TradingKey Wall Street Weekly Report: Geopolitical Risks Push up Oil Prices; US Stocks Rise Narrowly, Focusing on AI and Defense Sectors

Macroeconomic Landscape:

The macroeconomic landscape for the week of May 18-24, 2026, was primarily influenced by persistent geopolitical tensions and evolving monetary policy signals. The ongoing U.S.-Iran conflict and its impact on the Strait of Hormuz continued to constrain global oil supply, keeping Brent crude near multi-year highs and sustaining inflation concerns. Federal Reserve officials expressed intensifying concerns about inflation stemming from the Iran war, with a growing number considering laying the groundwork for a possible rate hike. Kevin Warsh was named the new Federal Reserve Chairman, succeeding Jerome Powell, and is scheduled to be sworn in at the end of this week. Key economic data released included PMI data for Manufacturing and Services sectors, ISM Services New Orders, and ISM Services Prices. Housing Starts, Building Permits, and Weekly Jobless Claims were reported. The University of Michigan's preliminary consumer sentiment for May reached an all-time low.

Market Performance Overview:

U.S. equity markets posted positive gains for the week, with the S&P 500 on track for its eighth consecutive weekly advance. The S&P 500 index was up approximately 1%, the Nasdaq Composite gained 0.7%, and the Russell 2000 increased by 2.7% for the week. Energy was the standout sector, surging 7.03%, while Information Technology also gained 1.21%. Consumer Discretionary was the worst performer, falling 3.04%. The equal-weighted S&P 500 fell 1.29%, and small-cap benchmarks declined sharply, indicating a rotation towards larger, more defensible names.

Key Events Analysis:

The Federal Open Market Committee (FOMC) Minutes from the April 28-29 meeting were released on Wednesday, May 20, revealing a divided committee with increasing hawkish sentiment regarding inflation and potential rate hikes. Several Federal Reserve officials, including Governor Michael S. Barr and Governor Christopher J. Waller, delivered speeches. Corporate earnings continued with notable reports. Nvidia announced "solid beat and raise" quarterly results on Wednesday, May 20, posting record revenue of $81.6 billion and projecting $91 billion for the next quarter, notably excluding China Data Center revenue due to geopolitical restrictions. Other companies reporting included Palo Alto Networks, Home Depot, Keysight Technologies, Analog Devices, Intuit, Lowe's Companies, Medtronic, Target, and TJX Companies. A U.S.-China leaders' summit concluded with investor disappointment over the lack of major agreements on the Middle East conflict.

Flows & Sentiment:

Market sentiment remained sensitive to geopolitical developments, particularly surrounding the U.S.-Iran conflict and oil prices. The University of Michigan's preliminary consumer sentiment for May recorded an all-time low. Investors rotated towards larger, more defensible equity names, moving away from small-cap and equal-weight strategies. Market volatility was observed as extremely high, with significant gap risks at week openings.

Overall Assessment:

The market's logic for the week was primarily driven by geopolitical tensions in the Middle East and their persistent impact on oil prices and inflation expectations, often overshadowing traditional economic indicators. Despite a resilient performance in major indices, the market exhibited a narrow rally, heavily concentrated in mega-cap technology and AI-related stocks. The current phase of market behavior is characterized by a "wait-and-see" approach regarding geopolitical outcomes, leading to unpredictable price movements.