CAPITAL SEASONS
Weekly Newsletter · Week ending 16 May 2026
Invest with the seasons. Not the noise. | capitalseasons.co.za
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.
THIS WEEK’S WEATHER MAP
| SEASON 🌱 Spring — Deepening | WEEKLY SIGNAL Mixed Conditions | POSTURE Grow with discipline |
Spring is deepening. Both the S&P 500 and Nasdaq remain well above their 50-day moving averages — SPY is +8.6% and QQQ is +14.4% above their 50-day lines. The structural foundation of Spring is intact. VIX ticked slightly above 18 this week, landing at 18.43, nudging our Market Pulse Index down from last week’s elevated reading of 1.87 to 1.50, still firmly in the Spring range. Consider it the market pausing to catch its breath after a strong run.
That said, internal market signals are worth watching closely. Breadth readings across individual stocks have softened somewhat this week, with the balance between buyers and sellers tightening. The season has not changed. The posture has not changed. What we’re watching is whether this pause deepens or resolves.
| MPI SCORE 1.50 — Spring | FEAR SCORE 1.3 (VIX 18.43) | BREADTH SCORE 1.6 (82.7% sectors) | MOMENTUM SCORE 1.6 (avg +4.82% 1M) |
EARNINGS — THE FIRST FORCE
Q1 2026 earnings season is drawing to a close, and the results have been genuinely impressive. With 91% of S&P 500 companies now reported, 84% beat earnings estimates — the highest beat rate since Q2 2021. Companies have reported earnings an average of 18% above expectations, far above the long-term historical average of around 7%. Net profit margins came in at 14.7% for the quarter, a record since data collection began. The 50-day moving average of forward earnings continues to trend upward and the Earnings Trend Indicator remains above 1.00, confirming a bull market scenario on the earnings pillar alone.
Looking ahead, analysts are projecting earnings growth of around 21% for Q2 and 23% for Q3 2026. The earnings picture is strong. It is the clearest supportive force for the current Spring environment.
INFLATION & INTEREST RATES — THE SECOND AND THIRD FORCES
The inflation picture shifted this week. April CPI came in at 3.8% year-on-year — up from 3.3% in March and the highest reading since May 2023. Energy was the main driver, with gasoline prices up 28.4% over the past year as the US-Iran conflict keeps the Strait of Hormuz under pressure and oil trading around $102 per barrel. Core inflation (excluding food and energy) also edged higher to 2.8%. Real wages fell 0.3% annually — a quiet but important datapoint for consumer resilience going forward.
The Federal Reserve held rates steady at 3.50–3.75% at the April meeting, but with four dissenting votes — the most at a single meeting since 1992. Three dissents pushed back on language suggesting rate cuts were coming. The message is clear: the Fed is not in a hurry to ease, and with inflation re-accelerating, the next move is far from certain. Kevin Warsh has stepped into the Chair role following Jerome Powell’s departure. Markets will be watching closely for any shift in tone.
In DiLiddo’s framework, rising earnings alongside rising inflation and rising interest rates is a Case 4 environment: the bull market is still running, but the conditions that end bull markets are assembling. This does not change our Spring call today. It does mean the second and third forces deserve close watching in the weeks ahead. If inflation continues to accelerate and rates move higher, the distance between Spring and Autumn narrows.
| Earnings Improving strongly 84% of S&P 500 beat EPS — highest since Q2 2021. Margins at record 14.7%. ETI at 1.08, above 1.00. | Inflation Under watch April CPI 3.8% YoY — highest since May 2023. Energy +17.9%. Iran conflict the key driver. Accelerating. | Interest rates Steady / cautious Fed held at 3.50–3.75%. Four dissenting votes. New Chair Kevin Warsh. Rate cuts now uncertain. |
SOUTH AFRICA
The JSE continues to track well — 13.2% above its 50-day moving average. The rand has edged slightly stronger against the dollar this week, sitting 0.5% above its 50-day SMA. For SA investors holding USD-denominated assets, a stronger rand means fewer rands on conversion — a mild headwind to your rand returns even when the underlying dollar assets are performing well. Something to be aware of, not alarmed by. Global risk appetite remains supportive of emerging markets, and the SA market is benefitting from that broader tailwind.
SECTOR ROTATION — WHERE THE GROWTH IS
The rotation picture this week is textbook Spring. Technology (+21.3% over one month) and Semiconductors — with SMH up 28% and SOXX up 32% for the month — are leading with conviction. Defensive sectors are giving back ground: Utilities (−3.4%), Healthcare (−1.5%), and Financials (−0.9%) are all negative for the month. This is money moving from safety into growth, which is exactly what a deepening Spring looks like.
Energy is an interesting exception: up almost 4% for the month, sustained by the elevated oil price. Gold miners have pulled back sharply (GDX −6.7%). If you hold gold miners as a Winter-protected position, this is not an action signal. It is volatility within a longer-term allocation. The seasonal override applies.
| ETF | Sector | 1M Perf | vs 50D SMA | Posture |
| XLK | Technology | +21.3% | +20.5% | Leading — Spring in full bloom |
| XLE | Energy | +3.8% | +0.1% | Holding — oil price tailwind |
| XLP | Consumer Staples | +4.3% | +2.3% | Recovering — surprising strength |
| XLY | Consumer Disc. | +1.9% | +3.7% | Recovering |
| XLI | Industrials | +0.7% | +3.2% | Flat — watching |
| XLC | Communication | +0.5% | +1.9% | Flat — watching |
| XLB | Materials | -0.7% | +2.0% | Softening |
| XLF | Financials | -0.9% | +1.2% | Softening |
| XLV | Healthcare | -1.5% | -0.3% | Lagging — below 50D |
| XLU | Utilities | -3.4% | -2.5% | Defensive exit — expected in Spring |
| XLRE | Real Estate | +1.1% | +2.5% | Tepid |
GUIDANCE FOR THIS WEEK
- Spring is intact. Both SPY and QQQ are well above their 50-day moving averages. Stay the course on your Spring-positioned holdings.
- The MPI pulled back from 1.87 to 1.50 this week — one week is a signal, not a pattern. Alongside softening internal market breadth readings, it warrants attention next week. Two consecutive weeks in the same direction confirms a trend.
- VIX at 18.43 is elevated for a healthy Spring market. If it rises above 20, the season call shifts to caution. For now, remain disciplined. Do not react to a single reading.
- Technology and Semiconductors are leading. If you have gaps in your tech sleeve, Spring remains the planting season — slowly, with conviction, not in a rush.
- April CPI at 3.8% is the number to remember. Oil at $102 and inflation re-accelerating is a Case 4 signal in DiLiddo’s framework. The bull market is not over, but the forces that end bull markets are assembling. Stay alert to the third force: interest rates.
- Gold miners are pulling back. If you hold KGC, NEM, SSRM, or CDE as Winter protection or precious metals exposure, these are Winter-protected assets — standard momentum rules do not apply. Hold with patience.
MARI’S OVERLAY
What I’m sitting with this week is the gap between what the earnings data is telling us and what the macro picture feels like. Earnings are as strong as they’ve been in years — and yet April CPI at 3.8%, oil at $102, and the Federal Reserve paralysed by internal disagreement creates a kind of background hum that makes it hard to fully relax into Spring. I’ve been here before. Markets can run on solid fundamentals while macro noise swirls in the background. The discipline is not to let the noise drive the decision. My garden is Spring-planted. I’m watering, not pulling things up. The season hasn’t changed, and until it does, neither does my posture.
WEBSITE WEATHER COMMENTARY
For use on capitalseasons.co.za Spring conditions continue this week. Both major US indices remain well above their 50-day moving averages, and market participation is broad. Volatility has edged slightly higher and internal breadth readings have softened from last week, giving the weekly signal a ‘mixed conditions’ reading rather than clear skies. Technology and Semiconductors lead sector rotation while Utilities and Healthcare lag — a pattern consistent with the current market season. Earnings results for Q1 have been notably strong. The primary variables to watch in the week ahead are the oil price, CPI trajectory, and whether interna
Strong Roots, Shifting Winds