Consistent with April, May saw gains for all three major domestic indices as news of the ceasefire and a possible deal between the US and Iran was embraced by markets. Interestingly, interest rates on the long end of the yield curve continue to move higher, warranting continued monitoring throughout the summer. For example, the 10-year U.S. Treasury is now 4.43%, up from 3.95% just 90 days ago. Precious metal safe-haven gold has continued to struggle, falling by 1.4% for the month. The technology sector was again the leader for the month. Interestingly, only 3 sectors (Technology, Consumer Discretionary, and Healthcare) were in the green while 8 sectors lost value in May. The breadth of the stock market (few winners and more losers) continues to signal uncertainty about the intermediate-term future. Regardless, we remain allocated to the equity market across several sectors and fixed income if good value presents itself. As we look beyond sector performance, it becomes increasingly important to consider the broader financial environment driving these moves.
We are monitoring signs that the easy money era may be coming to an end. Over the last couple of years, we have emphasized the importance of watching financial conditions for insight into stock price trends. When conditions are loose, stock prices tend to rise; the opposite occurs when conditions tighten, as seen in 2022. Variables spanning central bank policy rates, commodity prices, and credit spreads, which typically lead financial conditions, are now signaling a shift toward tighter financial conditions in a few quarters. Currently, financial conditions remain loose, but we are keeping an eye on the future. Most central banks have not yet raised rates enough to curb energy-driven inflation, though Norway and Iceland are early movers. The global real yield curve has steepened, a pattern associated with worsening conditions for equities and credit since the post-pandemic rate hikes began. These tighter conditions inevitably filter down to consumers, shaping spending patterns and household income.
Consumers kept spending despite April’s price pressures: nominal spending rose 0.5%, and real spending edged up 0.1%, mainly in services, but goods declined—real goods spending slipped 0.1%. Early signs suggest tariffs now cut into volume, not just dollars. Income appeared flat due to a sharp drop in farm payments, yet employee compensation and most categories improved. Excluding agricultural variation, labor income stays resilient at about 3.4% annualized, though headline PCE inflation remains at 3.8% year-over-year. Strong tax refunds and wealth effects are helping to offset inflation for now. This evolving consumer landscape frames the context for the most recent inflation data.
Please see the following updates on existing positions held at the firm:
Coastal Financial Corp (Ticker: CCB)— Coastal Financial earned $12.0 million in Q1 2026, or $0.78 per diluted share, up 23.5% from a year ago but missing consensus, as total assets surged $922.4 million in a single quarter to $5.66 billion. Net interest income rose 9.6% year-over-year to $83.4 million. The CCBX segment remains the growth engine: BaaS program fee income climbed 22.3% quarter-over-quarter to $10.9 million, off-balance-sheet credit card accounts grew by nearly 430,000 year-over-year to 667,023, and CCBX deposits expanded by $910.4 million in the quarter alone. Capital remains well above regulatory thresholds and tangible book value per share grew to $32.76, up roughly 9% from a year ago. We expect the second half of the year to be very good for the company as several new revenue lines will be realized.
Dominion Energy (Ticker: D)— NextEra Energy and Dominion Energy have agreed to combine in an all-stock transaction in which Dominion shareholders receive a fixed exchange ratio of 0.8138 shares of NEE for each share of D they hold at closing, a structure that preserves upside participation in the combined company without triggering an immediate tax event, as the deal is structured to be tax-free. Dominion shareholders will emerge owning approximately 25.5% of the combined company, with NextEra retaining the remaining 74.5%. The combined entity will operate under the NextEra Energy name and ticker NEE, meaning Dominion, as a standalone public entity, ceases to exist. Before crossing that finish line, Dominion shareholders will continue to receive Dominion’s existing quarterly dividend through closing and, at close, will receive a one-time cash payment of $360 million, distributed equally across all outstanding shares. We will continue to monitor this situation closely.
CMB.TECH (Ticker: CMBT)— CMB.TECH posted a standout Q1 2026, reporting net profit of $368.8 million, or $1.27 per diluted share a nearly six-fold increase from $40.4 million, or $0.23 per share, in Q1 2025 as the company’s diversified fleet was propelled by a combination of extraordinary tanker spot rates, a red-hot dry bulk market, and $267.4 million in vessel disposal gains from the sale of six VLCCs and two Capesize bulkers. The tanker segment was the primary engine: VLCC TCE averaged $70,204 per day in Q1 against a 10-year historical average of $46,504, and Suezmax TCE averaged $91,849 per day versus a historical average of $44,565, both rates inflated by the effective closure of the Strait of Hormuz, which removed over 100 tankers from effective supply and scrambled global crude flows. We sold a small portion of CMBT during the month to lock in a significant gain.
Best Regards,
Stash J. Graham