With summer finally here, many of us are enjoying long days, time outside, travel, and a little more time with family and friends. It is a natural point in the year to slow down and take stock: to look back on what has unfolded so far, reset expectations where needed, and think about how best to approach the months ahead. With that in mind, I want to share my thoughts on markets, the broader economy, and the trends I see shaping the remainder of the year.
In many ways, the market in 2026 has looked similar to the market in 2025. The first half of the year brought a considerable amount of volatility. Concerns that AI capital expenditures had become too costly gave way to concerns that AI itself would become so productive that the labor market would struggle to adjust. Those competing narratives were then pushed into the background by fears that geopolitical conflict in the Middle East would drive a sharp increase in oil and gas prices, followed by a meaningful increase in inflation. While inflation has moved higher since the beginning of the conflict, we have not seen the dramatic spike many expected, for reasons I will discuss later. Against this backdrop, consumer sentiment weakened. In May, the University of Michigan’s Consumer Sentiment Survey reached an all-time low.¹ In light of that, you may be surprised to learn that retail sales, even after excluding energy costs, increased in both March and April.² Similarly, despite market jitters, we have seen strong performance in a wide array of asset classes, including large cap value, small cap, and
international.
Key business factors also supported resilient growth in the first two quarters. Since November of last year, total AI- and data center-related financing has exceeded $300 billion.⁴ This pace has meaningfully exceeded expectations and appears well ahead of 2025, when total spending was $416 billion for the full year.⁵ This spending has continued to generate economic activity, both from the sheer amount of capital being deployed and from the gains it is helping drive in AI development. More importantly, corporate earnings were very positive in Q1, with year-over-year real revenue, excluding the energy sector, rising 6.3%.⁶ Companies broadly beat expectations, again demonstrating the resilience of corporate earnings relative to sentiment. In the first quarter, 85% of S&P 500 companies reported earnings per share above estimates, the highest percentage since the second quarter of 2021.⁷ Strong corporate earnings are one of the most important drivers of market growth, and the results we have seen in this area so far in 2026 remain encouraging.
Much like consumer and corporate metrics, key macroeconomic statistics have continued to point toward expansion. Real gross domestic product grew at a year-overyear rate of 1.6% in the first quarter, an acceleration from Q4 2025’s 0.5%.⁸ Current estimates expect U.S. growth to slow in the second quarter to approximately 1% before reaccelerating in the third quarter.⁹ The closure of the Strait of Hormuz will likely reduce global GDP by approximately 0.4% to 0.5% for the year, a meaningful but not extraordinary impact.¹⁰ Given the recent memorandum of understanding signed by the United States and Iran, it appears the flow of oil and gas through the strait could stabilize in the near future, which would in turn begin the process of restoring stockpiles and smoothing prices.
Perhaps the most critical economic risk from the conflict was the potential for higher inflation. Since the beginning of the conflict, inflation has indeed edged higher, with headline inflation, which includes food and energy costs, rising to 4.2% year-over-year, and core inflation, which excludes food and energy, increasing modestly to 2.9%.¹¹ The increases in both measures deserve attention, but the relatively subdued core inflation reading gives us continued optimism that the price impacts of the conflict will remain contained. While many of us are noticing higher prices at the gas pump, energy goods and services account for an ever-decreasing portion of consumer spending today, which helps contain the broader impact of the price shock.¹² Still, 2.9% core inflation remains considerably above the Federal Reserve’s 2% target, and we expect to see some volatility around rate decisions in the coming months as the market adjusts to changes at the FOMC under new Chair Kevin Warsh.
Over the long term, we expect productivity gains from artificial intelligence to serve as a disinflationary force in the economy.¹³ Though we are already seeing considerable adoption and monetization of AI, the full benefits of these productivity gains will lag adoption and, in some cases, will be difficult to isolate.¹⁴ In the interim, we continue to watch the household savings rate in the United States with a moderate degree of concern. In April of this year, the personal savings rate fell to 2.6% of disposable income, a level rarely seen since 1960.¹⁵ Consumption over the same period has continued at sustained rates, implying that households are spending a greater portion of savings, benefiting from the wealth generation of recent market performance, or using irregular cash flows. This phenomenon is not uncommon, especially in the context of a price shock such as the recent increase in oil prices, but it leaves households with less room to absorb a secondary shock or other deterioration.¹⁶
With all of these conditions in mind, we are approaching asset allocation in the second half of 2026 by continuing to allocate along trends we expect to persist, such as technology growth, while also deliberately capturing diversification through value positions across the market-cap spectrum, adding to fixed income where yields are attractive, and maintaining exposure to real assets such as gold and real estate. For the first time in years, we are in the midst of a busy and potentially impactful IPO schedule. The recent offering of SpaceX is expected to be followed by OpenAI and Anthropic, as well as several other potential listings. These new entrants are coming to market at remarkably high valuations, which we believe may lead to periods of volatility in their stocks. Even so, we view the arrival of new supply in the equity market as a positive development after years of shrinking public-company ranks. As indices move to include some of these companies, their growth may serve as a tailwind, especially within largegrowth stocks and the technology sector. We also continue to like opportunities in corporate and municipal fixed income. Municipal balance sheets remain broadly healthy, providing opportunities to buy bonds at attractive tax-equivalent yields with good quality.¹⁷ We are optimistic that the economy, and the markets as components of it, will continue to grow and expand. We also remain confident that opportunities exist for both asset appreciation and prudent diversification. As always, we are proud to serve the families and individuals who trust us to provide them with sound advice, diligent service, and positive outcomes. I wish each of you a fantastic Fourth of July and an enjoyable remainder of the summer.
Citations
1. University of Michigan. Surveys of Consumers. University of Michigan, May 2026.
2. Franklin Templeton. AOR Update: Resilience. Franklin Templeton and ClearBridge, June 3, 2026.
3. Kelly, D. Quarter Days and the Economic Outlook. J.P. Morgan Asset Management, May 4, 2026.
4. Hamid, T. et al. AI Capex 2.0. J.P. Morgan, June 16, 2026.
5. Kelly, D. Quarter Days and the Economic Outlook. J.P. Morgan Asset Management, May 4, 2026.
6. Walker, R. Earnings Season Takeaways: Resilient, but for How Long? Goldman Sachs Investment Research, June 2, 2026.
7. Butters, J. Earnings Insight Infographic: Q1 2026 By The Numbers. FactSet, June 2, 2026.
8. Bureau of Economic Analysis. Gross Domestic Product. U.S. Department of Commerce, May 28, 2026.
9. Kelly, D. Quarter Days and the Economic Outlook. J.P. Morgan Asset Management, May 4, 2026.
10. Peters, M. Assessing Global Growth Risks from Middle Eastern Supply Shortages. Goldman Sachs, May 29, 2026.
11. U.S. Bureau of Labor Statistics. Consumer Price Index News Release. U.S. Department of Labor, June 10, 2026.
12. Franklin Templeton. AOR Update: Resilience. Franklin Templeton and ClearBridge, June 3, 2026.
13. Kelly, D. AI, Inflation and Interest Rates. J.P. Morgan Asset Management, April 20, 2026.
14. Ibid.
15. Wilding, T. The Quiet Erosion Beneath U.S. Growth. PIMCO, June 3, 2026.
16. Ibid.
17. Degroot, P., Gargan, R., and Tian, Y. Municipals 2026 Mid-Year Outlook. J.P. Morgan, June 12, 2026.
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