Three developments defined May 2026: (1) Memory Lapse -- Rampant AI compute demand created extreme memory shortages, with Micron Technology joining the $1 trillion club after a 19% single-day surge; High Bandwidth Memory is sold out past year-end and has become a primary bottleneck alongside TSM fab allocations and power infrastructure; (2) Strong Earnings, Stark Divide -- S&P 500 Q1 earnings grew nearly 29%, the best since Q4 2021, though the Mag 7 accounted for roughly 63% growth versus 17% for the remaining 493 companies; (3) Iran, Inflation, and Bonds -- April PCE came in at 3.8% headline and 3.3% core as Hormuz blockade energy costs seeped into broader measures; the ECB hiked, the BoJ raised inflation forecasts, and the 30-year Treasury yield surged above 5%. Portfolio considerations address a K-shaped consumer economy, Chapter 11 filings at a 10-year high, and rising spec-grade default projections.
From the original report
Selected passages from the original publication. Historical observations reflect the report's publication date, not current market advice.
1) Memory Lapse – Rampant demand for AI compute capacity has led to extreme shortages for memory. Leading producer Micron Technology became the ninth company to join the $1 trillion club on May 26 (after rising 19% in a single day). High Bandwidth Memory (HBM) – which is sold-out past year-end – has joined TSM fab allocations and power as a key bottleneck for AI growth (with AI data centers consuming roughly 60-70% of supply).
2) Strong Earnings, Stark Divide – S&P 500 Q1 earnings growth came in at nearly 29%, the best since Q4 2021. But the Mag 7 grew earnings ~63% versus ~17% for the remaining 493 companies. The earnings season closed with impressive numbers that were nonetheless heavily dependent on a small cohort of AI-exposed names.
3) Iran, Inflation, and Bonds – April core CPI came in hot, with PCE running at 3.8% headline and 3.3% core, as energy price inflation from the Hormuz blockade seeps into broader measures. Central banks are taking notice: the ECB hiked and the BoJ raised its inflation forecasts. Markets now imply a nearly 40% chance of an FOMC rate hike by December, and the 30-year Treasury yield has surged above 5%.
A Special K? While AI spending has been powering GDP growth, the consumer is showing cracks along the K-shaped economic divide. The top 10% of households now account for 45%+ of spending while lower-income consumers run down savings and lean on credit cards (with average APRs of 21.5% near multi-decade highs). Corporate commentary confirms that luxury and high-end discretionary remain resilient while QSRs, staples, and mass-market report buyer fatigue. It is perhaps a good time to stress test portfolios against the possibility of a consumer spending lull.
The Default Setting – Chapter 11 at a 10-year high, spec-grade defaults projected at 4.25%. Casual dining, consumer discretionary retail, and CRE most vulnerable. Credit allocators should be paying attention to what the equity market is ignoring.
For educational purposes only; not individualized investment, tax, or legal advice. Investing involves risk, including loss of principal.
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