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OVERVIEW

Big Earnings vs. Geopolitics

This week in the U.S. markets was defined by a tense tug-of-war between strong corporate fundamentals and growing geopolitical instability.

While the S&P 500 reached a record high of 7,365 mid-week, early gains were dampened by escalating tensions in the Middle East, which pushed crude oil prices back above $100 per barrel.

Despite this volatility, investor sentiment remained buoyed by an impressive start to the Q1 2026 earnings season. Strong reports from heavyweights like Apple and ExxonMobil helped offset broader macroeconomic fears, illustrating a market that is currently resilient but highly sensitive to global energy supply risks.

The Numbers That Matter

This week was largely defined by volatility driven by shifting geopolitical tensions in the Middle East, specifically involving the U.S. and Iran, which directly impacted energy prices and investor sentiment ahead of the April jobs report.

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LAGGING SIGNAL

The Circular AI Economy: A House of Cards?

The AI spending boom looks impressive on the surface — but look closer and the foundation gets shakier.

The numbers that should concern you:

• The four major hyperscalers (Amazon, Meta, Microsoft, Alphabet) are set to spend ~$700 billion combined in capex in FY2026

• Roughly 50% of their combined revenue backlogs trace back to just two companies — Anthropic and OpenAI

• Anthropic won't reach profitability until FY2028. OpenAI not until FY2030 at the earliest

Why this matters: The hyperscalers are essentially funding their own customers. Anthropic and OpenAI burn through that capital, much of it cycling straight back to the hyperscalers as cloud compute spend. It's a circular loop — and it only holds together as long as the financing keeps flowing.

How it's being financed: Much of this infrastructure buildout is being funded through debt, including special purpose vehicles (SPVs). Credit markets are expected to fund over $1 trillion in global data center spending through 2028.

The bottom line: When two cash-burning companies anchor half the revenue backlog of the world's largest technology spenders, that's not a growth story — it's a concentration risk hiding in plain sight.

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THIS WEEK’S ECONOMIC CALENDAR 📅

The data behind the headlines

The first week of May 2026 was defined by a critical divergence between a cautious Federal Reserve and a labor market that continues to surprise on the upside. Here is your dashboard of the key dates and data points that moved the needle:

• May 5 (Tuesday): ISM Services PMI & RBA Hike

  • The Data: The Institute for Supply Management (ISM) Services PMI edged lower to 53.6, while the Reserve Bank of Australia (RBA) raised its cash rate by 25bps to 4.35%.

  • The Context: While U.S. services remain in expansion mode, the RBA's move signaled that global inflation "stickiness" remains a threat, keeping pressure on other central banks to remain hawkish.

• May 6 (Wednesday): ADP Employment & SOMA Directive

  • The Data: ADP Private Payrolls gained 109,000 jobs, comfortably beating the 99,000 consensus estimate.

  • The Context: This private sector strength served as a "hot" preview for Friday’s jobs report, reinforcing the narrative that the economy is not yet cooling enough to warrant immediate rate cuts.

• May 8 (Friday): April Jobs Report (NFP)

  • The Data: Non-Farm Payrolls (NFP) were the week's main event, with the market watching for wage pressure through Average Hourly Earnings and the Unemployment Rate (holding at 4.3%).

  • The Context: The results solidify the "higher for longer" stance as the labor market maintains its resilience despite multi-year high interest rates.

• Corporate Earnings Spotlight: AI & FinTech

  • The Data: Heavyweights like Palantir and AMD reported early in the week, followed by Datadog soaring 31% on blockbuster results.

  • The Context: Earnings season is separating the "AI winners" from the laggards; while software names like Datadog outperformed, Coinbase struggled with a surprise Q1 loss due to crypto volatility.

Looking Ahead: Keep an eye on Tuesday, May 12, for the U.S. CPI Inflation report, which will be the next major catalyst for the FOMC's June decision.

The Sentiment Trap

Housing's Hidden Tax on the U.S. Economy

Most investors track housing through home prices or mortgage rates. But the more important signal right now is what housing is doing to GDP — and to the consumer psychology that drives it.

The numbers are stark:

• Housing investment fell 8% year-over-year in Q1 2026

• That alone subtracted 0.31% from Q1 GDP growth

• Consumer sentiment is already deeply negative — and housing is a primary driver

Why this creates a feedback loop:

• Weak housing → falling consumer confidence

• Falling confidence → reduced spending across the broader economy

• Reduced spending → slower growth → even weaker housing demand

What investors should watch:

• The November midterms are approaching, and housing affordability will be a defining issue

• Political pressure could force policy responses — but few credible catalysts exist to reverse the trend in the near term

• Homebuilder stocks remain exposed as margin compression continues

It seems evident that housing is no longer just a real estate story. It has become a macro headwind with compounding effects on growth, sentiment, and consumer spending. Investors who are not accounting for this drag in their broader portfolio positioning may be underestimating the downside risk ahead.

BETWEEN THE LINES

What a Baby Clothes Company Just Told Us About the Next Decade

This week, baby clothes company Carter's reported its first quarter earnings for 2026. Nobody in the financial press led with what we think was the most interesting line. Buried in the prepared remarks — three sentences, almost a footnote — was one of the quieter demographic signals of the quarter: Gen-Z is having babies, and they're spending.

What management actually said

• New Gen-Z consumers are being added to their active buyer file

• They're gravitating toward higher AUR (average unit retail) products — not the discount rack

• A limited Disney x OshKosh collaboration "overpenetrated toward Gen-Z" at more than double the average selling price

Why it matters beyond the stock

• Gen-Z's oldest members are now 28–29. Family formation is accelerating

• This cohort is entering peak spending on children's goods, home, and healthcare — exactly where consumer companies need durable demand

• And critically: they're not trading down. They're paying up for brand and aesthetics

The macro bull case isn't a rebound in boomer spending or a soft landing for millennials — it's a 70-million-person generation that just started buying strollers, and early data suggests they have both the taste and the willingness to spend.

How to position for it

The Carter's data point is one thread. Pull it and you find the whole fabric: a generation raised on Instagram, TikTok, and Amazon Prime is now forming households — and they're doing it digitally. They don't browse malls. They discover brands through creators, buy through apps, pay through fintech, and stream everything in between. The companies built to serve exactly that behavior aren't legacy retailers. They're the platforms, the payment rails, the content pipes, and the electric vehicles sitting in the driveways of first-time homeowners.

This is precisely where the Future of Consumer Tech strategy comes into play. While most investors are still fixated on tariff headlines and margin compression in traditional retail, this strategy is already positioned in the infrastructure that Gen-Z runs their entire consumer life through — e-commerce platforms, fintech payment rails, social media and streaming channels, and the EV market they're about to enter as first-time car buyers.

These aren't speculative bets on what Gen-Z might do. They're the companies this cohort is already using every single day.

Why it fits this moment:

• Tariff-driven volatility has compressed valuations across consumer and tech — creating entry points in exactly the companies best positioned for what comes next

• The strategy rebalances monthly, which matters in a policy environment where a single announcement can reprice an entire sector in 48 hours

• Peak Gen-Z household formation spending is still 3–5 years out — the companies that capture loyalty now compound it over the longest possible runway

• The digital discovery loop Carter's described — social, influencers, connected TV — is the revenue model of every major holding in this strategy

The strategy runs automatically, so you're not trying to time an entry. You're simply getting positioned before the trend becomes consensus.

The demographic tide is already moving. This is how you get in front of it.

VIEW FROM THE HELM

Daniel Simkowitz (Co-President of Morgan Stanley)🎙️

At the Milken Institute Global Conference earlier this week (May 4, 2026), Daniel Simkowitz, Co-President of Morgan Stanley, called out the disconnect between current market "noise" and the underlying opportunity in private credit.

Simkowitz argued that excessive headlines regarding risks in the private debt markets—often driven by concerns over retail access and liquidity—have created a cloud of skepticism that savvy financiers can exploit. He views this skepticism not as a warning sign, but as a strategic opening to generate alpha by providing the capital necessary to fuel a looming M&A wave.

Why It Matters:
Simkowitz believes a massive resurgence in Mergers and Acquisitions (M&A) is imminent, driven by pent-up demand and the need for scale in an AI-driven economy. His thesis is simple:

• Contrarian Opportunity: The negative sentiment in private credit makes it harder for some to find funding, allowing sophisticated lenders to dictate terms and capture higher returns.

• Financing the Wave: As the dealmaking pipeline reopens, those who remain "on the front foot" in asset management and investment banking will be the primary beneficiaries.

• The Pursuit of Alpha: By acting as the financier for this next cycle of corporate consolidation, firms can generate excess returns that the broader, "noisier" market is currently missing.

The Bottom Line:
While the headlines focus on risk, the leadership at Morgan Stanley is focused on the revival of the investment banking cycle and the lucrative role of being the market’s primary engine for M&A financing.

🗳️ Reader Poll: The Vibe Check

BOTTOM LINE

The Fog of Fundamentals

If this week proved anything, it's that the market's old playbook is being rewritten in real time. Strong earnings and resilient labor data would, in any normal cycle, be unambiguously bullish signals. But we no longer live in a normal cycle. Today, a single headline out of the Middle East can erase a morning's gains, a demographic footnote buried in a baby clothes earnings call can outline the next decade of consumer spending, and a circular AI financing loop worth hundreds of billions can simultaneously look like the greatest growth story and the greatest concentration risk of our generation.

The throughline across all of it is complexity. Housing is no longer just a real estate story — it's a GDP story. AI capex is no longer just a technology story — it's a credit story. Gen-Z is no longer just a cultural story — it's the next major consumer cycle, already quietly underway.

For investors, the challenge isn't identifying the right thesis. Most of the theses this week are fairly legible: AI infrastructure has concentration risk baked in, housing is a macro drag, private credit is mispriced by sentiment rather than fundamentals, and a 70-million-person generation is just beginning its peak spending years. The harder challenge is executing consistently against those theses in an environment where volatility can reprice an entire sector before you've finished reading the morning brief.

That's precisely why more investors are turning to systematic, rules-based strategies — ones that remove the friction of timing, second-guessing, and emotional override from the equation entirely. In a market this sensitive to noise, the edge increasingly belongs to those who've decided in advance how they'll respond to it, and let the system do the rest. This is precisely why platforms such as Surmount.ai have high-value utility to the modern investor.

The signal is there. The question, as always, is whether you'll act on it — or talk yourself out of it at exactly the wrong moment.

— Surmount Markets