Despite Churn, the Trend is Your Friend

From October 2022 through May 7, 2026, the tech-heavy NASDAQ Composite Index is up over 149% in cumulative total returns, or up 29.2% on an annualized basis. The narrower NASDAQ 100, representing the largest companies within the broader composite index, is up over 166% cumulatively — a whopping 31.6% annualized return. While broad global indices have delivered annualized returns in the low 20% range, technology’s public equity outperformance remains dramatic: Since the recent equity market lows attributable to the Iranian conflict, tech stocks are up 25% in less than six weeks.

Private market equity values have achieved an even more dramatic ascension. SpaceX, OpenAI, ByteDance, Anthropic, xAI and others reflect demand from a host of private market owners, with seemingly easy access to capital across global investor types.

The confluence of public and private market values, including the most recent run-up, prompts some observers to question if we have entered bubble territory. Our answer is no, and we remain conditionally optimistic about tech’s path forward for a few reasons. First, we still don’t see evidence that AI is a fully-diffused technology — meaning not all companies or companies with durable use cases and applications have incorporated AI into their workflows. And for those exploring such use cases, demand continues to exceed supply. As we have shared in prior communications, we see a lot of individual company examples, ranging from Alphabet to Palantir to Amazon, where demand for AI-related services far exceeds supply.

Second, we continue to see examples where markets punish companies that exceed their capital expenditure guidance. Infrastructure software company CoreWeave increased its spend forecast despite lowering revenue guidance, and the stock fell 10%.¹ We noted similar spend examples from Meta and Microsoft last week.

Finally, we are seeing incremental evidence that companies and capital suppliers are anticipating some AI ecosystem build slowing. From big picture considerations like estimates for “hyperscaler” AI spend decelerating in a few years to micro examples like data center builders seeking annual contract adjustment options for potentially falling input costs, some evidence of rationalization is emerging despite higher valuations. Key to assessing this will be to gauge demand trends, and whether suppliers stubbornly fight falling demand — which will happen — or react in a disciplined manner.

Earnings and sales growth remain robust for large domestic stocks in Q1 S&P 500 earnings season, which is nearly 90% complete, with some technology, consumer discretionary and consumer staples companies left to report results. The trends we have seen throughout this quarter’s reports remain intact. Average sales growth has been skewed by large technology and communications companies, and the 25% earnings growth seen thus far has included outsized surprises from tech and energy, but perhaps more notably from materials and industrial companies.

Healthcare is the only sector thus far to deliver negative earnings growth, despite being the stalwart industry employer (more on that below). Ironically, despite this negative earnings picture, markets expected an even worse quarter. Recognizing how vast and diverse the healthcare sector is, we continue to see better opportunities within private markets than in public markets.

We have discussed the themes of consumer and business resilience and adaptability throughout this year, and this earnings season reinforces those properties. However, investing is not just about forecasting and observing phenomena: It is also about understanding what is already reflected in markets. As we conclude earnings season, consensus estimates anticipate earnings will grow 21% in 2026 and 14% next year. Further, bullish expectations have accelerated since the year began; more than half of next year’s earnings growth forecasts have emerged in the last three months.² Those expectations — following four calendar years of strong earnings and sales growth — bear watching closely.

We defer to our talented Northern Trust Economics team for their employment situation perspective, but from a markets standpoint, this was a solid report. The unemployment rate held at 4.3%, the three-month average of nonfarm payrolls added was largely as expected (although the last two months’ aggregate gain was the largest in two years), and labor-force participation was close to prior readings. Hourly earnings ticked lower this month, and March’s earnings were revised lower. Healthcare once again showed strength (readers may recall that February was the first month in several years that employment ticked lower, mostly attributed to a worker strike). However, trade, transportation & utilities plus leisure & hospitality posted solid gains for the month. Financial services and technology posted negative growth, with AI-induced layoffs catching headlines.

The key for markets is what this report means for a Federal Reserve in transition. With Kevin Warsh’s pending Congressional confirmation process and his stated objective for “regime change” as it relates to Fed data measurement and policy communication, one report is unlikely to have an outsized impact — particularly one as “middle of the road” as this was relative to expectations. As we have shared previously, the Federal Reserve has three objectives for monetary policy; promoting stable long term interest rates, price stability, and full employment. Under Chairman Jay Powell, the Fed transitioned its focus from inflation (price stability) to greater concerns about the labor market, reflecting that shift late last summer.

With inflation still higher than the Fed’s stated 2% objective, labor markets reflecting  more lackluster activity and an already divided Fed diverging on what its likely next interest rate move might be, we see markets likely shelving the inflation vs. labor market focus for now. As investors, we are more focused on what happens with longer-maturity government bonds. Echoing what we shared last week, major government bonds coming due in 10 years are near the upper end of their yield range, which has implications for consumer- and corporate-borrowing costs alongside a host of other costs surrounding consumers. How rates behave with central banks evaluating Iranian inflation implications and investors evaluating sovereign indebtedness remain key short- and longer-term focal areas.

Markets had to digest a temporary interruption to the current fragile cease fire, with Thursday’s reports of Iran/U.S. clashes coupled with ongoing Israel/Hezbollah operations. The U.S. sent a proposal to end the war on Wednesday, which included an offer to reopen the Strait of the Hormuz and for the U.S. to end its Iranian port blockade. How and when Iran responds remains an open question, but as investors, the key variables we are focused on include shipping costs and the ultimate endgame for energy costs.

Despite some relief from extreme prices registered during the conflict’s deepest throes, the energy and chemicals complex remains significantly elevated relative to where it was pre-crisis. As we have discussed, our largest concern is about regional pressures remaining disproportionate and enduring. More specifically, countries like Germany and the UK are experiencing natural gas prices 50% higher than they were at the start of the year. As the conflict’s duration extends, the more difficult it will be for energy distribution to resume, and regions with weaker economic prospects may become further challenged.

An important issue within the energy analyst community is the distinction between the “paper price” (where financial instruments on screens appear to trade) and the “physical price,” or the actual cost, of a commodity for a user in a given geography. Issues that can drive a wedge between the paper price and the physical price include transportation mechanics and costs, product variance (e.g. sourness or heaviness of crude relative to refiner availability), available product/supply, and storage availability. The paper/physical price variance can be considerable in practice. How supply comes back online and how more energy-dependent countries respond will be important.

Somewhat lost in the shuffle but of integral importance is the meeting between Chinese President Xi Jinping and President Trump next week. With variables like rare earths availability and broad trade constructs firmly on investors’ minds, energy and broad commodity market implications run deep. The connection between China and Iran is well documented. While we expect that dynamic to be important in forthcoming conversations, we also expect that the U.S. and China will take a longer-term view on their unique relationship.

¹ CoreWeave: Quarterly Results. Accessed 8 May 2026.

² Northern Trust Wealth Management Research from Bloomberg consensus earnings estimates, accessed on terminal 8 May 2026.

³ McDonald’s Investor Information and Resources. Accessed 8 May 2026.

⁴ Shake Shack: Investor Relations. Accessed 8 May 2026.

⁵ News: Planet Fitness, Inc. Announces First Quarter 2026 Results. Accessed 8 May 2026.

⁶ Whirlpool: Investor Relations. Accessed 8 May 2026.

⁷ Tracking the K-Shaped Economy: Who’s Driving Spending. Liberty Street Economics. Accessed 8 May 2026.

⁸ Ibid.