CWS Market Review – May 12, 2026

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It’s hard not to be impressed by the market’s recent rally. Through yesterday, the Nasdaq jumped more than 26% in six weeks, but this rally has been heavily skewed to tech stocks. Make that very heavily skewed. If we exclude tech names, then the market was up just 8.5% over those six weeks.

Today was one of the first days in a long time that the Nasdaq finally got some pushback. Here’s a remarkable stat: Ending on Friday, The Nasdaq Composite has outperformed the S&P 500 20 times in 24 days. The S&P 500 retreated today after closing at an all-time high on Monday.

There are a lot of folks out there sounding the “bubble alarm.” I prefer to ignore scaremongering. Peter Lynch famously said, “Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.”

Decent Jobs Report with Some Red Flags

On Friday, the Bureau of Labor Statistics said that the U.S. economy created 115,000 net new jobs last month. That’s not bad. Economists had been expecting a gain of 55,000. April’s number was down from March, but that month was unusually strong with a gain of 185,00 new jobs.

As good as the report is, there are a few worrying items. For example, one problem spot is wages. Last month, average hourly earnings rose by just 0.2%. That was 0.1% lower than expected. Over the last year, earnings are up by 3.6%. That’s less than inflation, but not by much (I’ll have more on inflation in a bit). The overall unemployment rate held at 4.3% which is still low. It appears that we’re still in the no-hire, no-fire economy. Here’s a look at nonfarm payrolls. The line appears to be cresting:

Another concern is that the labor force is getting smaller. Also, the number of tech jobs is falling.

Here are some details:

Following recent trends, healthcare led with 37,000 new positions, though multiple other sectors also saw gains.

Transportation and warehousing added 30,000, retail rose by 22,000, and social assistance saw a gain of 17,000.

On the downside, information services lost 13,000, part of a continuing trend that has seen the category down 342,000 jobs since November 2022, coinciding with the rise of artificial intelligence. That has equated to a loss of 11% of jobs during the period.

The broader U-6 rate inched upward to 8.2%. The labor force participation rate dipped to 61.8%. That’s the lowest in close to five years. The jobs figure for March was revised upward by 7,000 while February was revised downward by 23,000 to a loss of 156,0000.

I don’t want to sound alarmist. The labor force is fine for now. My concern is if it will remain so in another six months. Frankly, those wages numbers need to get better.

The futures market doesn’t see the Fed making any changes on interest rates for the rest of this year, and they’re probably right. This week, the Senate looks to vote on Kevin Warsh’s confirmation to be the new Fed chairman. Jerome Powell’s term as Fed chairman expires on Friday, but he will stay at the Fed as a governor. The last Fed policy statement had the highest number of dissenting votes in 34 years. Get the popcorn, this could get interesting.

Inflation Hits a Three-Year High

This morning, we got the CPI report for April, and it wasn’t very good. Last month, headline inflation rose by 0.6% (yikes!) and the 12-month inflation rate is now at 3.8%. That’s the highest since May 2023. Wall Street had been expecting a monthly increase of 0.6%.

Of course, high energy prices are a significant factor, but even discounting that, inflation is still a problem. For April, the core rate, which excludes food and energy, rose by 0.4%. Over the last year, core inflation is running at 2.8%.

Here’s a look at gasoline prices via Gas Buddy:

The numbers from the energy sector are shocking. Last month, energy prices rose by 3.8% and food prices were up by 0.5%. For the last 12 months, energy prices are up 17.9%, and gasoline is up 28.5%. As always, bear in mind that energy prices impact everyone.

From CNBC:

Shelter costs rose 0.6% after easing in prior months, indicating that inflation is a problem beyond the Iran war impacts. The tariff-sensitive apparel category increased 0.6% and airline fares accelerated 2.8%, putting the 12-month gain at 20.7%. Tariffs also seemed to hit other areas, with household furnishings and operations up 0.7%.

New vehicle prices fell 0.2% while the index for used cars and trucks was flat. Medical care costs decreased 0.1% and hospital services were down 0.3%. Health insurance also declined 0.4%, while motor vehicle insurance increased 0.1%.

The report also contained bad news for workers, as real average hourly wages slipped 0.5% for the month and fell 0.3% annually.

These numbers put the Fed in a difficult spot. It’s as if the economy needs higher and lower rates at the same time. It needs higher rates to curb any inflation, but lower rates to prevent the labor market from deteriorating.

The Atlanta Fed’s GNDNow model currently sees Q2 GDP tracking at 3.7%. That’s high. If that’s right, then the economy is doing much better than expected. We’ll learn more later this week when the retail sales report comes out. Then on Friday, we’ll get the latest report on industrial production.

Sprouts Soars on Strong Earnings

Since we just finished the Q1 earnings season, I wanted to share our big winner with you, and that was Sprouts Farmers Market (SFM). Sprouts is new to our Buy List but it’s already making a splash.

Sprouts’s business idea is simple: take the look and feel of a farmer’s market and bring it indoors. Think of a big open space, but instead of waiting until the weekend, you can go to Sprouts any day of the week. Sprouts specializes in fresh and organic produce.

I’m particularly impressed by Sprouts’s loyal fan base. Sprouts tends to be less expensive than Whole Foods (owned by Amazon). Its smaller stores aren’t as crowded as Whole Foods, and Sprouts has found an overlooked part of the market: people who want good, fresh, organic produce but not at Whole Foods’s prices.

After the closing bell on April 29, Sprouts said it made $1.71 per share for its fiscal Q1. That’s for the 13-week period ending on March 29. The stock jumped 15% the next day. The CEO said the quarters “played out largely as we expected.”

SFM’s Q1 sales were up 4% over last year. The key figure is that same-store sales were down 1.7%. That’s not good, but it shows some signs for optimism. During the quarter, the company owned six new stores, which brings the total to 483 stores.

For Q2, Sprouts sees earnings between $1.32 and $1.36 per share and same-store sales growth between -2% and flat.

For all of 2026, SFM sees same-stores sales growth between -1% and +1% and earnings between $5.32 and $5.48 per share. The shares have rallied another 6% since the big jump after its earnings. I currently rate Sprouts a buy up to $90 per share.

That’s all for now. The retail sales report is due to come out on Thursday. It will be interesting to see if the war in Iran has had an impact on shopping. I’ll have more for you in the next issue of CWS Market Review.

– Eddy

Posted by on May 12th, 2026 at 7:11 pm


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.