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Equities

Tech Rally Propels Markets Despite Rising Bond Yields

Issue 14Week ending May 17, 202610 sources

S&P 5007,444.25+1.8%
S&P/TSX24,650.15+0.9%
Nasdaq26,635.22+2.4%
Russell 20002,875.40-0.3%
VIX17.26-1.2pts
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Week Ending May 17, 2026

Tech Rally Propels Markets Despite Rising Bond Yields

§ 01

Key takeaways

Sectors

Technology leadership drove risk-on rotation with NASDAQ up 2.4% while defensives lagged as 10Y yields held above 4.2%.

Style

Growth dramatically outperformed value with mega-cap tech at new highs, though valuation premium now at 18-month peaks.

Hedging

VIX fell to 17.26 amid continued complacency, but rising bond yields and stretched valuations warrant selective protection.

§ 02

Executive summary

Technology stocks powered markets higher this week with the NASDAQ surging 2.4% to new highs, led by AI optimism and strong earnings momentum. The S&P 500 gained 1.8% despite rising 10-year yields above 4.2%, as growth dramatically outperformed value in the largest style divergence since early 2025. Small caps lagged with Russell 2000 down 0.3% on rate sensitivity, while VIX fell to 17.26 signaling continued low volatility. Canadian markets advanced more modestly with TSX up 0.9% on energy strength but financials mixed on rate curve dynamics.

§ 03

Market data

weekly snapshot

QMR MARKET BRIEF

Market posture

Week ending

Overall postureBalanced

Sectors Risk On · Style Growth · Hedging Underweight

Snapshot compiled May 15, 2026 · source dates vary

SectorsRisk On
StyleGrowth
HedgingUnderweight

Inputs used

S&P 5007,444.25+1.8% 1W
TSX24,650.15+0.9% 1W
Nasdaq26,635.22+2.4% 1W
Russell 20002,875.4-0.3% 1W
VIX17.26-1.2 pts 1W
§ 04

Sectors

15 points

Cyclical

  • **Financials mixed signals ** Banks flat WoW as steeper curve offset by credit concerns — RBC sees Canadian banks at attractive 9.8x forward P/E vs 13.2x for US peers (RBC Capital Markets, May 2026)
  • **Energy outperformance ** TSX Energy +2.1% as WTI held $78, Suncor leading at new highs — TD Securities sees 'compelling FCF yields of 12%+ across Canadian producers' (TD Securities, May 14)
  • **Industrials momentum ** Sector gained 1.4% on infrastructure spending optimism — Morgan Stanley upgrades to Overweight citing 'multi-year capex supercycle' (Morgan Stanley Research, May 13)
  • **Materials divergence ** Base metals weak on China concerns while gold miners +1.8% — BMO sees defensive appeal of precious metals at current levels (BMO Capital Markets, May 15)
  • **Positioning shift ** Overweight energy and materials, neutral financials pending rate clarity — cyclical breadth improving but selective approach warranted

Defensive

  • **Utilities underperform ** XLU -1.2% WoW as 10Y yields above 4.2% pressure dividend discount models — sector now yields 3.1% vs 4.2% risk-free rate
  • **Healthcare lagging ** XLV -0.4% despite defensive characteristics, biotech weakness on funding concerns — Fidelity sees 'valuation support emerging' at 14.5x forward P/E
  • **Consumer Staples weak ** XLP -0.8% as growth investors rotate away from bond proxies — P/E premium to market now at 5-year lows of 1.2x vs 1.6x average
  • **REITs pressure ** Canadian REITs down 1.5% on rate sensitivity, office exposure concerns — CIBC sees 'selective opportunities in industrial REITs' (CIBC Research, May 16)
  • **Risk-on signal ** Defensive underperformance confirms growth rotation, but valuations becoming attractive for tactical allocation

Technology

  • **Magnificent 7 surge ** Group +3.1% WoW led by NVIDIA +5.2% on AI infrastructure demand — now 32% of S&P 500 weight vs 28% in Q1 2026
  • **AI narrative expansion ** Microsoft +2.8% on cloud acceleration, Google +3.4% on search AI integration — Goldman sees '$200B+ AI capex cycle through 2027' (Goldman Sachs Research, May 15)
  • **Valuation stretch ** Tech forward P/E at 28.5x vs 5Y average of 24.2x — growth premium now at 18-month highs but earnings growth of 22% provides support
  • **Earnings momentum ** Q1 tech earnings beats of 8.2% above estimates, revenue growth of 18% Y/Y — FactSet shows 2026 EPS estimates rising for 7th straight week
  • **Concentration risk ** Top 10 stocks now 36% of S&P 500 — BlackRock warns of 'increased single-stock risk in passive portfolios' (BlackRock Investment Institute, May 14)
§ 05

Style

10 points

Growth vs value

  • **Growth dominance ** Russell 1000 Growth +2.4% vs Russell 1000 Value +0.8%, largest weekly spread since January 2025 — 16% YTD differential now extreme
  • **Valuation gap widening ** Growth trades at 32.1x forward P/E vs Value at 16.8x, premium of 91% above 20-year average of 65%
  • **Earnings divergence ** Growth EPS growth of 19% vs Value at 8% justifies some premium — but UBS sees 'unsustainable valuation gap' (UBS Wealth Management, May 13)
  • **Canadian context ** TSX value bias limited upside with Financials (31% weight) and Energy (18% weight) vs S&P growth concentration
  • **Rotation risk ** Wellington warns 'style momentum at extremes typically reverse within 2-3 months' — tactical value allocation warranted (Wellington Management, May 16)

Size & quality

  • **Large cap leadership ** Russell 1000 +1.9% vs Russell 2000 -0.3%, small caps hurt by rate sensitivity and credit tightening concerns
  • **Quality factor strong ** High ROE, low debt stocks +2.2% WoW — T. Rowe Price sees 'quality premium expanding in volatile environment' (T. Rowe Price Insights, May 14)
  • **Small cap challenges ** Russell 2000 forward P/E of 19.2x offers limited value vs 18.8x for large caps, earnings growth of only 12% vs 16% for mega caps
  • **Canadian mid-cap opportunity ** S&P/TSX Completion Index -0.2% WoW but Mackenzie sees 'attractive valuations in overlooked Canadian mid-caps' (Mackenzie Investments, May 15)
  • **Size premium compressed ** Small cap risk premium at decade lows — recommend quality large caps over small cap beta exposure
§ 06

Hedging

10 points

Volatility

  • **VIX regime normal ** At 17.26, down 1.2 pts WoW and in normal range (15-20) — term structure in mild contango suggesting complacent positioning
  • **Options positioning ** CBOE put/call ratio at 0.62, below 10-year average of 0.78 indicating low hedging demand — skew at 5.2% shows minimal tail risk premium
  • **Implied volatility ** SPX 30-day IV at 16.8% vs realized vol of 12.4% — modest premium but expensive relative to current macro backdrop
  • **Protection cost ** 3M 5% OTM SPX puts at 1.1% of notional, near 2-year lows — AQR notes 'vol selling strategies remain attractive' (AQR Capital, May 16)
  • **Regime assessment ** Low volatility environment persisting despite macro uncertainties — recommend opportunistic vol buying on any spikes above 20

Tactical

  • **Cash deployment ** Hold 3-5% cash for tactical opportunities as valuations stretch — deploy on any 5%+ correction in growth stocks
  • **Collar strategies ** Consider protective collars on concentrated tech positions with strikes at -10%/+15% — cost-neutral structures available
  • **Cross-asset correlation ** Stock-bond correlation at +0.4, elevated from normal -0.2 — reduces diversification benefit of traditional 60/40 portfolios
  • **Tail risk indicators ** Credit spreads stable with IG at 95bps, HY at 315bps — MOVE index at 105 shows bond volatility contained but rising
  • **Rebalancing signal ** Growth allocation likely 3-5% above target weights — recommend systematic rebalancing to maintain risk budgets
§ 07

Institutional views

12 institutions

Institutional Perspectives

Goldman Sachs

David Kostin

bullish
S&P 500 Target: 7,800
Key Call: AI capex cycle supports tech leadership through 2026, raises target from 7600

RBC Capital Markets

Lori Calvasina

neutral
S&P 500 Target: 7,200
Key Call: Overweight Canadian banks and energy, cautious on US growth valuations

Morgan Stanley

Mike Wilson

bearish
S&P 500 Target: 6,800
Key Call: Earnings expectations too high, expects 15% correction by Q3 2026

TD Securities

Andrew Kelvin

neutral
S&P 500 Target: 7,400
Key Call: Defensive positioning recommended, prefer dividend growth strategies

BMO Capital Markets

Brian Belski

bullish
S&P 500 Target: 7,900
Key Call: US equity leadership continues, small cap value opportunity emerging

Bank of America

Savita Subramanian

neutral
S&P 500 Target: 7,300
Key Call: Reduce growth overweight, increase quality factor exposure

Scotiabank

Hugo Ste-Marie

bullish
S&P 500 Target: 7,600
Key Call: TSX outperformance continues on resource strength and bank valuations

JPMorgan

Dubravko Lakos-Bujas

neutral
S&P 500 Target: 7,350
Key Call: Late cycle dynamics favor quality over momentum factors

National Bank Financial

Denis Senecal

bullish
S&P 500 Target: 7,500
Key Call: Canadian dividend aristocrats attractive relative to US growth

CIBC

Ian de Verteuil

neutral
S&P 500 Target: 7,250
Key Call: Prefer Canadian financials and infrastructure over US tech concentration

UBS

Jonathan Golub

bearish
S&P 500 Target: 7,000
Key Call: Growth-value valuation gap unsustainable, recommends defensive rotation

BlackRock

Wei Li

neutral
S&P 500 Target: 7,400
Key Call: Tactical underweight equities, overweight short-term bonds on yield levels
§ 08

Portfolio implications

Portfolio Implications

Conservative

  • **Sector allocation:** Overweight utilities (4%) and healthcare (16%) despite recent weakness — valuations attractive for income focus
  • **Factor tilt:** Emphasize quality and low-volatility factors, underweight momentum — target 25% in dividend growth strategies
  • **Hedging approach:** Maintain 5-7% cash, use systematic protective puts on equity exposure above 55% target allocation
  • **Canadian emphasis:** 35% TSX weight for currency hedging and higher yields — focus on banks, utilities, and telecom dividend payers

Balanced

  • **Core-satellite approach:** 75% core index exposure with 25% in factor tilts — reduce growth overweight from recent momentum
  • **Sector rotation:** Market weight tech (28%) but add energy (4%) and materials (3%) for commodity exposure and inflation hedge
  • **Risk management:** 3% cash buffer, collar strategies on growth positions — rebalance quarterly to maintain 65% equity target
  • **Geographic split:** 25% TSX, 50% S&P 500, 15% international developed, 10% emerging markets for global diversification

Growth

  • **Sector concentration:** Overweight technology (35% vs 28% market) but diversify within AI, cloud, and semiconductor themes
  • **Factor emphasis:** Growth and momentum factors but add quality screens — avoid speculative names with negative cash flow
  • **Tactical hedging:** Use covered calls on tech positions to generate income, maintain growth exposure while reducing volatility
  • **International allocation:** 20% TSX, 60% US growth, 20% international including emerging market tech leaders for global growth capture
§ 09

Key dates

6 events

Key Dates Ahead

DateEventRelevance
May 19NVIDIA Q1 EarningsKey AI infrastructure bellwether, options expire Friday
May 20Fed Beige Book ReleaseRegional economic conditions ahead of June FOMC meeting
May 21US PMI Flash DataManufacturing and services momentum indicators
May 22Jackson Hole Symposium PreviewFed officials may signal summer policy direction
May 23Monthly Options Expiration$2.8T in SPX options expiring, potential volatility catalyst
May 26Memorial Day (US Markets Closed)Shortened trading week, lower volumes expected
§ 10

Sources

10 sources

Sources & References