THE DEAN’S LIST: The Week the Bill Came Due

The S&P touched 7,500 this week. The Nasdaq topped 26,500. We don’t talk about the silly Dow, but it crossed its symbolic 50,000 mark again. Then Friday happened. Tech got hit. Small caps got hit. Oil rose. Yields climbed. If you're feeling whiplash, you're paying attention. Before you do anything, pull up the Single-Digit Millionaire portfolio. The portfolio is designed for exactly this moment - where some assets zig while others zag. That's not a flaw. That's the whole point.

Dean’s note:
Let me tell you what I think is happening, and why the next three months matter more than the next three days.

The market has been running on two things: extraordinary earnings (genuinely deserved) and a flood of capital looking for somewhere to go (less deserved). The earnings story is real. The capital flood is what worries me a little.

Take Qualcomm. Two weeks ago, it was a beloved chip stock. Up 39% in April. Then last Tuesday, it dropped 13% in a single session. Why did the market reward it so generously? No particularly good fundamental reason. Just enthusiasm. Just capital flooding into anything with the letters “A-I” nearby. That's not investing. That's musical chairs.

Here's the setup nobody wants to talk about: higher interest rates are no longer just a worry. They're a reality. April CPI came in hot. Producer prices recorded their largest rise in four years. The 10-year yield is back above 4.5%. The probability of a December rate hike has climbed to almost 40%. And those higher rates are driving the dollar higher, which is now another headwind for the market.

Higher yields pressure valuations - especially in tech, where future earnings get discounted back at higher discount rates and matter less. A stronger dollar squeezes exporters. Bonds and most commodities (except oil) face headwinds. Small caps are giving back some of their relative advantage because they're especially sensitive to rates, even though they're not particularly sensitive to the dollar.

The next three months may be a reality check. Not a crash. Not a bear market. Just a reminder that gravity exists in markets, too. When yields rise and the dollar strengthens, valuations get tested. The companies that earn their multiple keep theirs. The companies that don't give back.

The S&P at 7,500 is impressive. So was the Nasdaq above 26,500. But sentiment is frothy. The kind of froth that draws capital into stocks without good reason. Stay away from the risky bets right now. The setup favors discipline over enthusiasm.

A whipsaw week with new records, a hot inflation print, a Trump-Xi summit, and a Friday selloff. Here's how it played out:

Monday (May 11): The S&P hit a new all-time high of 7,412.84, the Nasdaq closed at 26,274, and the Dow advanced. The driver: AI tech, particularly chip stocks, as JPMorgan's private bank wrote in a research note that the AI supercycle “may just be getting started.” Yardeni Research raised its year-end S&P target to 8,250, citing earnings momentum. But Trump rejected Iran's counteroffer as “TOTALLY UNACCEPTABLE” and declared the ceasefire on “life support”. Oil rose. The market shrugged.

Tuesday (May 12): The inflation data hit. April CPI came in at 3.8% annual, the highest since May 2023. Headline monthly inflation was 0.6%. Core CPI rose 0.4% monthly and 2.8% annually above expectations. The reaction was sharp. Chip stocks got crushed. Qualcomm dropped 13%, its worst session since 2020. Intel fell 8%. AMD lost 2%. Micron dropped 3.6%. The semiconductor ETF lost 5%. The S&P closed at 7,400.96, down 0.16%. Brent crude climbed above $107. WTI moved above $102. Kevin Warsh was confirmed by the Senate as the new Fed Chair the same day. Rate hike probability for December jumped from 21.5% to 30.5% in a single trading session.

Wednesday (May 13): The bounce. Tech-led. Both the Nasdaq and S&P set fresh record closes. The market shrugged off the CPI shock for a single session, focusing instead on earnings and the Trump-Xi summit, which begins Thursday.

Thursday (May 14): The S&P closed above 7,500 for the first time in history at 7,500.61. The Dow retook 50,000 for the first time since February. Cisco beat earnings, supporting the AI infrastructure story. Cerebras Systems debuted on Nasdaq and surged 68%. Trump and Xi held their first day of summit meetings in Beijing. The two leaders agreed that the Strait of Hormuz should remain a free waterway and that Iran should not be able to impose tolls on shipping traffic - a quiet but consequential alignment. Trump announced that China had agreed to buy 200 Boeing aircraft, though the number was only modestly above market expectations. Bitcoin slipped to around $79,800.

Friday (May 15): The pullback. The S&P fell 1.14% to about 7,422. The Nasdaq dropped 1.62%. The Dow lost 1.07% to 49,580. The Russell 2000 fell 2.10%. NVIDIA dropped 4%. Boeing fell another 3.74% as investors decided the China order was less generous than expected. Intel was down 5%. AMD lost 3%. Micron lost 4%. Cerebras gave back 4% after yesterday's 68% surge. Microsoft was a bright spot, rising 4% after Bill Ackman's Pershing Square disclosed a new position. Oil climbed. The 10-year yield rose. The dollar firmed. The VIX jumped to 18.

The market is at an all-time high. Earnings are extraordinary. The labor market is holding. So why do the next three months feel different?

Because the conditions that made the rally possible are starting to shift. The Fed has held rates steady, but the bond market stopped waiting. The 10-year yield climbed to 4.55%, well above its level in March, when the war began. The dollar is strengthening. The probability of a December rate hike is over 30%.

Higher rates and a stronger dollar are not the end of the world. But they are headwinds. Higher yields put pressure on valuations, especially in tech. The math is simple: when the rate you discount future earnings by goes up, the present value of those earnings comes down. Companies trading on long-duration growth narratives feel that math first.

A stronger dollar hurts exporters. The big tech names that generate substantial revenue overseas get squeezed when those earnings are repatriated into fewer dollars. Caterpillar, Boeing, and other industrial bellwethers feel it.

Small caps are caught in a different trap. They're sensitive to rates because they borrow at variable rates. They're not especially sensitive to the dollar because most of their revenue is domestic. So they're giving back the relative gains they posted earlier this year. The Russell 2000 fell 2.1% Friday alone.

Dean’s note:
None of this is a crisis. It's gravity. Markets that rise 17% in 6 weeks tend to consolidate. The question isn't whether some air comes out. It's whether the foundation underneath holds. Earnings say yes. The labor market says yes. The AI infrastructure buildout says yes.

But sentiment got frothy. Capital flooded into stocks that didn't earn the love. Now we may pay for some of that excess. That's not a reason to sell. It's a reason to stay disciplined and stop chasing.

Let me tell you about Qualcomm.

For most of April, Qualcomm gained 39%. People treated it like a generational discovery. Earnings were good. The story was good. The chip narrative was hot. So far, so reasonable.

But the move from solid earnings beat to +39% in a single month wasn't reasonable. It was capital flooding into anything connected to AI. And when capital floods in without much discrimination, the same capital floods out at the first whiff of trouble.

Tuesday, Qualcomm dropped 13%. Worst session since 2020. By Friday, it had given back more. Same company. Same products. Same earnings. The only thing that changed was the music stopping.

This is the most important investing lesson of 2026 in a single stock. Markets that look frothy reward stocks that haven't fully earned the reward. When the froth fades, those stocks fade first.

Dean’s note:
Why did the market reward Qualcomm so generously in the past few weeks? No good reason. Just floods of capital searching for homes. That's not a thesis. That's liquidity. And liquidity moves both directions.

If you can't explain why you own something in one sentence, you don't own it for the right reason. That's the lesson Qualcomm just taught everyone for free. Don't make me write it again next quarter.

Trump and Xi met for two days in Beijing this week. It was the first time a sitting U.S. president had visited China in nearly a decade. The market wanted big deliverables. It got a mixed bag.

What was announced: China agreed to buy 200 Boeing aircraft (the market wanted more), the two countries agreed to extend their tariff truce, increased Chinese purchases of U.S. soybeans and agricultural goods were on the table, and the Strait of Hormuz should remain free of tolls - a clear, if quiet, alignment with U.S. policy. Xi also expressed interest in buying more American oil to reduce China's long-term reliance on the Strait.

What wasn't announced: a hard, rare earth metals deal, an explicit Chinese pledge to pressure Iran into a ceasefire, or any major shift on Taiwan. Xi told Trump that Taiwan's mishandling would put the relationship “in great jeopardy” - that was the warning.

Boeing's stock fell on Friday. The 200-plane order wasn't generous enough to justify the stock's run-up into the meeting. Classic case of the market pricing in too much, then having to walk it back.

Dean’s note:
The most important thing said at the summit had nothing to do with planes or soybeans. It was the joint agreement on the Strait of Hormuz. The two largest economies on Earth publicly aligned in support of the Strait being free and of tolls not being tolerated. That puts diplomatic pressure on Iran from an unexpected quarter.

China, being the largest buyer of Iranian oil, means Beijing's position carries real weight in Tehran. The market mostly ignored this. If Iran reads the same statement I did, the path to a deal just got a little wider.

Two announcements this week that didn't make front-page headlines but tell you a lot about where corporate America is headed.

Verizon confirmed a new round of layoffs. CFO Tony Skiadas said the company is chasing $5 billion in operating expense savings by the end of 2026. This is on top of the 13,000-employee reduction the company completed earlier this year - the largest in its history.

Starbucks announced 300 corporate layoffs as part of its turnaround strategy. The company is closing some regional support offices. The combined severance and office reassessment costs will hit $400 million in restructuring charges.

Both companies are profitable. Both are reducing headcount. Why?

Dean’s note:
Margin expansion in the AI era will come from doing more with fewer people. Verizon's CFO basically said it out loud: we're betting on AI. Starbucks is reorganizing because its customer base wants different things, and the corporate office has gotten too big. These are not crisis announcements. These are reality announcements.

The companies that beat earnings the loudest this year did it by cutting costs while raising prices and revenue. That's the recipe for the record-high net profit margins we've been seeing. It's also why the labor market data is so important to watch over the next three months. The jobs aren't gone yet. But the playbook has changed.

Stay invested. Stay disciplined. Stop chasing.

A whipsaw week with new records, a hot inflation print, the Trump-Xi summit, and a Friday pullback. The seven-week winning streak ended. The bill for the recent froth came due.

•   The S&P touched 7,500. The Nasdaq topped 26,500. The Dow reclaimed 50,000. Then Friday hit. This is not a crisis. This is gravity. Markets that rise 17% in 6 weeks tend to consolidate. The question isn't whether some air comes out of frothy parts. It's whether the underlying earnings story holds. So far, the answer is yes.

•    Higher rates and a stronger dollar are the new headwinds. The 10-year yield is at 4.55%. The probability of a December rate hike is 30%. The dollar is firming up. These conditions hurt bonds and most commodities (oil is the exception, demand and supply still matter more than dollar moves there). They put pressure on tech valuations through the discount rate. They squeeze exporters. They're not catastrophic. They're real.

•    Small caps are giving back relative gains because they're rate-sensitive. The Russell 2000 fell 2.1% Friday alone. The small-cap rally that started earlier this year was partly built on the hope of Fed cuts. The cuts aren't coming on the timeline the market priced in. That has consequences.

•   The Qualcomm move is the lesson of the quarter. Up 39% in April without earning the love. Down sharply in May when sentiment turned. If you can't explain in one sentence why you own a stock, you don't own it for the right reason. That's not preaching. That's a free education.

•  The Trump-Xi summit produced a quiet but significant alignment: both countries publicly agreed the Strait of Hormuz must stay free and toll-free. The market mostly ignored it. I'm watching it. China is Iran's biggest oil buyer. When Beijing signs onto Washington's position on the Strait, Tehran feels it.

•    Verizon and Starbucks layoffs are the quiet margin story. Companies are getting more efficient. That's how net profit margins hit 14.7% in Q1 in the middle of a war. The AI productivity gains are real. They're showing up in earnings. They're also reshaping the labor market in ways that matter for the next three months.

•    Nvidia reports on Wednesday. This is the earnings event of the quarter. Watch the capex guidance. Watch the agentic AI commentary. Watch the China revenue. Watch the gross margin. If the report disappoints, the Friday move tells you what comes next. If it beats and raises, the rally has more room.

•    Keep contributing to your 401(k). The $24,500 limit is in effect. The $35,750 super catch-up for 60- to 63-year-olds is available if you qualify. You're buying near all-time highs. That's uncomfortable. It's also true for almost every period since 2010. Dollar-cost averaging doesn't care about price. It cares about process. Show up.

The next three months may be a reality check. Not a crash. Not a recession. Not the end of the bull market. Just a reminder that gravity exists. Higher rates and a stronger dollar will test valuations. Stocks that earned their multiples will keep them. Stocks that rode the froth will give some back.

Stay invested. Stay diversified. Stop chasing. Watch Wednesday.

 - Dean

P.S. The number that sticks with me this week: 4.55%. That's the 10-year yield as of Friday. Back in March, when the war began, it sat at 4.42%. The Fed has held rates steady the whole time. So why is the yield higher than when the war started? Because the bond market has decided that the inflation from this oil shock isn't going away on the Fed's schedule. That repricing has consequences. Higher yields create headwinds for everything that's rate-sensitive. Tech valuations. Bond prices. Mortgage rates. Small-cap balance sheets. The bond market is the smartest market most of the time. Right now, it's telling you to expect a reality check. Don't panic. Don't cheer. Just listen.

And one more thought. Bill Ackman's Pershing Square took a new position in Microsoft this week. The stock jumped 4% on the news while almost everything else was selling off. I bring this up not because I think you should follow Ackman, but because of the timing. He chose Microsoft, a company already up significantly this year, with valuations that some call rich, during a week the broader market was wobbling. That's a vote for quality.

For durability. For companies whose AI story is real and whose customer base is sticky. The recent rally was a rising tide. The next three months may be a tide that goes back out, revealing which boats were anchored to something real. Microsoft, by Ackman's read, is anchored. That logic is the playbook for navigating what may come.

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This newsletter is for informational purposes only and does not constitute investment advice. Past performance is not indicative of future results. Consult with a qualified financial advisor before making any investment decisions.