Stocks Slip Further as Wall Street Tests Fed Chair Warsh’s Tolerance for Volatility: May 18, 2026

Ongoing tensions between the US and Iran have investors reexamining their risk exposures as they start to increasingly view the glass as half-empty. The continued grapple along the Strait of Hormuz has led to sustained climbs in oil prices and interest rates as global inflation rates are jumping well above central bank targets and cost forces are broadening to the overall economy in a way that could materially alter price pressure expectations. The hawkish developments occur just as Kevin Warsh gears up in his first week at the helm of the Fed, with stocks extending their fall from Friday. Speculative enthusiasms are certainly cooling off as a result, with the Nasdaq, tech, semiconductors suffering the heaviest losses. Still, participants are doing some shopping, as 6 of the 11 major sectors are advancing, with communications services, energy and consumer staples sporting the strongest gains of the session. The economic calendar featured an improvement and surprise beat in homebuilder sentiment, which is generating buy orders for shares of real estate names and residential construction firms. Meanwhile, the overnight surge in yields has been pared back this morning, with Treasurys and the greenback near their respective flatline, and that’s helping to temper the volatility lift in equities. Elsewhere, commodities are catching bids.

Homebuilder Sentiment Improves but Is Still Negative

May homebuilder sentiment recovered from a seven-month low as less dire conditions drove a beat for the indicator. The NAHB/Well Fargo headline result of 37 exceeded the median estimate of 35 and April’s 34, as single-family sales momentum in the present, the outlook for closings in the next six months and the traffic of prospective buyers all improved from 37, 42 and 22 to 40, 45 and 25. Additionally, all four regions experienced lifts, with the Midwest, Northeast, South and West increasing from 39, 39, 34 and 26 to 45, 44, 36 and 27. The numbers across segments and geographies are well below the 50 level that would indicate positivity; however, the improvement is welcome for a sector that continues to suffer from recession as elevated mortgages rates, lofty valuations and subdued affordability have weighed on the industry since 2022.

Past performance is not indicative of future results.

Almost Three Months of War Are Showing Their Impact

With the US-Iran war closing in on three months of duration next week, the adverse impacts of the conflict are becoming increasingly difficult to manage economically. Against that backdrop, Wall Street is adjusting its positioning in light of the macro headwinds, as resurging inflation and soaring bond yields alongside prospects for profit margin compression and softening consumer spending may cause damage to the buoyant outlook for corporate earnings. In consideration of the challenges, investors have gravitated to the theme of artificial intelligence by piling into tech stocks and semiconductor names since the surge in capital expenditures isn’t too affected by the cyclical obstacles of the moment. But the losses of the last two days illustrate how rising credit costs can sink risk premiums and weigh on speculative energies in markets. It’s precisely the speed of the jump rates that has caught equity bulls off guard, as the forward-looking implications of tighter monetary policy and unsustainable fiscal budgets deplete animal spirits.

International Roundup

China Warns of Economic Instability as Econ Data Disappoints

China’s latest batch of economic data for April points to struggling consumers and slowing industrial activity, and the country’s chief economist is warning that the Middle East crisis has increased the difficulty of the economic recovery. The comments and sluggish data have surfaced as observers assess the impact of the US-Iran war and the Israel-Lebanon conflict on China. On a positive note, the April unemployment rate was an outlier, posting a 0.2 percentage point decline from March’s 5.4% level and falling below the economist consensus estimate of 5.3%.

Chinese Consumers Cut Spending as Home Values Fall

April retail sales grew only 0.2% year over year (y/y), considerably weaker than the 1.7% expansion in March and substantially below the 2% economist consensus estimate. It was the slowest growth rate since late 2022. The April weakness was led by automobile sales, which sank 21.6% y/y. House prices, furthermore, continued their multi-year decline, descending by 3.5% y/y following March’s 3.4% drop. With the exception of two instances when prices were either flat or climbed 0.1%, homes have lost value every month since April 2022.

Industrial Production and Fixed Asset Investment Also Weaken

China’s Industrial production growth slowed from 6.1% y/y in March to 5.6% last month and missed the economist consensus estimate of 6%. Fixed asset investment was also disappointing, declining 1.6% y/y in April. Economists anticipated that March’s 1.7% growth rate would repeat during the month.

Singapore Trade Surplus Grows

Strong demand for artificial intelligence products pushed Singapore’s trade surplus up from SGD 11.12 billion in March to SGD 13 billion last month, according to Enterprise Singapore. The country’s non-oil shipments to foreign lands soared 11% month over month (m/m) and 24.5% y/y after climbing 3% and 15.3% in March. During the month, demand from foreign markets for disk media products, integrated circuits and personal computers climbed by 148%, 82.7% and 35.7%. Regarding countries, exports to the US, after falling 2.8% y/y in March, jumped 59.6% with electronics up 224%. The value of goods sent to South Korea and Hong Kong, furthermore, advanced by 71.2% and 63.2%. China, meanwhile, increased its purchases of Singaporean items by 37.8%.