| CAPITAL SEASONS Weekly Market Intelligence | 30 May 2026 | SPRING Plant & Build |
Section 1: The Three Forces — Where Do We Stand?
This commentary is grounded in the investment principles outlined in Dr Bart DiLiddo’s book — specifically the three forces that drive all stock prices: earnings, inflation, and interest rates. The Capital Seasons framework builds on these principles in its own way.
Force 1: Earnings — A Season of Exceptional Results
Q1 2026 earnings season is now largely complete, with 89% of S&P 500 companies having reported. The results are among the best in four years. Some 84% of those companies beat earnings estimates — the highest beat rate since 2021 — and they beat them by a wide margin, with earnings coming in roughly 18% above what analysts had forecast. Blended year-on-year earnings growth for the quarter sits at approximately 28%, the strongest reading since late 2021.
Ten of eleven sectors are growing earnings year-on-year, with Technology and Communication Services leading. Revenue growth is equally strong at around 11%, the best in four years. This is not a single sector doing the heavy lifting — it is broad. When companies consistently earn more than expected across the economy, that is the earnings pillar doing its job.
| Earnings verdict: Strongly positive. The profit engine is running at near-record efficiency. This is the most important of the three forces, and right now it is firmly in your corner. |
Force 2: Inflation — A Complicated Picture, at Home and Abroad
Globally, the inflation picture has been complicated by the Strait of Hormuz conflict. Oil prices spiked sharply in April and May before pulling back as ceasefire negotiations progressed — WTI crude has fallen from highs above $106 to around $87 by week’s end. That is still elevated relative to a year ago, but the direction of travel has shifted.
In South Africa, the picture is more direct. April CPI came in at 4.0%, pushed higher by fuel costs. The SARB now expects inflation to average 4.4% in 2026 — well above where it stood a few months ago. That upward revision to the inflation forecast is precisely why the Reserve Bank moved this week.
| Inflation verdict: The global trend is still disinflationary, but the pace has been disrupted by the oil shock. South Africa faces its own version of this — imported inflation through fuel — and the SARB has responded accordingly. Not a crisis, but not comfortable either. |
Force 3: Interest Rates — The SARB Pulls the Trigger
On 28 May, the South African Reserve Bank raised the repo rate by 25 basis points to 7.00%, bringing the prime lending rate to 10.5%. This is the first rate hike since May 2023 — a meaningful shift in direction after a period of gradual easing.
The vote was split: four members backed the increase, two favoured holding. The MPC debated a larger 50 basis point move but opted for the cautious step. Governor Kganyago was clear about the reasoning — inflation risks are tilted upward, driven by the oil shock, the potential for El Niño conditions affecting food prices, and a rand that remains vulnerable to global shocks. The SARB also lowered its SA growth forecast for 2026 from 1.4% to 1.2%.
Moody’s upgraded South Africa’s credit rating last week, which provides some offset — it signals improving fiscal credibility and reduces the country’s risk premium. But for consumers with home loans, vehicle finance, or credit card debt, the rate increase is immediate and real. Each 25 basis point move adds roughly R200 per month per R1 million of bond debt.
| Interest rates verdict: The SARB hike is the dominant local story this week. It is not a sign of panic — it is a pre-emptive move to defend credibility. But it is a clear signal that the rate cutting cycle is over, and South Africans with debt need to factor this into their planning. The question is whether this is a one-off or the beginning of a new tightening cycle. The model points to potentially two to three more hikes if inflation does not moderate. |
Section 2: Market Weather Map
Market Pulse Index (MPI v3) — 1.43 / 2.00 | Spring
The MPI this week uses our updated methodology: the breadth score now draws from 3,469 SA Quant-rated stocks across all cap tiers, not eleven sector ETFs. This gives a much finer read on what is actually happening under the surface of the market.
| Component | Score | Reading |
| Fear (VIX 4W MA: 16.91) | 1.5 | 4-week average sits in the 16.5–18 band — calm and settling. Raw VIX at 15.32. |
| Breadth (BB Spread: +3.8%) | 1.5 | 3,469 stocks: +18.6% bullish, 14.7% bearish. Net spread in the +3–8% constructive band. |
| Momentum (avg sector 1M: +2.1%) | 1.3 | Positive but moderate. April gains have rolled out of the 1-month window. |
| MPI Total | 1.43 | Spring — planting conditions intact, not yet Late Spring. |
Cap Tier Gradient — The Under-Surface View
This is new this week. Rather than relying on 11 sector ETFs, we now look at how 3,469 investable stocks are positioned across market cap tiers. The gradient tells you whether the whole market is participating — or whether strength is concentrated at the top.
| Cap Tier | N | BB Spread | Sentiment | SS% |
| Mega cap | 80 | +15.0% | +0.287 | 0.0% |
| Large cap | 1,091 | +8.5% | +0.163 | 2.2% |
| Mid cap | 1,083 | +6.0% | +0.102 | 5.2% |
| Small cap | 1,215 | -3.0% | -0.045 | 10.5% |
| What this gradient is telling us: the market is healthy at the top but softening at the bottom. Mega caps are solidly positive. Small caps are already slightly negative, and their Strong Sell percentage at 10.5% is at the level where we start watching carefully. In a broad bull market, all tiers move together. When small caps lag while mega caps hold, it is a classic early-stage distribution pattern — typically a 4–8 week leading indicator of broader weakness. Not a sell signal. A watch signal. |
Key Market Indicators
| Indicator | Level | vs 50D SMA | Signal |
| SPY — S&P 500 | $756.48 | +7.5% | Spring confirmed |
| QQQ — Nasdaq | $738.31 | +13.1% | Tech strength intact |
| VIX — Fear | 15.32 | -13.8% | Calm — edging to 15 |
| IWM — Small cap | $290.43 | +7.6% | Recovering — breadth check |
| GLD — Gold | $417.12 | -1.9% | Below 50D — consolidating |
| HYG — High Yield | $80.31 | +0.5% | Credit stable |
| UUP — USD | $27.66 | +0.3% | Mild dollar strength |
| ZAR/USD | R16.24 | +1.6% | Rand stronger — see SA note |
The Rand and SA Rate Hike — What It Means for Your Investments
The rand has strengthened by 3.7% against the dollar over the past month, sitting at R16.24/USD. For South Africans spending in rands, that is welcome news — imported goods cost less, and it reflects improving risk sentiment toward SA assets, supported by last week’s Moody’s upgrade.
But for investors holding US-denominated assets — whether through ETFs like CSP500 or STXNDQ, or any offshore investment — a stronger rand is a headwind. Every dollar of gain converts to fewer rands. That does not change the case for offshore exposure. It just explains why your rand returns may look softer this month despite the underlying investment performing well.
The SARB rate hike adds another layer. Higher rates in South Africa make rand-denominated assets slightly more attractive to foreign investors, which can support the rand further in the near term. Over time, if the rate cycle continues, it will affect the cost of capital for SA businesses and consumer spending power. This is the interest rate force operating locally — and it is now a headwind for SA economic growth.
Section 3: Sector Sensei — Where Is the Rotation?
The Sector Sensei reads the 11 core US market sectors each week. The 50-day moving average is the dividing line. Above it — healthy trend. Below it — caution.
| ETF | Sector | 1-Month | vs 50D SMA |
| XLK | Technology | 20.1% | 21.4% |
| XLV | Health Care | 4.6% | 2.1% |
| XLY | Consumer Disc. | 3.5% | 4.6% |
| XLI | Industrials | 1.9% | 1.9% |
| XLRE | Real Estate | 0.8% | 1.9% |
| XLB | Materials | 0.4% | 0.7% |
| XLC | Communication | 0.4% | 0.7% |
| XLF | Financials | -0.7% | 1.1% |
| XLP | Consumer Staples | -0.0% | -0.2% |
| XLU | Utilities | -2.8% | -2.6% |
| XLE | Energy | -4.6% | -3.5% |
Reading the Rotation
Technology continues to dominate. XLK is up 20.1% for the month and sits 21.4% above its 50-day moving average — a move driven by AI-related earnings results from the major technology companies. This kind of single-sector dominance is worth watching. Markets led by one sector are inherently narrower than they appear.
Health Care has made a quiet recovery, up 4.6% for the month and holding its 50-day line. Consumer Discretionary and Industrials are both positive and above trend — the cyclical sectors are participating, which is constructive. When cyclicals and technology move together, it typically reflects genuine optimism about economic growth.
Financials slipped 0.7% on the month but remain above their 50-day line. Worth monitoring — financials often lead market direction changes, and with global rate uncertainty elevated, they deserve attention.
Energy is the clear laggard, down 4.6% and sitting 3.5% below its 50-day average. WTI crude has fallen sharply from its April peak as Iran ceasefire negotiations progressed. This is a significant reversal and explains some of the drag we see in the broader market breadth numbers when you look at the full stock universe rather than just sector ETFs.
| Rotation summary: 8 of 11 sectors above their 50-day averages. Technology is doing the heavy lifting. The cyclicals are supporting. Energy and Utilities are the weak points. Breadth is adequate, not exceptional — which is consistent with the MPI reading of 1.43. |
What to Watch This Week
- Technology (XLK): A 20% one-month move is extraordinary. Expect consolidation. A pullback toward the 50-day would be healthy — watch whether other sectors pick up the leadership baton.
- Small cap Strong Sell%: Now at 10.5%. If this moves above 12–15%, it will show up as a breadth warning before price breaks. Track it weekly — it is your early warning system.
- Energy (XLE): Watch for stabilisation around current levels. If oil finds a floor on Iran deal uncertainty, energy could become a rotation opportunity.
- SA Rate cycle: The SARB model points to potentially two to three more hikes. Watch the May CPI release (due in June) for the next data point. If inflation moderates, the hike cycle may be shorter than feared.
| Capital Seasons | capitalseasons.co.za | Mari Tait This commentary is grounded in the investment principles outlined in Dr Bart DiLiddo’s book — specifically the three forces that drive all stock prices: earnings, inflation, and interest rates. The Capital Seasons framework builds on these principles in its own way. For educational purposes only. Not financial advice. Past performance is not a guarantee of future results. |
Spring holds — but listen to the small caps