US Markets Reopen After Memorial Day: S&P 500 & Nasdaq Hit Records on AI Surge; US Conducts Self-Defense Strikes on Iran Missile Sites; 30Y Treasury Eases to 5.024%

US financial markets reopened on Tuesday May 26 after the Memorial Day holiday to a complex macro backdrop: equities surged on AI-driven momentum, Treasury yields fell on Iran peace optimism, but oil spiked intraday after the US military conducted 'self-defense strikes' on Iranian missile launch sites and small boats near the Strait of Hormuz. **Equity Market — S&P 500 and Nasdaq Hit New Record Closes:** - **S&P 500**: +0.61% to 7,519.12 — a new record close, the 9th consecutive weekly-level gain - **Nasdaq Composite**: +1.19% to 26,656.18 — new record close, driven primarily by AI-semiconductor names - **Dow Jones Industrial Average**: -0.23% (−118 pts) to 50,461.68 - **Micron Technology (MU)**: surged +19% after UBS upgrade, crossing a $1 trillion market cap for the first time — the catalyst for the AI-chip complex rally - AMD, Qualcomm, and Alphabet (Google) also advanced sharply - The S&P 500 / equity rally represents an extraordinary 'sentiment-spending divergence': Michigan Consumer Sentiment at a 70-year record low of 44.8 yet the stock market is repeatedly hitting all-time highs **Treasury Yields — Bond Market Rally on Iran Peace Optimism:** US Treasury yields fell materially as markets reopened, pricing in Trump's Memorial Day 'constructive' Iran statement: - **10-Year Treasury**: fell ~8 basis points to **4.489%** (from ~4.57% on May 23 close) - **2-Year Treasury**: fell ~8 bps to **4.04%** - **30-Year Treasury**: fell ~5 bps to **5.024%** — easing from the 5.086% May 22 close and the 5.189% May 19 19-year high - The 30Y yield at 5.024% remains structurally elevated — driven by Moody's Aa1 downgrade, Warsh's QT plans, and Big Beautiful Bill fiscal expansion — but Iran peace progress is the single-session relief factor **US Self-Defense Strikes on Iran — Oil Volatility Returns:** US Central Command carried out 'self-defense strikes' on Iranian missile launch sites and small boats near the Strait of Hormuz on May 26, responding to a 24-hour IRGC campaign of missile, drone, and small-boat harassment: - Iran immediately vowed retaliation — Brent crude jumped **more than 3% intraday** on the news - Despite the intraday spike, Brent remained below $103 as markets priced the strikes as defensive rather than escalatory - US and Iran negotiating teams were simultaneously conducting peace negotiations via Gulf facilitators — the contradiction of 'striking while talking' is seen by analysts as a pressure tactic - Secretary of State Rubio (attending G7 Foreign Ministers in Rome): characterized the strikes as 'limited self-defense response' and confirmed negotiations continue - Oil market: Brent ended the day roughly flat to slightly elevated vs the $97 Memorial Day level as peace-talk optimism (driving yields down) and Iran retaliation threats (driving oil up) roughly offset each other **Recession Implications:** - The S&P 500 record close at 7,519.12 confirms the 'equity wealth effect' remains intact even as consumer sentiment hits 70-year lows — a divergence without historical precedent - Treasury 30Y easing to 5.024% provides marginal relief on mortgage rates (30Y fixed ~7.4-7.5%) — a modest positive for the housing sector - The Iran self-defense strikes, while not a full escalation, reinforce the IEA's warning that the 6 Mbpd structural supply deficit persists until Q4 2026 regardless of negotiating progress - S&P Global's May Flash PMI (released May 22) had flagged a Q2 GDP trajectory of ~1% annualized — a 'near stall speed' level that suggests the equity rally is not matched by the real economy - Key risk: May 28 (next day +2) PCE April + Q1 GDP 2nd estimate — if PCE exceeds 3.2% core, the 30Y Treasury rally could reverse rapidly