May 15, 2026

The major averages finished the week flat as growing inflationary and geopolitical concerns continue to threaten the AI-driven rally. The rally into record territory continued early in the week despite President Trump's rejection of Iran's latest proposal to end the conflict in the Middle East. However, a hotter-than-expected Consumer Price Index (CPI) report on Tuesday, combined with rising crude oil prices, triggered a pullback in the major indexes as annual inflation climbed to its highest level in nearly three years. On Wednesday, stocks initially traded lower after the Producer Price Index (PPI), a gauge of wholesale inflation, rose 1.4% in April, marking the largest monthly increase since March 2022. Investors ultimately shrugged off the inflation data and instead rotated back into large-cap AI and technology stocks amid optimism surrounding President Trump's trip to China for a high-stakes summit aimed at improving relations and negotiating the reopening of the Strait of Hormuz.

AI infrastructure announcements sent Nvidia to another record Thursday and lifted the major averages to fresh highs, with the DJIA reclaiming 50,000 as momentum further accelerates. However, U.S. equities retreated on Friday as rising inflation concerns sparked a jump in Treasury yields and oil prices. Sector performance weakened beneath the surface, with Consumer Discretionary (XLY), down 3.67%, leading the underperformers alongside Real Estate (XLRE), Materials (XLB), and Utilities (XLU). Meanwhile, rising oil prices boosted the Energy (XLE) sector, while Health Care (XLV), Consumer Staples (XLP) and Technology (XLK) also outperformed.

For the period, the DJIA was lower by 82.99 points (-0.2%) and settled at 49526.17. The S&P 500 was flat as it gained 9.57 points (0.1%) and closed at 7408.50. The NASDAQ dropped by 21.94 points (-0.1%) finishing at 26225.14. The small cap Russell 2000 fell by 67.91 points (-2.4%) and settled at 2793.30.

Market Outlook: The technical condition of the market remains positive, although several measures suggest it is increasingly overbought, which may indicate the market is near a peak. Technical indicators for the major averages remain in bullish territory, with MACD—a short-term trend gauge—still positive but Momentum, as measured by the 14-day RSI, has started to retreat from overbought levels. The S&P 500 continued to post record highs this week while fewer than 60% of its underlying components traded above their respective 50-day and 200-day moving averages. The only other period when this specific combination occurred was between December 1998 and March 2000—the final stage of the dot-com melt-up. The Market Edge Cyclical Trend Index (CTI) has shifted into a negative configuration this week. That reflects the influence of longer-term market cycles and may be another indication that the major averages are approaching a near-term peak.

A chart of these indicators can be found by going to the Market Edge Home page and clicking on Market Recap, which is on the right-hand side of the page just below the Second Opinion Status numbers.

Cyclical Trend Index (CTI): The underlying premise of the CTI is that the market, as measured by the Dow Jones Industrial Average (DJIA), tends to move in cycles that often resemble sine waves. There are five identifiable cycles, each with different time durations at work in the market at all times.

Currently, the CTI is Negative at -3, down five notches from the previous week. Cycles A and B are bullish, while Cycles C, D and E are bearish. The CTI configuration is projected to remain negative through mid-summer.

Momentum Index (MI): The market momentum is measured by comparing the strength or weakness of several broad market indexes to the DJIA. Readings of -4 and lower are regarded as bearish since it is an indication that a majority of the broader based market indexes are weaker than the DJIA on a percentage basis. Conversely, readings of +4 or higher are regarded as bullish.

The Momentum Index is Neutral at 0, down six notches from the previous week. Breadth was mixed at the NYSE as the Advance/Decline line lost 2770 units while the number of new 52-week highs exceeded the number of new lows on three out of five sessions. Breadth was also mixed at the NASDAQ as the A/D line fell by 3994 units while the number of new highs out did the new lows on three out of five sessions. Finally, the percentage of stocks above their 50-day moving average decreased to 61.7% vs. 66.6% the previous week, while those above their 200-day moving average fell to 57.3% vs. 60.0% prior. Readings above 70.0% denote an overbought condition, while below 20% is bullish.

Underlying market breadth remained mixed to negative. The NYSE Advance/Decline Line, a leading indicator of market direction, pulled back from the record highs reached last week. The

NYSE A/D Line has remained range-bound since mid-April, suggesting broader market participation has weakened during the current advance.

Sentiment Index (SI): Measuring the market's Bullish or Bearish sentiment is important when attempting to determine the market's future direction. Market Edge tracks thirteen technical indicators listed below that measure excessive bullish or bearish sentiment conditions prevalent in the market. The Sentiment Index is Negative at -2, up one notch from the previous week.

Investor sentiment is neutral to negative this week. The American Association of Individual Investors (AAII) saw retail bulls increase by 1.0 percentage point to 39.3%. Bullish sentiment remains above their historical 37.5% for the fourth consecutive week. However, the National Association of Active Investment Managers (NAAIM) Exposure Index shows money managers pulled back by nearly 20% from last week, landing at 77.3%. The reduction in exposure to equities fell back to the beginning of April levels.

Market Posture: Based on the status of the Market Edge, market timing models, the 'Market Posture' is Bearish as of the week ending 05/15/2026 (DJIA - 49526.17). For a closer look at the technical indicators and studies that make up the market timing models, check out the tables located below.

Industry Group Rankings: What's Hot (6) - What's Not (24): The following are the strongest and weakest Industry Groups for the period ending 5/14/26. Strongest: Technology Hardware, Conglomerates, Agricultural and Telecommunications. Weakest: Paper & Forest Products, Building Materials, Consumer Goods and Infrastructure.

The top performing ETF categories for the week ending 5/14/26 were: Specialty Technology (+6.75%), Sector-Alternative Energy (+5.65%), Commodity-Energy (+5.02%), Sector-Energy (+4.43%) and Commodity-Base Metals (+4.39%). The weakest categories were: Specialty Utilities (-7.04%), Specialty-Retail (-2.03%), Sector-Consumer Discretionary (-1.87%) and Specialty Real Estate (-1.34%).

By David L. Blake, CMT