Market Insights Recap — Week of May 18, 2026

Hi, I’m Steve Orr, Chief Investment Officer for Texas Capital’s Private Bank.

Okay, we’re 80 days in on Strait closure, and we’re 49 days into the recovery rally — What’s the setup for the next couple of months? Well, we have moderate economic growth right now, think second gear — the tailwinds of policy and jobless recovery are doing pretty good. But those headwinds of inflation and war shortages are starting to catch up. Tariffs? They’re kind of receding into the background. 

So, first let’s check up on interest rates — Mr. Bond is getting upset. Government bond supply is going up, pushes prices down and interest rates up. Why? Well, governments in other parts of the world, they’re going to have to go on a borrowing binge because they subsidize rising fuel prices. New Fed Chair Warsh started last Friday; He’s going to be tested like all Fed Chairs are — inflation and global shortages are on his menu. Now, the dollar is 1% higher the last five days, and it has momentum to push higher in the next couple of months. In summary, rates are going to be higher for longer. 

Inflation? Well, we already know that went up. Now the government’s catching up. Consumer Price Index in April: up 3.8% — the highest in three years, and that’s the second month above 3.3%; it’s headed north of 4%. That actually understates the gas price increase. The CPI says: up 28% since January. The reality, you and I both know, it’s up over 50% in that time frame. How about producer prices? Producer prices at the wholesale level lead consumer prices by about a year, and the estimate was for April that they’d go up about 4%. Nope — up 6% and rising. Federal reserve President Collins gets it. She said last week, “Five years of above target inflation has reduced my patience.” She’s speaking for the FOMC as a whole that they’re sort of leaning towards raising short-term rates to fight inflation. 

Our manufacturing clients know spot rates on truck deliveries have exploded to cycle highs: $3.50 a mile right now — that’s very close to the all-time high of $3.68 per mile. That’s those fuel costs — those diesel charges — that are making it more expensive to produce things. But if you really want to have a happy day, just remember 4%-plus inflation usually is not killed off until unemployment goes above 8% — double today’s level. Just like bond yields, expect higher for longer. 

Now, speaking of higher charges: tariffs are still out there. The refunds for the IEEPA tariffs paid over the last year, they’re starting to go out now — eight billion last week. Total refunds: going to be about $100 billion back to businesses. Where does that 100 billion come from? The Treasury has to borrow the money from the bond market; more supply pushing up yields. 

Now, the software sector and Magnificent Seven are the big drivers of new highs in the stock market lately. Higher for longer: oil prices, bond yields and the dollar — not really a good foundation for a continued rally. The S&P 500 and Nasdaq are both very overbought. Best case over the next couple of months: sideways consolidation. My chart suggests a pullback is highly likely in the near term. Time to think carefully about your positions; until next time.