This weekly recap covers 11 to 17 May 2026. As always, market pricing data runs through Friday's close, while the weekend matters for the setup into the following week. The prior week had answered one question — can AI momentum absorb geopolitical shocks? — with a clear yes. This week asked a different one: can it absorb an inflation comeback?
The answer was yes, but not comfortably. CPI came in hotter than expected on Tuesday, sending the probability of a December Fed rate hike from 21.5% to 30.5% in a single session. PPI on Wednesday posted its largest monthly increase in four years, entirely driven by the oil shock flowing through the supply chain. Both prints challenged the market's assumption that the path from Hormuz disruption to consumer prices would be slow and manageable. It was not.
And yet, the S&P 500 and Nasdaq closed the week at record highs. Chips stepped in every time inflation tried to break the tape. Morgan Stanley raised its year-end S&P 500 target from 7,800 to 8,000. Trump flew to Beijing with Jensen Huang and Elon Musk. The week was a collision between two competing market forces — and AI won again.
Quick highlights
- Monday held steady: Dow +0.19%, S&P 500 +0.19%, Nasdaq +0.10%. The AI trade provided support despite renewed oil and Hormuz concerns. Both the S&P 500 and Nasdaq set new record closing highs. By this point, 440 S&P 500 companies had reported earnings, with 83% beating expectations.
- Tuesday was the inflation shock: CPI came in hotter than expected. Dow +0.11%, S&P 500 -0.16%, Nasdaq -0.71%. The probability of a December Fed rate hike rose from 21.5% to 30.5%.
- Wednesday recovered on chips despite PPI: Dow -0.14%, S&P 500 +0.58%, Nasdaq +1.20%. April PPI rose 1.4% month over month — the largest monthly increase in four years — driven by the Hormuz energy shock. Yet chip stocks led a recovery, and both the S&P 500 and Nasdaq closed at records.
- Thursday and Friday extended the advance: retail sales came in broadly in line. The S&P 500 reached 7,501.24 and the Nasdaq 26,635.22 by Thursday's close — both at records. Morgan Stanley raised its year-end S&P 500 target to 8,000.
- The geopolitical backdrop grew more complicated: Trump described the ceasefire as "on life support" after Iran rejected a U.S. proposal. The Trump-Xi meeting in Beijing covered trade, Taiwan, rare earths, and a potential Chinese role in mediating the Iran conflict.
Numbers snapshot: 11–17 May 2026
- May 11: Dow +0.19%, S&P 500 +0.19%, Nasdaq +0.10%. Record closes. 440 S&P 500 companies reported; 83% beat, aggregate earnings growth 28.6% YoY (up from 14.4% expected on April 1).
- May 12: Dow +0.11%, S&P 500 -0.16%, Nasdaq -0.71%. CPI hotter than expected. December Fed hike probability: 30.5% vs 21.5% prior day. Ceasefire described as "on life support."
- May 13: Dow -0.14%, S&P 500 +0.58%, Nasdaq +1.20%. April PPI +1.4% MoM — largest monthly gain in four years. Chips recovered. S&P 500 and Nasdaq at records.
- May 14: Dow +0.75% to 50,063.46, S&P 500 +0.77% to 7,501.24, Nasdaq +0.88% to 26,635.22. Retail sales in line. Import prices recorded their largest gain since October 2022, driven by energy.
- Macro: CPI above expectations. PPI +1.4% MoM, largest monthly increase in four years. Import prices biggest rise since October 2022. December Fed hike probability moved from ~21% to ~30%.
1) Inflation returned — and the market had to absorb it
Tuesday's CPI print was the week's most important data point. The reading came in above expectations across the board, and the immediate market response was textbook: Nasdaq -0.71%, rates up, probability of a December rate hike jumping ten percentage points in a single session. That kind of repricing does not happen on noise — it happens when data genuinely moves the monetary policy calculus.
Wednesday's PPI made the picture worse, not better. April producer prices rose 1.4% month over month, the largest single-month increase in four years. The driver was clear — energy prices elevated by the Hormuz disruption were flowing through the supply chain into producer costs faster than most models had assumed. Import prices then added another layer on Thursday, recording their largest increase since October 2022. Three consecutive days of inflation data pointing in the same direction is not a coincidence. It is the Hormuz shock landing on the real economy.
Kansas City Fed President Jeffrey Schmid added the Fed's voice to the conversation, describing inflation as the most pressing risk to the U.S. economy. That framing — "market wants AI, Fed sees inflation" — captures the week's essential tension precisely. The market had not fully reconciled those two readings. It had simply chosen to continue buying chips and hope the Fed would not have to act.
2) The earnings season closed with exceptional strength
By Monday, the Q1 earnings season was essentially complete, and the final numbers were striking. Of the 440 S&P 500 companies that had reported, 83% had beaten expectations. The aggregate earnings growth estimate had risen to 28.6% year over year — nearly double the 14.4% that analysts had projected on April 1.
That revision is worth sitting with. Wall Street had expected a strong quarter. What it got was a quarter nearly twice as strong as expected, in the middle of a geopolitical shock that closed a major shipping corridor and sent oil prices sharply higher. That combination — war disruption and earnings strength — is unusual. It suggests that U.S. corporate earnings have become structurally more resilient to supply disruption than the prior cycle implied, partly because technology-heavy businesses are less physically exposed to logistics shocks than industrial-era companies were.
The earnings season's conclusion also shifted the market's attention forward. With Q1 largely behind it, the tape would need new catalysts. The candidates were clear: Nvidia's upcoming results, the trajectory of retail earnings, and any movement on the Iran diplomatic front. The market was buying the future, not the past.
3) Trump-Xi in Beijing: the week's most consequential meeting
The Trump-Xi meeting in Beijing was the geopolitical event of the week, and its composition was as notable as its agenda. The U.S. delegation included Jensen Huang of Nvidia and Elon Musk — a combination that signals how deeply AI and technology have become embedded in great-power diplomacy. The agenda covered trade access, Taiwan, rare earth supply chains, and the possibility of Chinese mediation in the U.S.-Iran conflict.
The rare earth dimension is particularly relevant for markets. China controls a dominant share of global rare earth processing, and several of the materials involved are critical inputs for semiconductor manufacturing, EV batteries, and AI hardware. Any agreement — or breakdown — in that dimension would have direct consequences for the companies at the centre of the AI trade. The market was watching, even if the session-by-session price action did not fully reflect the stakes.
The Iran mediation angle added another layer. If China could play a constructive role in bringing the U.S.-Iran conflict toward resolution, it would simultaneously de-escalate the oil shock, reopen Hormuz, and improve the U.S.-China relationship. That scenario was speculative but not implausible, and it gave the market a diplomatic option to price alongside the military one.
4) Morgan Stanley chases the rally to 8,000
Morgan Stanley's decision to raise its year-end S&P 500 target from 7,800 to 8,000, citing earnings strength, is a useful data point for understanding market psychology at this stage of the rally. When Wall Street's sell-side strategists start revising targets upward, it almost always means one of two things: either the fundamentals genuinely justify higher levels, or the analysts are chasing price action that has already happened.
In this case, the earnings justification was real. A 28.6% earnings growth rate is exceptional, and it provides fundamental cover for a target revision. But the timing — raising targets after the market is already up more than 16% from its late-March lows — means that much of the upside has already been captured. The target revision tells you where the market has been more than where it is going.
The more useful signal from institutional behavior was the December rate hike probability moving to 30%. That is the market pricing in a scenario where the Fed is forced to act against inflation — a scenario that would directly challenge the bull case. Sell-side targets rising while rate hike probabilities also rise is an unusual combination, and it reflects the genuine uncertainty about whether the current market level is justified or stretched.
5) What the week tells you
The first conclusion is that the inflation trade is back. Three consecutive sessions of CPI, PPI, and import price data all pointing above expectations is not coincidence — it is the energy shock passing through the supply chain on schedule. The market has absorbed it so far, but the Fed's reaction function has shifted. A rate hike before year-end is now a real possibility, not a tail risk.
The second conclusion is that AI is the market's inflation hedge, at least psychologically. Every time CPI or PPI tried to break the tape, chips stepped in. That dynamic can persist as long as AI earnings are growing fast enough to absorb higher discount rates. The moment AI earnings disappoint at scale, the inflation news will matter much more.
The third conclusion is that the diplomatic picture is more complicated than the market is pricing. A ceasefire described as "on life support" while the U.S. president is in Beijing seeking Chinese mediation is not a resolution — it is a negotiation that has not yet found its floor. The oil risk remains embedded in the system, even if equity markets have decided to look past it.
The setup going into the following week was defined by two events: Nvidia earnings and retail earnings. Both would test the bull case from its two most important angles — AI infrastructure demand and consumer resilience.
Sources: primary / checkable
- Reuters, S&P 500, Nasdaq at records as chips offset inflation data: reuters.com
- Investopedia, Markets News, May 12–14, 2026: investopedia.com
- Bureau of Labor Statistics, April 2026 CPI: bls.gov
- Bureau of Labor Statistics, April 2026 PPI — largest monthly gain in four years: bls.gov
- CME FedWatch, December 2026 Fed hike probability: cmegroup.com
- FactSet, S&P 500 Q1 2026 earnings scorecard — 83% beat rate, 28.6% growth: factset.com
- Reuters, Morgan Stanley raises S&P 500 year-end target to 8,000: reuters.com
- Reuters, Trump-Xi meeting in Beijing: trade, rare earths, Iran mediation: reuters.com
- Reuters, Kansas City Fed's Schmid: inflation is the most pressing risk: reuters.com
- Reuters, Trump says Iran ceasefire "on life support" after proposal rejected: reuters.com