Weekly Economic Update: May 27th, 2026
Markets climb upward despite noise
Financial markets exhibited resilience last week, despite ongoing geopolitical tensions and uncertainty surrounding the Federal Reserve. The principal concerns included stalled negotiations with Iran, developments from President Donald Trump’s meeting with Chinese President Xi Jinping and the appointment of Kevin Warsh as the new Fed Chair.1,2
We had a rough start to the week, mostly due to unresolved Iran negotiations and a lack of progress in talks with China. Tensions in the Gulf have continued to impact regional traffic, and talks with Iran don’t seem to be making much progress, much like the situation with China.
Still, markets pretty much ignored these political developments, rebounding midweek after Nvidia revealed better-than-expected earnings and closing higher ahead of the Memorial Day weekend.3 It’s a sign that corporate earnings and economic data will always remain relevant data points for investors.
Warsh sworn in, so what’s next for rates?
Now that Kevin Warsh has been confirmed and sworn in by President Trump to be the new chair of the Federal Reserve, where do we go?4 The president didn’t appoint Warsh to sit on his hands or raise rates. Unfortunately, that’s precisely what needs to happen — well, maybe not the raising rates part yet.
We’ve had an energy-induced inflation spike which could subside at any moment, so raising rates right now seems premature.5 Earnings have been great and gross domestic product (GDP) is at 2%, which is remarkable given all the government shenanigans.6 Jobs are pretty solid and, for all the talk of affordability, there were record numbers of travelers flying and driving around the country to kick off the summer.7
The obvious bet is to leave rates where they are. However, once the Iran situation calms down and oil declines to pre-conflict levels, President Trump will once more resume his calls for rate cuts. The challenge for Warsh is that inflation won’t drop as quickly as oil prices, and we could have elevated inflation for months after this crisis is resolved. We will also likely have a divided Fed, with some arguing for tighter policy as the president calls for easing.
Coming this week
- Markets were closed Monday for Memorial Day.
- The only data point on Tuesday will be consumer confidence. It will continue to be lackluster given current events and gas prices.
- We’ll see MBA mortgage applications on Wednesday. Thursday will feature weekly jobless claims and new home sales for April.
- Friday will be the big day for data. We’ll get personal income and spending plus the second reading of first-quarter GDP. Then we’ll get personal consumption expenditures (PCE), the Fed’s preferred measure of inflation. Last month PCE was 3.5% year-over-year, and the consensus prediction is for PCE to go up to 3.8%.8,9
- Almost all earnings for the S&P 500 are in for Q1.10 With 94% of S&P 500 companies reporting results, 84% reported positive earnings per share (EPS) and 81% reported positive revenue. Earnings growth for the first quarter is 28.4%, up from 11.9% last quarter. If 28.4% is the actual growth rate for the quarter, it will mark the highest earnings growth for the index since Q4 2021.
- Valuation is still historically high for the S&P 500, with the forward 12-month price-to-earnings (P/E) ratio at 21.1 versus 22.2 last quarter. This P/E ratio is a little higher than the 5-year (19.9) and 10-year (18.9) averages.
Sources:
1 Tom Bennett. BBC. May 24, 2026. “Trump tells US negotiators ‘not to rush’ into deal with Iran.” https://www.bbc.com/news/articles/clyp0040x7po. Accessed May 25, 2026.
2 Evelyn Cheng. CNBC. May 22, 2026. “U.S. pushes its AI in China and Asia after Trump-Xi meeting.” https://www.cnbc.com/2026/05/22/us-china-ai-apec-asia.html. Accessed May 25, 2026.
3 Karee Venema. Kiplinger. May 20, 2026. “Nvidia Earnings: Update and Commentary May 2026.” https://www.kiplinger.com/investing/live/nvidia-earnings-live-updates-and-commentary-may-2026. Accessed May 25, 2026.
4 Omor Ibne Ehsan. Yahoo! Finance. May 25, 2026. “Kevin Warsh Sworn In a Fed Chair With Lowest Senate Votes Ever Amid Independence Concerns.” https://finance.yahoo.com/economy/policy/articles/kevin-warsh-sworn-fed-chair-111032652.html. Accessed May 25, 2026.
5 Archie Mitchell. BBC. May 12, 2026. “US inflation jumps to 3.8% as energy costs surge from Iran war.” https://www.bbc.com/news/articles/c202pgxx89lo. Accessed May 25, 2026.t-today-live-updates.html. Accessed May 17, 2026.
6 Bureau of Economic Analysis. April 30, 2026. “GDP (Advance Estimate), 1st Quarter 2026.” https://www.bea.gov/news/2026/gdp-advance-estimate-1st-quarter-2026. Accessed May 25, 2026.
7 Caroline Foreback. CBS News. May 23, 2026. “Record travel numbers expected during Memorial Day weekend, per AAA.” https://www.cbsnews.com/baltimore/news/memorial-day-weekend-travel-brings-record-breaking-numbers/. Accessed May 25, 2026.
8 Bureau of Economic Analysis. April 30, 2026. “Personal Consumption Expenditures Price Index.” https://www.bea.gov/data/personal-consumption-expenditures-price-index. Accessed May 25, 2026.
9 MarketWatch. “This Week’s Major U.S. Economic Reports & Fed Speakers.” https://www.marketwatch.com/economy-politics/calendar. Accessed May 25, 2026.
10 John Butters. FactSet. May 22, 2026. “Earnings Insight.” https://advantage.factset.com/hubfs/Website/Resources%20Section/Research%20Desk/Earnings%20Insight/EarningsInsight_051526.pdf. Accessed May 25, 2026.
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