pressure equity valuations, particularly high-growth and rate-sensitive names
  
• Inflation Data — PCE
  The Fed’s preferred gauge; a hot reading would reinforce the case for rate hikes over cuts
  
• Russell 2000
  A key barometer of broader risk appetite and small-cap health
  
• HYG
  Continued weakness would signal tightening financial conditions and growing investor caution

From a trader’s perspective, continued weakness in the Russell 2000 — especially if accompanied by deterioration in HYG — would be a cautionary signal that risk appetite is beginning to weaken and the odds of a broader market pullback are increasing.

Another development that caught my attention this past week was the speculative surge in space-related stocks. As Michael O’Rourke of JonesTrading noted, it can be a warning sign for the broader market when large amounts of speculative capital begin chasing small-cap companies with highly speculative business models. Historically, that type of behavior has tended to occur in the later stages of a rally, when investor enthusiasm starts to outweigh fundamentals.

With growing excitement surrounding a potential SpaceX IPO, that speculative momentum may be approaching a peak. If so, it could mark a shift away from the risk-taking behavior that has helped fuel the market’s advance.

Taken together, weakening action in the Russell 2000, softness in HYG, and increasing speculative activity in niche sectors suggest that investors should be paying close attention to underlying market conditions. While the major indexes remain near their highs, I am proceeding with caution from here.

– Richie

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