AI Spending, Strong Earnings Help Stocks Weather Oil Shock, Rigney Says

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Rigney Financial Services says the stock market’s recent strength may surprise investors, particularly with oil prices above $100 a barrel, but strong corporate earnings and artificial intelligence investment continue to support the bull market.

In its May client letter, Rigney Financial said economic growth is moderating, with first-quarter GDP coming in at 2% as consumer spending cooled. LPL Research lowered its U.S. economic growth forecast for 2026 to 2.0%, down from 2.7% before the Iran conflict.

Business investment, government spending, and AI spending are helping offset softer consumer demand, according to the letter. Rigney also said strong corporate profits and a resilient labor market give the Federal Reserve room to be patient, making 2026 rate cuts less certain.

“Inflation will continue to take its cues from the oil markets, underscoring the importance of monitoring developments in the Middle East closely,” Wayne Rigney wrote.

Despite those pressures, the firm said the bull market still has room to run, driven largely by optimism around AI. Stocks posted a strong April, with double-digit gains across most broad indexes, while earnings strength kept the S&P 500 price-to-earnings ratio near 21.

“If AI spending comes through and is viewed as productive, this bull market should still have legs,” Rigney wrote.

The letter said investors should still expect volatility tied to Middle East headlines and oil prices in the near term.

Earnings remain a key support for stocks. First-quarter earnings growth for S&P 500 companies is tracking above 20%, according to the letter, helped by technology investment, AI-driven productivity gains, and fiscal stimulus.

Rigney said capital investment plans for 2026 by AI hyperscalers have increased by more than $200 billion this year to over $725 billion, creating potential opportunities for companies involved in AI infrastructure, particularly semiconductor firms.

“While geopolitical risks and energy price swings can distract markets in the short term, earnings strength remains critical to sustaining stock prices over time,” Rigney wrote.

LPL Research’s weekly market data through May 8 showed the S&P 500 up 2.17% for the week and 7.91% year to date, while the Nasdaq Composite rose 4.35% for the week and 12.75% year to date. Information technology led the S&P 500 sectors with a 6.86% weekly gain, while energy fell 5.24% as oil declined 6.26%.

In fixed income, Rigney said starting yields remain attractive compared with historical levels. The firm continues to emphasize income generation over price appreciation, particularly as future policy rate cuts could eventually reduce returns on cash.

Rigney said high-quality bonds with intermediate maturities may become more attractive as portfolio stabilizers and income generators once rates move lower.

The firm said it continues to see a constructive investment environment but warned that patience and discipline will likely be needed through the rest of 2026.

“Bouts of volatility remain likely, but fundamentals, particularly earnings, continue to underpin our confidence long term,” Rigney wrote.

The letter states that the material is for general information only, does not provide individualized investment advice, and does not guarantee future results.

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