Markets are about to be left without the steady drumbeat of earnings. Expect stocks to get more volatile from here as inflation, war, and a huge stock listing tug investors in various directions.
It's been another positive earnings season on the whole. More than 80% of companies in the S&P 500 have delivered upbeat earnings surprises, with an average growth rate of nearly 28% -- the highest since the end of 2021, according to FactSet. That has pushed the benchmark U.S. index to a series of record closes, driven by tech stocks.
But clouds are gathering. With hopes of a quick resolution to the U.S.-Iran war fading, government bonds have sold off, with the yield on the 30-year Treasury hitting its highest level in nearly two decades. The Federal Reserve appears to have little room to cut interest rates as surging energy prices drive up inflation -- something even President Donald Trump appeared to acknowledge, saying in a newspaper interview he would allow incoming Federal Reserve Chair Kevin Warsh to "do what he wants to do," in contrast to his pressure on predecessor Jerome Powell to lower rates.
Recent pullbacks in hot chip stocks betray some nervousness around how far the artificial-intelligence trade can propel the market. Those worries could become more marked with the entry of Elon Musk's SpaceX to public markets. Its initial public offering, set to be the largest ever, is expected in June. It will test market appetite for huge valuations on high-spending companies -- any hiccups would bode poorly for AI companies OpenAI and Anthropic ahead of their own expected IPOs later this year.
Earnings season provides a reminder of the strength of corporate America but uncertainty could flood back in their absence.
-- Adam Clark
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Everyone Owns Chip Stocks. What Happens Next?
A widely watched report on fund managers showed a record rise in equity allocations and a big reduction in cash levels as stocks hit new records and earnings showed the biggest gap between forecasts and profits since the pandemic. Bank of America's monthly report also showed a sense of concern.
-- The report tracks 200 fund managers responsible for half a trillion
dollars. These managers believe a quick end to the Iran war, a reopening
of the Strait of Hormuz, and Federal Reserve rate cuts within the next 12
months are all tied to the market's hottest trade: buy the chip sector.
-- Three quarters of respondents said "long global semiconductors" was the
market's most-crowded trade, topping inflationary pressures at around
40%. The most cited "tail risk" to the market was deemed to be a credit
event, which around 34% of those surveyed said could come from AI and the
hyperscalers.
-- Two-thirds of the S&P 500's gains since the nadir of late March, adding
around 13% to the benchmark and taking it to a series of record highs,
traces to the megacap tech trade. A Magnificent Seven index has risen
more than 18% since the start of the second quarter.
-- The PHLX Semiconductor index has surged nearly 50% since hitting a
year-to-date low on March 30. But cracks are starting to appear. The
semiconductor benchmark traded lower for the third consecutive session on
Tuesday, putting its decline from last week's record high to around 9.8%,
dragging the Nasdaq down.
What's Next: In a separate report, Bank of America noted that the VanEck Semiconductor ETF, which tracks the same stocks in the PHLX Semiconductor Index but uses different weightings, is trading in "an extreme overbought condition" that could signal a near-term slide. Nvidia's first-quarter earnings are tonight.
-- Martin Baccardax
The Big Takeaway on Taiwan Semi From Trump-Xi Summit
Taiwan is a persistent geopolitical hot potato in the U.S.-China relationship -- and its tenuous position looms large for investors chasing the artificial intelligence boom. Last week's exchange between President Donald Trump and China's Xi Jinping may have eased investor concerns about Taiwan Semiconductor.
-- When Xi warned that if the U.S. mishandled Taiwan it risked jeopardizing
the U.S.-China relationship and even conflict, reminded investors of
risks confronting Taiwan Semi, a top fund holding globally. The U.S.'s
official policy, which is unchanged, is "strategic ambiguity" toward
Taiwan.
-- But Trump's later remarks in a Fox interview, including his comments that
a $14 billion arms package in Congress for Taiwan could be a "negotiating
chip," suggested a departure from longstanding policy, says Patricia Kim,
senior fellow for the Brookings Institution's John L. Thornton China
Center.
-- "Trump also appears to show greater sympathy for Beijing's narrative that
Taiwan's actions are the primary driver of instability in the Strait,
rather than China's sustained grey-zone pressure, military coercion, and
refusal to engage diplomatically with the current government in Taipei,"
Kim says.
-- But for investors, the shift appears to reinforce the view that the risk
of a Beijing invasion or blockade of Taiwan in the near term is limited.
Though the stock is down 5% since the summit, the decline coincides with
a broader chip stock selloff, and its shares are still up 30% so far this
year.
What's Next: Investors are keeping tabs on three issues that could lead to a re-evaluation of what they are willing to pay for Taiwanese companies. The fate of the arms sales package is one. Taiwan's 2028 presidential election is another. And whether companies shift projects outside Taiwan is the third.
-- Reshma Kapadia
Google Is Updating Search for AI Era, Adding Agent
Alphabet's Google had plenty on display at its annual I/O developers conference, where it unveiled Gemini 3.5 Flash, the newest and fastest version of its Gemini artificial intelligence model with upgrades across search and other Google apps, along with its personal AI agent Gemini Spark.
-- Gemini 3.5 Flash is four times faster than other frontier models, Google
said. Wall Street was expecting an announcement like this, especially
since Google has become a major player in the AI race, alongside
start-ups like OpenAI and Anthropic.
-- Gemini Spark runs around the clock and is integrated in Google's apps,
including Docs and Gmail. Spark can complete recurring tasks, such as
automatically checking monthly credit card statements for hidden fees.
Spark can also scan emails for potentially hidden updates, create Google
Docs using Google Meet notes, and more.
-- Google is bringing more AI and agentic updates to search, which it calls
the biggest upgrade to its search box in over 25 years. Google said the
search box is now more intuitive, and will give users more space to
describe what they are looking for in queries.
-- Google also introduced search information agents, which can scan blogs,
news sites, social media, and more for data that they can send to
customers as updates. AI updates to search have been crucial for Google
to maintain its dominance as AI chatbots become more popular.
What's Next: Spark has begun rolling out to testers, with the Beta expected to go out to Google AI Ultra subscribers in the U.S. next week.
-- Angela Palumbo and Janet H. Cho
Toll Brothers' Earnings Report Shows Luxury Homes Are Selling
Toll Brothers beat second-quarter earnings and revenue estimates, thanks to the strength in luxury home sales. Its results and third-quarter expectations underscore that high-end homes are still selling, even as builders overall remain pessimistic about spring sales as buyers are squeezed by steep costs.
-- The home builder reported earnings of $2.72 a share on revenue of $2.53
billion. CEO Karl Mistry credited the strength of its brand, broad
geographic footprint, wide variety of homes and price points, and long
history of serving affluent customers.
-- Toll Brothers reported 2,491 homes delivered at an average price point of
roughly $1.01 million, which was at the high range of its guidance and
higher than the $979,000 price analysts expected. Its 2,834 signed
contracts were below the roughly 2,898 expected.
-- The builder's home sales gross margin was 23.9%. Adjusted to exclude
interest and inventory write-downs, the margin was 26.2%. As other
builders offer incentives to combat high homebuying costs at the expense
of their margins, Toll Brothers' margins are higher than many of its
peers.
-- Toll Brothers expects third-quarter deliveries of 2,600 to 2,700 units,
and an adjusted home sale gross margin of 25.25%. Sales of homes priced
above $1 million increased 9.3% nationally in April from last year, as
overall sales were flat, according to the National Association of
Realtors.
What's Next: For the full year, Toll Brothers expects to deliver 10,400 to 10,700 units, revised slightly upward at the low end from its first-quarter range, and an adjusted home sales gross margin of 26.1%, slightly higher than its previous 26% guidance.
-- Shaina Mishkin and Janet H. Cho
Chewy CEO Warns Pet Owners Are 'Stretched'
Groceries and fuel are becoming more expensive, and so is dog food. Shipping through the Strait of Hormuz remains disrupted and the CEO of Chewy warned of macro challenges on Tuesday, sparking a selloff in the online pet retailer's stock.
-- "In the last couple of months, we are continuing to see and interpret the
consumer as being more stretched than we were when we entered the year,"
Sumit Singh said at the J.P. Morgan Technology, Media & Communications
Conference. "There's no shortage of data points that supports that."
-- People love spending on their pets, so that could help Chewy. Singh noted
that because 85% of Chewy's sales come from food and medication and only
15% comes from discretionary purchases, the company was "relatively well
insulated" compared with others when tariffs rose.
-- The company's stock dropped 9.1% to $19.66 in regular trading on Tuesday.
Shares were down 41% in 2026 and 55% over the past 12 months through
Tuesday's close.
What's Next: Rising fuel prices tied to the war in the Middle East could be another worry. Chewy hasn't yet forecast what impact they could make on the year, but Singh said the company has "the ability to absorb it again without coming off of our earnings algorithm."
-- Janet H. Cho and George Glover
Dear Quentin,
I was a member of a family LLC. Due to the manner of management and my inability to be heard, I exited the LLC. As it was a timber LLC based on large quantities of land, it had previously been agreed that if you exited, you would receive pennies on the dollar per acre. That is what I received.
About two years after my exit, the rest of the family sold the property, and each member received $3 million. I received $160,000 in total when I left the company. My brother believes that I should share in the profit on the sale of the property and has been giving me a percentage of his share on a yearly basis.
Have I been cheated? Do I have any recourse?
-- Ms. Early Exit
Read the Moneyist's response here.
-- Quentin Fottrell
-- Newsletter edited by Liz Moyer, Patrick O'Donnell, Rupert Steiner
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(END) Dow Jones Newswires
May 20, 2026 06:47 ET (10:47 GMT)
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