US Expat Weekly Review – May 17, 2026

What Does the Return of Inflation Mean for Your Portfolio?

April’s CPI reading came in at 3.8% — the hottest reading since May 2023 — catching markets off guard and reigniting fears of a more persistent inflationary cycle. Combined with rising energy prices tied to the ongoing Iran conflict and a Federal Reserve navigating a leadership transition (Jerome Powell’s term expired May 15, with Kevin Warsh awaiting Senate confirmation), investors are now facing a fundamentally different rate environment than the one that drove equity gains through late 2025.

The Federal Reserve held its benchmark rate at 3.5%–3.75% at its April meeting, but markets are now pricing in a 37% probability of a rate hike before year-end. For portfolios, this shift carries meaningful implications across asset classes.

Fixed Income & Duration: Why It Matters Now

What is duration? Duration is a measure of a bond’s sensitivity to changes in interest rates. Simply put, the longer the duration of a bond or bond fund, the more its price falls when interest rates rise — and vice versa. A bond with a duration of 10 years will lose approximately 10% of its value for every 1% increase in interest rates. A bond with a duration of 3 years will lose only around 3%. It is one of the most important risk levers in any fixed income portfolio.

Why it matters right now: With inflation re-accelerating to 3.8% and rate hike probabilities rising, bonds with long durations are particularly exposed. The US 10-year Treasury yield moved to 4.68% this week — a direct reflection of the market repricing the rate path higher. Investors holding long-duration bond funds are feeling this in their valuations today.

What we have done differently: Within our actively managed fixed income portfolios, we have consistently maintained a lower-than-benchmark duration posture. Rather than passively tracking an index that locks in long-dated exposure, our approach has been to concentrate holdings in the shorter-to-intermediate part of the yield curve (typically 3–7 years) and to actively adjust positioning as the rate environment shifts. This is one of the core advantages of active management in fixed income — the ability to reduce duration when rates are rising, without being forced to hold long-dated bonds simply because an index mandates it.

Equities

While equities have broadly held up — the S&P 500 reached a record above 7,300 and the Dow reclaimed 50,000 earlier this month — inflation persistently above 2% compresses P/E multiples over time, particularly for long-duration growth stocks. Value-oriented sectors and dividend payers historically perform better in inflationary environments, and that dynamic appears to be playing out again now.

Real Assets

Commodities, infrastructure, and selective REIT exposure provide a natural inflation hedge. Energy exposure has become a particularly timely consideration, as oil prices continue to respond to geopolitical developments in the Middle East.

The bottom line: higher-for-longer rates demand a more active and diversified approach. If you’d like to review how your current allocation positions you for this environment, I’d welcome the conversation.

Weekly Market Review

US equity markets pulled back this week as investors processed a pair of headwinds: a hotter-than-expected April CPI print of 3.8% and stalling US–Iran peace negotiations that kept energy prices elevated. The S&P 500 and Dow Jones Industrial Average had reached significant milestones earlier in May — the index breached 7,300 and the Dow reclaimed 50,000 — but gave back ground as the week progressed. Technology and semiconductor stocks bore the brunt of the selling, with Intel falling 5%, Micron Technology declining 4%, and AMD sliding 3% as investors took profits following a strong run. Energy-related names bucked the broader trend, benefiting from higher crude oil prices driven by supply disruption fears surrounding the Strait of Hormuz. The market is now recalibrating around the possibility that the Federal Reserve, under incoming Chair Kevin Warsh, may need to resume hiking rather than cutting rates.

Major Indices This Week

Top 3 Performers This Week

Bottom 3 Performers This Week