May 7, 2026

The S&P 500 reached new all-time highs, finishing up +10% in April, its best monthly return since November 2020. Q1 corporate earnings growth was exceptional, with 84% of companies reporting positive EPS surprises, as businesses have been able to successfully navigate inflation and geopolitical risks. AI-related hardware and software fueled the surge, driven by only a few tech giants, often called the Magnificent Seven (Microsoft, Google, Amazon, Meta, Apple, Nvidia & Tesla), with these firms driving nearly 90% of capital spending in the S&P!

The S&P 500 Index is the cornerstone for most investor portfolios and retirement accounts, and remains the premier benchmark for the overall US economy, but with these 7 companies now making up almost 40% of the Index, the US economic performance will be linked to whether this AI spend will turn into software-like profit margins… or does it not, and do we need to rethink these lofty multiples.

At the same time, there is an increasingly noticeable disconnect between Wall Street and Main Street. While equity markets sit near record highs, consumer sentiment has deteriorated sharply. The latest University of Michigan Consumer Sentiment Index recently fell to one of the lowest readings on record, as consumers continue to struggle with elevated living costs, higher borrowing rates, and concerns surrounding inflation and geopolitical instability. This divergence has become one of the defining characteristics of today’s economy, where financial markets remain heavily supported by AI optimism and mega-cap earnings growth, but consumers are becoming increasingly cautious, particularly in discretionary spending categories.

Ultimately, consumer spending still drives nearly 70% of the U.S. economy. For now, markets continue rewarding growth, scale, and AI exposure. But as concentration risk rises and sentiment weakens, the path forward may depend less on excitement surrounding artificial intelligence, and more on whether the broader consumer can continue absorbing higher prices and elevated financing costs without materially slowing economic growth.

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