New York, May 16, 2026, 05:16 EDT
Stocks slipped from record highs Friday, with higher oil prices and Treasury yields cooling Wall Street’s recent AI-driven run. Investors are heading into next week with a less favorable backdrop.
Stocks slipped, but recent gains stuck. The S&P 500 edged up 0.1% this week, its seventh straight weekly win. The Dow fell 0.2%. The Nasdaq dropped 0.1%. Small-caps lagged as the Russell 2000 shed 2.4%, showing more trouble for stocks outside large tech.
Stock gains backed by AI earnings and a pause in Fed hikes may be on thin ice. On Friday, investors were putting about 60% odds on a 25 basis point increase in the Fed’s main rate by January, Reuters reported. One basis point is one-hundredth of a percent.
S&P 500 dropped 1.24% to 7,408.50 on Friday. The Dow lost 1.07% at 49,526.17, while the Nasdaq Composite slid 1.54% to 26,225.15. Chip stocks struggled, sending the Philadelphia SE Semiconductor Index down 4%. Nvidia fell 4.4%, AMD dropped 5.7%, Intel slid 6.2%. Energy was the only sector in the S&P 500 finishing higher, up 2.3%.
“There’s a realization that the market had gotten way ahead of itself,” Kenny Polcari, chief market strategist at Slatestone Wealth, told Reuters. He called the recent rally a “momentum AI trade.” The same names that pushed indexes to record highs earlier were the ones traders rushed to sell out of this week.
10-year Treasury yields climbed to their highest level since May 2025, Reuters reported. Oil also gained as doubts grew around the U.S.-Iran ceasefire, with the Trump-Xi meeting bringing little news. Matthew Keator of the Keator Group called the meeting “more of a reset” than a move with quick effects. Reuters
Inflation data kept ticking up. The Labor Department said consumer prices rose 0.6% for April, a 3.8% jump over last year, the biggest yearly gain since May 2023. Producer prices moved too, climbing 1.4% for April, the sharpest monthly rise since March 2022.
Retail sales rose 0.5% in April, right in line with forecasts, according to the Commerce Department’s Census Bureau. Reuters noted a lot of the increase came from higher prices, rather than more buying. Sal Guatieri at BMO Capital Markets said the stock rally is helping wealthier shoppers, but people with lower incomes still face pressure from fuel, transport, and food bills.
Odds for rate cuts fell as prediction market prices moved out of that camp. Polymarket put the chance of a Fed hike in 2026 at 32%, with a 69% chance of no cuts this year. The Prediction Markets, using Kalshi data, listed a 2026 hike at 34% and the odds of no cuts at around 68%.
S&P 500 and Nasdaq closed at fresh records Thursday as tech names led. Nvidia climbed 4.4% after Reuters said the U.S. okayed H200 chip sales to China. Nvidia is back in the spotlight with traders watching the next move.
Nvidia will discuss its fiscal Q1 results Wednesday, May 20, after posting the numbers at around 1:20 p.m. PT. Retail is in the spotlight as Walmart, Home Depot, Target, and TJX all report earnings next week. Investors are watching for signs that rising energy costs may be affecting household spending.
Allen Bond, who manages portfolios for Jensen Investment Management, said AI and rising energy prices are “almost parallel tracks” and that either one could “really drive the market” on any day. Patrick Ryan, Madison Investments’ chief investment strategist, said “a smaller set of names” is leading index returns again. He called it “not necessarily a healthy market.” Reuters
Markets aren’t facing one big shock. Oil could fall, yields might ease, and strong Nvidia earnings may keep valuations high. But if energy prices stay up and retailers warn that consumers are pulling back, traders may price in more rate hikes and AI stocks could run into trouble. “How resilient is the consumer?” is the crux of retail earnings, said Yung-Yu Ma at PNC Financial Services Group Reuters.
