Geopolitical Tensions Renewed Last Week

Scott Poore, AIF^®, AWMA^®, APMA^®

May 18, 2026

Despite a strong week, risk assets sold off on Friday as news of renewed tensions in the Middle East resurfaced. Market concentrations have increased since equity markets made lows in late March of this year. While the S&P 500 Index is up more than 17% since the March 30th low, it's been the concentration in the top 10 names - especially the Mag 7 names - that has driven equities higher so quickly. Over that same time period, the equally-weighted version of the S&P 500 Index is up less than half as much, while the Mag 7 are up more than 27%. While concentrations in benchmarks should be monitored, the condition can exist for quite some time before markets correct. Currently, approximately 39% of the S&P is comprised of its top ten holdings.¹ It's the largest amount of concentration in the top 10 in the last 3 decades.¹ However, periods such as 1990-2000 and 2018-2021 saw steadily increasing concentration.² Last week the Consumer Price Index came in as expected at +0.6% for April.³ That's less than the +0.9% reading in March, but still an unwelcome reading. As it was in March, the leading contributor to the CPI increase was oil-related. The year-over-year reading for inflation (+3.8%) is now higher than the historical average of 3.5% for the first time since October of 2023.⁴ So far, higher oil is not pushing the majority of consumers to stop spending. Retail Sales for April were released this week at the expected rate of +0.5%, along with Redbook Sales which soared to +9.6% on a year-over-year basis.^{5 6} The lower income group is likely feeling the pinch at that gas pump, but middle-to-higher income groups are continuing to spend at solid rates. It is possible there could be some good news out of last week's summit between the U.S. and China. According to reporting from the summit, it would appear that China has expressed interest in helping solve the issue of the Strait of Hormuz being blocked.⁷ A resolution in the Middle East would help with inflationary pressures, but the clock is ticking as a slowdown in consumer spending would limit economic growth. So far, the Atlanta Fed continues to expect higher growth as their GDPNow metric has moved higher to +4.0% for the 2nd quarter.⁸ The S&P 500 Index is up a little more than 8% this year, and while that's about average for the benchmark, average isn't so average when it comes to investing. Only four times in history has the S&P 500 gained between 8-10% for the full calendar year. Investors would be wise to check their asset allocation to make sure it matches their respective risk tolerance instead of focusing on the noise in the marketplace.

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Disclosures

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