Key Risks Lurking on the Horizon

Research evidence excerpt

Key Risks Lurking on the Horizon

Macro Research

Portfolio Strategy

Accounting and Tax Policy

Special Situations

May 18, 2026

Hotter Inflation Prints & Higher Yields Are Beginning to Weigh on Tech

Key Points

Taking a Breather…Kinda. Stocks ended last week on shaky ground as Friday’s selloff over

higher global bond yields sent markets (most importantly Tech) lower. The S&P 500 notched

a small weekly gain (+0.2%), marking the 7th in a row. Last week’s price action was choppier

than the prior 6 weeks (stocks weren’t going up every day!) as inflation reports came in hotter

than expected showing the impact of the Iran war and how elevated energy prices began to

filter into economic data. We aren’t shocked by the trading as we previously wrote last week

that the catalyst path for stocks was skewing negative with fewer key AI related companies

reporting earnings against a backdrop where the momentum factor is now very stretched.

With a lighter week of economic data ahead, investors will be keyed in on key earnings reports

from NVIDIA (5/20) and Walmart (5/21) for the health of the AI theme and consumer.

Key Risks from Now Until Year End. With the market rally losing steam on Friday, in this

note, we highlight 4 key risks we see lurking on the horizon: 1) Japanese Yen Strengthening

precipitating another carry trade unwind (watch out for Japan CPI on 5/21!), 2) Stickier Inflation

Testing New Fed Chair Warsh, 3) AI Capital Spending Disappointments, and 4) Private Credit

Concerns. Our sense is that Friday’s price action was the market beginning to price in an

environment where our stickier inflation risk plays out. We see markets at a fork in the road

where either oil prices fall over the next 6 weeks and the market broadens out with