Market Insights Recap — Week of May 4, 2026

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

We’re always interested in what’s driving returns, so let’s get out on the track.

Now, as we leave the pits, let’s glance in the rearview mirror to see what we left behind. Headline: Gross Domestic Product grew 2% in the first quarter. That headline number has two interesting parts. First, it downplays the actual activity level because imports and exports subtracted 1.3% — that’s oil prices and tariffs. Second, more important, private activity increased 2.5% year-over-year — not bad, not great, but consistent with our “second-gear” economic forecast. Data center and AI buildout accounted for much of the private sector growth. Getting the Strait of Hormuz open for the rest of the world and 100% expensing of big projects kicking in here at home should move us toward that 3% growth in the second half of the year. 

Now, one thing that’s not moving anytime soon is short-term interest rates. Take that 2% real GDP growth and add 3.6% GDP inflation, you have 5.6% nominal growth — well above recession levels, well above short-term rates of around 3.6%. So, right now, no need to cut rates. 

Despite repeated Twitter tantrums from the White House, the Fed should hold rates at the current 3.5 to 3.75% range for the balance of the year. Incoming Chairman Kevin Warsh appears to agree with the White House that the Fed can lower rates without adding to inflation levels. We’ll take that up in another video. After the Committee meeting last week, the FOMC voted to hold rates steady but had four dissents for the first time in a number of years. A couple of dissent votes at the change of a chair are common — think of members trying to kind of stake out their positions. One of the dissents was Steven Miran, whose seat Warsh will take over. The other three are regional Fed presidents who wanted this statement to sound more neutral as to which way the Committee might move on rates in the future — up or down. The last several meetings, the language has tilted toward the next move being a lower of rates. For the last four months, ISM manufacturing series has moved higher — the first time in several years. Jobless claims continue to sit at all-time lows. Help wanted signs are coming out again. The Committee sees these signals and some members want to raise rates as the economy shifts up to third gear later this year. 

In light of looming commodity shortages, perhaps this one time we should all just wait and see. Okay, back to the front windshield before our portfolios hit an air pocket: We’re just past the halfway mark in S&P 500 first-quarter earnings reports. Analysts were hoping for 15% growth in earnings over last year’s first quarter; right now, we’re up in the mid-20s thanks to great reports from Google, Amazon and Meta. Five of the Magnificent Seven turned in their report cards last week — overall, AI build out is going well. Recall the AI boom has ploughed through industry group after industry group — software, chipmakers, copper stocks; last month, memory chipmakers, now it’s gensets and power delivery. This is the kind of froth that bull cycles are made of. The key for you, and for us, is that our indicators tell us when to take up or take down risk. Right now: risk on.

May is usually a blah month, posting in the bottom half of all months for stock returns; stocks usually barely break even. Hang on — April’s return for the S&P 500 was a standout 10-plus percent, same for the Nasdaq, as both made multiple highs. But that 10% jump in April can have legs. We count 14 Aprils since the 1930s where April has jumped 5% or more. Only two Mays had negative returns, and 11 of the 14 were positive for the full year. We’ll take those odds. 

The economy is hanging in there despite tariff and housing headwinds. Earnings results are strong; analysts are not marking them down yet — 4% inflation is down the road, but stocks do okay with inflation. as long as the Fed is not hiking rates. So, we’re staying the course for now; until next time.