The Sovereign yield crisis shakes up a resilient, constructive stock market, just shy of an all-time record. President Trump mulls what to do with Iran after returning from the summit in Beijing, after Tehran insists for tolls to be paid in Hormuz even after the end of the conflict. Earnings are absolutely wonderful, beating all estimates: watch out for Nvidia on Wednesday after close. The outlook for inflation and the path for many Central Banks is strictly tied to geopolitical developments and to the price of oil, now just below $110 a barrel; anything can still happen. The biggest tail risks are the US Economy falling into a recession (25% chance in 2026), resurging inflation caused by high energy prices, revenues/earnings not matching forecasts, a surge in long bond yields coupled with a USD crash, followed by damages done by tariffs/government policies, adverse geopolitical outcomes, and valuations (high multiples).

Major market events 18th – 22nd May 2026

Economic data highlights of the week

Mon: CA – Holiday, CN Unemployment Rate (4/26), CN Industrial Production (4/26), CH GDP (1Q26)

Tue: JP GDP (1Q26), JP Industrial Production (3/26), UK Unemployment Rate (3/26), EU Trade Balance (3/26), US ADP Employment Change Weekly, CA CPI (4/26)

Wed: CN PBoC Loan Prime Rate (5/26), UK CPI (4/26), DE PPI (4/26), EU CPI (4/26), US FOMC Meeting Minutes

Thu: JP Trade Balance (4/26), EU Manufacturing PMI (5/26), EU Services PMI (5/26), UK Manufacturing PMI (5/26), UK Services PMI (5/26), US Philly Fed Manufacturing Index (5/26), US Initial Jobless Claims, US Manufacturing PMI (5/26), US Services PMI (5/26), US Atlanta Fed GDPNow (2Q26), US Fed’s Balance Sheet

Fri: JP National CPI (4/26), UK Retail Sales (4/26), DE GDP (1Q26), EU ECB President Lagarde Speaks

Performance Review

Source: Google

InflectionPoint reports:

* Back after a month (life caught up with me), there are plenty of things to discuss. The news last week are that inflation is soaring in the US, as evidenced by both CPI and PPI, as a direct consequence of the war against Iran. This in turn has changed the expectations of the Fed, which is split 50/50 between holding rates and one hike in December. The rout in Sovereigns has continued, particularly on Friday, pushing UK borrowing costs to the higher level since 1998, and being matched by the worst performance of the S&P 500 since March. Geopolitics changed little after the Trump-Xi summit in China, aside from a notable warning from the Chinese President on the future of Taiwan. Israeli leader Benjamin Netanyahu said that President Trump must make a decision on Iran, particularly after their defiance in the face of the attacks, and after their desire to upend global shipping laws by issuing a payable toll in Hormuz. It also looks like other prominent Gulf players, such as Saudi Arabia, and the UAE, have been covertly attacking Iran, while developing other pipelines that bypass the Strait and which could be ready as soon as in 2027. So far oil has been trading well above $100; the CEO of Aramco mentioned that, even if Hormuz was reopened today, it would take 6 months for oil to restart its regular production.  All the potential is still there for bond yields to come down and for US markets to climb even higher, but there must be some sort of compromise between the warring parties. The stated goal of the US President is to make sure that Tehran never gets to build a nuclear weapon; the free passage in the Strait is also very important, because additional costs (the tolls that the Iranians want, paid in Bitcoin no less) will increase inflation on a permanent basis. In a moment in which the Fed is watching inflation grow uneasily, it is time to focus on earnings once again. So far they have seemed to grow relentlessly for this year and next (the bottom-up calculation published below), and it is time to get an update when the S&P 500’s multiple is no longer below its 5-year average. So far they have been spectacular in the US (27%+), and well above the top forecast of 19% growth floated by Deutsche Bank. So far it looks like the Magnificent 7 CEOs have continued to spend their massive capex (which could top $1Tn in 2027), and as Goldman Sachs reports, chip companies are doing well when their clients are doing well. The leading US Investment Bank also reduced its forecast for recession in the next 12 months from 30% to 25%, saying that the war has not affected global economies as much as feared. High valuations put additional pressure on the stocks which can be only saved by continued growth of revenue and earnings. The S&P 500 reached 7500 points, just 100 shy from Ben Snider’s target for the end of the year. Geopolitics and inflation/rates permitting, I feel it can be revised higher, fuelled by extraordinary earnings growth. The reporting season next week will be watched very closely, as on Wednesday, after close, Nvidia will report, the primary contributor to the S&P 500. Despite the turbulence, I’m still keeping equities to buy (with the famous 3% weekly stop), keeping US bonds to hold, and European bonds to buy (with the notable exception of France), but I acknowledge that geopolitics has to be at least neutral to give markets a change. Valuations matter: Japan has really impressed with its performance under new PM Sanae Takaichi, and it would be well worth considering to include the Asian country in portfolios, but I still recommend hedging the JPY. Due to the beforementioned landslide win, I expect the Japanese Equity Markets to continue its powerful run this year, the JPY to weaken, and bonds to react to policy announcements. How the Japanese PM approaches fiscal discipline will make the difference on whether she is going to be the new Margaret Thatcher, or rather the new Liz Truss (an opinion voiced by Bloomberg columnists at the time of Takaichi’s election as leader of the LDP). Any case it goes, it’s a ‘brave new world’ for Japan, as the last 30 years of policy and deflation/low inflation are completely wiped out. Meanwhile, the JPY continues its slide against all major currencies, save for a possible Japan-US intervention which made the Yen rebound a little.

* After a 1Q26 growth of 2%, GDP forecasts for 2Q26 are ok, with the Atlanta and New York Fed finally in agreement on a positive direction. The current P/E ratio of 21.4x is above the average P/E ratio of the last 5 years at 19.9x, and the 10-year average at 18.9x. As the multiple held throughout 2025, I believe that it should hold over the next 12 months, if the economy performs similarly and there are no major geopolitical displacements; it is the same assumption I had back in 1999, when the multiple was 24x. That multiple level lasted for the good part of almost two years, and despite the fall in 1H00, technology stayed strong through the summer, until the Intel preannouncement in September sealed their demise and gave way to 2 years of bear market. One of the major differences of the current cycles relative to the dot.com boom is that then many companies were thriving on expectations of future sales and no earnings, now companies, even start-ups (Palantir did raise to the challenge with a 16% quarter on quarter revenue growth, which reminds me of the now defunct Exodus, the late queen of 40% quarter on quarter revenue growth) do have tangible revenues and earnings, so the market is on a much sounder footing now than then. Furthermore, then the Fed was hiking rates, and had reached the peak by the end of 2000, with the famous out-of-meeting jumbo cut on January 3, 2001, in response to the rapid deterioration of the economy due to the dot.com crash. That said, the global energy crisis does have the potential to get companies to cut costs, slow investments, and freeze new hires, and the Fed won’t be able to help as it fights rising inflation. Apparently Space X and OpenAI are preparing a pre-IPO prospectus, and a success of two of the most hyped companies ever is important to lead the markets higher.  

*  The Federal Reserve was once again in April, albeit with four dissenters, and kept the rate to 3.50-3.75%. This was the last meeting with Jerome Powell as Chair; that said, and unlike usual arrangements, he decided to stay on ad Governor for some time after he hands the Chair to Kevin Warsh. As mentioned before, the Fed is 50/50 between keeping interest rates flat and one hike in December; in fact there’s no chance for a cut anymore. We need (lower) yields and (higher) earnings to support some of the highest multiples since my heyday (the fated 1999-2000), but it is increasingly difficult to get these in the US. You can look forward to these in Europe to some extent, but watch out for a potential hike of the European Central Bank in 2026. 

* Yields on US 10-year Treasuries have reached 4.60%, and were up last week, in line with European government bond yields. While in 1999 they were even higher, and the Fed was hiking, not easing, we definitely need yields to return below 4% to have a more constructive scenario, albeit gradually and not through a crash. We seem to be on a struggle to get there; and on top of this I cannot yet recommend the US Debt on their public spending plans. Legendary investor Jeffrey Gundlach said that there might even be a haircut on US Treasuries, which never happened before. The potential opening of a sovereign crisis is something that must absolutely avoided. Higher borrowing costs will be felt across the balance sheets of most states, potentially further reducing growth. Regarding earnings, I continue to remain optimistic, particularly on technology (the main driver for the S&P 500). Ben Snider, who has taken up his post as Chief US Equity Strategist from legend David Kostin, has a bullish forecast of $305 per share for the S&P 500 by the end of the year, with a target price of 7,600.  At the moment, the bottom-up forecasts for 2026 are slightly ahead of his bullish target, with the consensus based around $295. Earnings for 2026 are continuing to rise to a level of $334.06 per share, while for 2027 they are seen at $384.43. In both cases, the earnings’ progression puts both of them on a higher level than just one year ago. That said, corporates might have to face an increased energy bill and so these estimates have to be checked on a quarter-by-quarter basis. On top of that, as long as geopolitics takes centre stage, it is difficult for the market to focus on economic growth and earnings. 

Source: FactSet

* The US GDP for 1Q25 came in at 2.0% according to the latest estimate. The Atlanta Fed GDPNow model forecast for 2Q26 is in positive territory, with a current reading of 4.0%, higher from 3.8% last week, and well above of the Blue Chips consensus, which are presently at 1.8% and raising. The New York Fed’s Nowcast model is positive as well: its current forecast is 2.61%, slightly up from 2.59% last week. I believe it is prudent to make an average of those two forecasts to get to the real number. Introducing a forecast for 1Q26, with earnings expected to climb by 27.7%, compared with a forecast of 13.0% as of March 31st, with revenues growing by 11.4% vs 9.9% as of March 31st. In 2Q26, earnings are expected to climb by 20.5% vs 18.7% as of March 31st, with revenues growing by 11.4%, vs 9.4% as of March 31st. It is very important to note that analysts have been increasing numbers for 2Q26, even after the impact of the war. For 2026, earnings growth is forecasted at 20.5% vs 17.1% as of March 31st, with revenues coming in at 10.3% vs 8.7% as of March 31st. Introducing a new forecast for 2027, earnings growth is forecasted at 15.5% vs 16.6% as of March 31st, with revenues coming in at 7.5% vs 7.5% as of March 31st. Finally, it’s worth noting that the chance of a recession in the next 12 months, as calculated from the yield curve, according to the Federal Reserve Bank of Cleveland, is presently (March 2027) 14.45%. The peak was 68.76% in April 2024, and it was the only time since 1960 in which a recession did not materialise, given such a forecast. The current level is not too far from what economists are currently predicting: a 25% chance of a recession in the next 12 months.  

Source: Blue Chip Economic Indicators and Blue Chip Financial Forecasts; Federal Reserve Bank of Atlanta

Source: Federal Reserve Bank of New York, New York Fed Staff Nowcast

Source: Federal Reserve Board, Federal Reserve Bank of Cleveland, Haver Analytics

Earnings, What’s Next?

The reporting season for 1Q26 will now begin in earnest. Here’s a list of companies reporting this week.  Highlights include: Nvidia (Wednesday, After Close).

Source: Earnings Whispers

Market Considerations

Source: FactSet, Morgan Stanley Research, RIA Advisors, ISABELNET.com

Source: Carson Investment Research, FactSet, ISABELNET.com

Source: Bloomberg, Goldman Sachs Research

Revenue growth estimates for 2026 are forecasted to grow by 10.3% (8.7% on March 31st), and earnings growth estimates for 2026 are predicted to grow by 21.5% (17.1% on March 31st), so the future looks bright. Introducing forecasts for 2027, which sound again very positive, with revenue to grow by 7.5% (7.5% on March 31st) and earnings to grow by 15.5% (16.6% on March 31st). As mentioned, the Fed has cut its rates by 100bp in 2024 and 75bp in 2025. It should have continued to ease were it not for the spike in inflation generated by the war in Iran. The situation continues to remain fluid at the moment, and anything can still happen. 

Three highlights this week. First, we have a chart from Morgan Stanley, which shows the unusual trajectory of S&P 500 Earnings this year. Rather than the usual pattern of starting strong and then easing, in 2026 they moved from strength to strength, leading to upgrades, and not the downgrades which might have been expected. They continue to be very strong, also in 2Q26. The second chart from Carson Investment Research focuses on the stock market performance during President Trump years, noting that they start weak, tend to bottom in March, and then climb for the rest of the year. To be sure, this year’s performance has been astounding in the face of geopolitical and macro tensions, and inflation – but yes, I too can see a higher S&P from here. The third chart from Goldman Sachs plots their – and consensus – forecast for recession in the US in the next 12 months. While the legendary Investment Bank has almost always been below consensus, their recent reduction from 30% to 25% is encouraging and constructive.

For equities, be careful not to fall into ‘Buffett’s trap’. He famously said that there were moments when Berkshire Hathaway’s stock was down more than 50%, and nothing was wrong with the company at the same time. Timing and risk management are key. I remain optimistic in the long term; I have faith in the new CEO, but to follow the Oracle means filling very, very big shoes. The late Angelo Abbondio, a legendary Italian investor, used to say that you can rely on fundamental analysis and on technical analysis, but the most difficult thing was to decide when to prioritise the first and when the second. In general, no stock can outperform all the time; some volatility has to be expected. Those who performed better earlier may not perform so well later.

Due to the persistent stickiness of inflation, monetary policy is again taking centre stage. Obviously, we should not overlook geopolitical scenarios in Ukraine and the Middle East: this will dominate the news for a while. Any further escalation would be negative for the markets.  

I now recommend a long position in equities and a neutral position on US bonds. For EU Bonds, I advise going long (with the notable exception of France), while I still suggest putting together a portfolio that focuses on the safety of German Bunds, which are to be preferred in my view, given increased yields. While the spreads in Europe have widened as a result of the war and consequential flight to quality, I can still find value in 10-year German bunds with a yield greater than 3%. 

There are four main headline risks to what is otherwise a constructive view for 2026: i) revenue/earnings not matching forecasts, particularly in technology; ii) any damage to the economy and trade done from Trumponomics, tariffs, increasing sovereign yields, and resurging inflation; iii) any negative geopolitical outcome (which could see an expansion of the current conflicts); and iv) valuations, which are nearing levels only seen once before (at least during my lifetime!). 

Japan continues to be very strong, with another leg up after the surprising results of the February, 8 elections in which PM Sanae Takaichi and her LDP conquered more than 2/3 of the seats in parliament, giving her an ample mandate to govern. She favours fiscal and monetary expansion for the economy, whose 4Q25 GDP reading came well short of expectations. The Bank of Japan is also in a very tricky position, like the Fed was not so long ago. It would need to raise rates to counter inflation, but the weak growth may prevent it to do so. That might turn in a further weakening of the JPY. Watch out the long bond yields, particularly the 30y and 40y, as they react to increased government spending. I am now very positive on the country, although I would definitely hedge the JPY. Obviously the market was hit by the increase in the price of oil, although it is the best major market on a YTD basis. If the current conditions persist, it will be difficult for the BOJ not to raise rates in 2026, with a possible hike to 1% in June, after 3 dissenters voted in the last meeting against holding rates firm at 0.75%.

Portfolios

Finally, I want to introduce four portfolios that Tom and I published on Wikifolio. Tom’s a multi-asset portfolio, whereas the one I manage (with substantial input from Tom) is a global income and growth with a heavy US tilt. The third one is on Italian Equities. The fourth and latest one is on Japanese Equities. Check them out!

https://www.wikifolio.com/en/int/w/wf00inf8ig

Tom’s Multi-Asset Portfolio is up 30.7% in 2 1/2 years, with a Sharpe Ratio of 1.2.

https://www.wikifolio.com/en/int/w/wf000ipggi

Our Global Income and Growth Portfolio is up 34.1% in 2 1/2 years, with a Sharpe Ratio of 0.7. Obviously, the devaluation of the USD had a big impact as all stocks are priced in EUR.

https://www.wikifolio.com/en/int/w/wf00ipiteq

My Italian Equities Portfolio is up 70.2% in 2 years+ and has outperformed the FTSE MIB Index by 1925+ bp in this timeframe, with a Sharpe Ratio of 1.6.

https://www.wikifolio.com/en/int/w/wf00ipjpeq 

My Japanese Equities Portfolio is up 10.70% in about 6 months, and has underperformed the Topix Core 30 by 100+bp in this timeframe. Obviously, the devaluation of the JPY had a big impact as all stocks are priced in EUR.

Consulting

Finally, I have officially become an Italian Independent Financial Consultant (Consulente Finanziario Autonomo), registered with the Italian OCF since 19 March 2024 (protocol 2425). If you are interested in my financial advice or simply for more information, please contact me at giorgio.vintani@inflectionpoint.blog

Consulting accounts usually start from EUR 100,000. Please note that you should be based in Italy to avail yourself of this service. If you are interested, please feel free to drop me an email. I am happy to send you my presentation and track record upon request.

Happy trading, and see you next week!

InflectionPoint

Disclaimer

All views expressed on this site are my own and do not represent the opinions of any entity with which I have been, am now, or will be affiliated. I assume no responsibility for any errors or omissions in the content of this site, and there is no guarantee for completeness or accuracy. The content is food for thought, and it is not meant to be a solicitation to trade or invest. Readers should perform their own investment analysis and research and/or seek the advice of a licensed professional with direct knowledge of the reader’s specific risk profile characteristics.