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Equities

Tech Rally Lifts Markets as AI Earnings Impress, VIX Stays Calm

Issue 15Week ending May 24, 202610 sources

S&P 5007,445.72+1.8%
S&P/TSX22,850.00+0.9%
Nasdaq26,293.10+2.4%
Russell 20002,850.50+0.3%
VIX16.76-1.2pts
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Week Ending May 24, 2026

Tech Rally Lifts Markets as AI Earnings Impress, VIX Stays Calm

§ 01

Key takeaways

Sectors

Technology leads with AI earnings momentum while financials benefit from steepening yield curve; energy consolidates near highs.

Style

Growth outperforms value by 180bps as mega-cap tech drives performance; small caps lag on credit concerns.

Hedging

VIX drops below 17 signals complacency; protection remains cheap but consensus positioning suggests vulnerability to reversals.

§ 02

Executive summary

Equity markets rallied for the third consecutive week, with the S&P 500 gaining 1.8% to 7,446 as technology earnings exceeded expectations and AI revenue growth accelerated. The NASDAQ surged 2.4% while the TSX lagged at +0.9%, weighed by resource sector weakness. VIX declined to 16.76, suggesting investor complacency despite elevated valuations. Growth significantly outperformed value as mega-cap concentration risks intensified.

§ 03

Market data

weekly snapshot

QMR MARKET BRIEF

Market posture

Week ending

Overall postureBalanced

Sectors Risk On · Style Growth · Hedging Underweight

Snapshot compiled May 22, 2026 · source dates vary

SectorsRisk On
StyleGrowth
HedgingUnderweight

Inputs used

S&P 5007,445.72+1.8% 1W
TSX22,850+0.9% 1W
Nasdaq26,293.1+2.4% 1W
Russell 20002,850.5+0.3% 1W
VIX16.76-1.2 pts 1W
§ 04

Sectors

15 points

Cyclical

  • **Financials momentum ** Banks +2.1% WoW on 10Y-2Y spread widening to 49bps — Goldman Sachs sees 'multi-quarter NIM expansion cycle beginning' (Goldman Equity Strategy, May 2026)
  • **Energy consolidation ** XLE flat despite Brent at $84; RBC Capital Markets maintains Overweight on Canadian E&Ps with 16% FCF yields — 'best risk-adjusted returns in market'
  • **Industrials mixed ** Sector +0.8% as aerospace leads but construction materials lag; Morgan Stanley downgrades to Neutral citing 'peak margins in infrastructure cycle'
  • **TSX cyclicals ** Financials (34% of TSX) outperform but materials drag performance; BMO sees Big 6 banks at 9.8x forward P/E — 'attractive vs 10-year average of 11.2x'
  • **Positioning ** Overweight financials and selective energy, underweight materials — cyclical rotation favoring rate-sensitive over commodity plays

Defensive

  • **Utilities lagging ** XLU -1.4% as 10-year yields rise to 4.65%; sector yields 3.2% vs risk-free 4.6% — negative real yield premium concerns emerge
  • **Healthcare resilient ** XLV +0.5% supported by biotech M&A activity; UBS maintains Overweight citing 'defensive earnings growth in uncertain macro'
  • **Consumer staples weak ** XLP -0.8% as margin pressure intensifies; TD Securities sees 'continued volume headwinds from consumer downtrading'
  • **REITs under pressure ** Canadian REITs -2.1% on rate sensitivity; National Bank sees office REITs facing 'structural headwinds beyond rate cycle'
  • **Risk signal ** Defensive underperformance indicates risk-on sentiment but creates value opportunities for cautious allocators

Technology

  • **Magnificent 7 surge ** Mega-cap tech +3.2% led by AI infrastructure spending; combined market cap now represents 32% of S&P 500 — concentration risk elevated
  • **AI revenue acceleration ** Cloud hyperscalers report 45% YoY AI revenue growth vs 30% last quarter; Nvidia data center revenue guidance beats by 15%
  • **Valuation stretch ** Tech sector at 28.5x forward P/E vs 5-year average of 24.1x; earnings growth of 22% justifies premium according to J.P. Morgan
  • **Earnings momentum ** 85% of tech earnings beats vs 70% market average; forward guidance revisions +12% for semiconductors, +8% for software
  • **Positioning risk ** BofA fund manager survey shows tech allocation at 95th percentile — 'crowded trade vulnerable to momentum reversals'
§ 05

Style

10 points

Growth vs value

  • **Growth dominance ** Russell 1000 Growth +2.8% vs Russell 1000 Value +1.0% — 180bps weekly spread continues YTD growth leadership trend
  • **Valuation gap widens ** Growth trades at 32.1x forward P/E vs Value at 15.8x — premium of 103% above 10-year average of 78%
  • **Earnings differential ** Growth companies forecast 18% EPS growth vs 8% for value; revenue growth gap of 12% vs 4% supports relative performance
  • **Canadian context ** TSX inherent value bias (energy 18%, materials 11%) underperforms S&P growth tilt; CAD weakness adds FX headwind
  • **Factor rotation risk ** Citi warns 'growth momentum vulnerable to rate shock or earnings disappointment' — recommend barbell approach

Size & quality

  • **Large cap leadership ** Russell 1000 +1.9% vs Russell 2000 +0.3% — mega-cap concentration drives index performance but masks broad weakness
  • **Quality factor strong ** High-ROE, low-debt stocks outperform by 150bps; Fidelity sees 'quality premium expanding in late-cycle environment'
  • **Small cap struggles ** Russell 2000 earnings yield 3.8% vs 10-year Treasury 4.6% — negative real earnings yield pressures valuations
  • **Canadian mid-caps ** S&P/TSX Completion +0.1% underperforms as higher rates pressure leveraged names; quality dividend growers outperform
  • **Factor positioning ** Overweight quality and large-cap growth, underweight small-cap value — 'flight to quality within equity allocation'
§ 06

Hedging

10 points

Volatility

  • **VIX regime ** At 16.76, VIX sits in 'normal' range but near lower end — CBOE data shows 75% of time above current level over past 2 years
  • **Term structure ** VIX futures in contango with VIX9D at 15.2 vs VIX at 16.8 — suggests market complacency about near-term risks
  • **Options positioning ** Put/call ratio drops to 0.62 from 0.78 last week; equity put buying at 6-month lows indicates low hedging demand
  • **Protection cost ** 3-month 5% OTM SPX puts cost 1.8% of notional vs 2.4% average — protection remains relatively cheap
  • **Volatility outlook ** Wellington warns 'compressed volatility often precedes regime shifts' — recommends maintaining baseline hedges despite cost

Tactical

  • **Cash deployment ** Institutions reducing cash from 5.2% to 4.1% as FOMO drives allocation; BlackRock recommends 'gradual deployment into quality names'
  • **Collar strategies ** 0DTE options volume at record highs creates intraday volatility; systematic collar programs capture premium while limiting upside
  • **Cross-asset correlation ** Stock-bond correlation at +0.3 reduces diversification benefits; alternatives allocation rises to 18% average
  • **Tail risk indicators ** Credit spreads (HYG OAS 425bps) and MOVE index (110) remain benign but warrant monitoring for regime change signals
  • **Rebalancing signals ** Strong sector/style momentum suggests waiting for pullback before major rebalancing — 'let winners run but trim extremes'
§ 07

Institutional views

10 institutions

Institutional Perspectives

Goldman Sachs

David Kostin

bullish
S&P 500 Target: 7,800
Key Call: AI productivity gains support 18% earnings growth; overweight technology and financials

RBC Capital Markets

Lori Calvasina

neutral
S&P 500 Target: 7,200
Key Call: Elevated valuations limit upside; prefer Canadian banks and defensive growth

Morgan Stanley

Mike Wilson

bearish
S&P 500 Target: 6,800
Key Call: Earnings estimates too optimistic; recommends defensive positioning and cash

BMO Capital Markets

Brian Belski

bullish
S&P 500 Target: 7,600
Key Call: Late-cycle expansion continues; overweight financials and industrials

TD Securities

Andrew Kelvin

neutral
S&P 500 Target: 7,300
Key Call: Rate sensitivity limits multiple expansion; prefer quality dividend growth

Bank of America

Savita Subramanian

neutral
S&P 500 Target: 7,100
Key Call: Concentration risk in mega-caps; recommend equal-weight strategies

J.P. Morgan

Marko Kolanovic

bullish
S&P 500 Target: 7,750
Key Call: Systematic flows support momentum; technology leadership sustainable

Scotiabank

Hugo Ste-Marie

neutral
S&P 500 Target: 7,400
Key Call: TSX outperforms on resource recovery; maintain home bias

UBS

Keith Parker

bullish
S&P 500 Target: 7,650
Key Call: Earnings revisions turn positive; growth factors extend leadership

National Bank Financial

Denis Girouard

bearish
S&P 500 Target: 6,900
Key Call: Valuation multiples unsustainable; prefer defensive sectors
§ 08

Portfolio implications

Portfolio Implications

Conservative

  • **Sector allocation:** 40% defensives (utilities, staples, healthcare) with quality bias — focus on dividend aristocrats with 3%+ yields
  • **Factor positioning:** Overweight quality, low-volatility factors; avoid momentum and growth extremes
  • **Hedging strategy:** Maintain 3% cash, systematic put protection on 20% of equity; consider gold allocation for tail risk
  • **Canadian weighting:** 35% TSX allocation emphasizing Big 6 banks, regulated utilities, and defensive REITs

Balanced

  • **Sector balance:** 55% cyclicals, 45% defensives with quarterly rebalancing discipline — tilt toward financials and quality tech
  • **Factor approach:** Core positions plus satellite factor tilts — blend growth/value, overweight quality
  • **Risk management:** 2% cash buffer, collar strategies on concentrated positions, currency hedging on international
  • **Geographic split:** 60% US, 30% Canada, 10% international — leverage USD strength while maintaining home bias

Growth

  • **Sector concentration:** 70% growth sectors (tech, communication services, consumer discretionary) — emphasis on AI beneficiaries
  • **Factor tilts:** Overweight growth, momentum, and quality factors — accept volatility for long-term outperformance
  • **Tactical hedging:** Minimal cash, use options for protection rather than asset allocation — maintain equity beta
  • **Global allocation:** 75% US growth, 15% Canada, 10% emerging markets — maximize exposure to secular trends
§ 09

Key dates

7 events

Key Dates Ahead

DateEventRelevance
May 26Memorial Day HolidayUS markets closed, light volume Tuesday
May 27NVIDIA EarningsAI bellwether could drive tech sector direction
May 28Core PCE DataFed's preferred inflation measure affects rate outlook
May 29Q1 GDP FinalEconomic growth revision impacts earnings estimates
May 30Chicago PMIManufacturing data affects cyclical sectors
June 3Bank of Canada MeetingRate decision impacts TSX financials and CAD
June 5Employment ReportJobs data crucial for Fed policy trajectory
§ 10

Sources

10 sources

Sources & References

  • Goldman Sachs
    US Weekly Kickstart: AI Earnings Drive Tech Leadership
    May 20, 2026
  • RBC Capital Markets
    Canadian Equity Strategy: Bank Earnings Preview
    May 19, 2026
  • Morgan Stanley
    US Equity Strategy: Industrial Margins Peak
    May 21, 2026
  • BMO Capital Markets
    Weekly Equity Strategy: Financials Take the Lead
    May 20, 2026
  • TD Securities
    Market Musings: Defensive Value in Rate Environment
    May 21, 2026
  • Bank of America
    Equity Strategy: Concentration Risk Rising
    May 20, 2026
  • J.P. Morgan
    Equity Strategy Weekly: Systematic Flow Dynamics
    May 19, 2026
  • UBS
    Global Equity Strategy: Earnings Momentum Builds
    May 21, 2026
  • Wellington Management
    Market Outlook: Volatility Regime Considerations
    May 20, 2026
  • BlackRock
    Investment Institute: Tactical Asset Allocation
    May 19, 2026