As we cross the halfway mark of 2026, we wanted to share our perspective on where the economy and markets stand, and what we’re watching in the months ahead. It’s been an eventful year, but the underlying story is more encouraging than the headlines might suggest (or consumers might feel).
First, the economy has proven remarkably resilient. After a sluggish end to 2025, growth bounced back, with the economy expanding at a 2.1% annualized rate in the first quarter. Business investment has been a standout, rising over 10% as companies pour money into equipment and technology, much of it tied to the artificial intelligence buildout. While consumer spending has cooled somewhat, the broader picture is one of an economy that continues to expand at a steady, healthy pace despite a year of geopolitical noise.
The job market tells a similar story of broadening strength. Employers added 172,000 jobs in May, the third straight month of solid gains, and unemployment has held steady at 4.3%. Just as encouraging, hiring has begun to broaden out across more industries compared with the weaker, more concentrated patterns we saw in the back half of last year. Private-sector job growth has averaged roughly 87,000 per month so far in 2026, a meaningful improvement over the prior six months. In short, the labor market appears to be maintaining its footing.
Markets, for their part, have been volatile, and the war with Iran added fuel to the inflation fire. The conflict pushed oil and gasoline prices sharply higher, which in turn lifted inflation to a multi-year high. That said, we believe inflation is close to peaking for this relatively small inflation cycle. As energy supplies gradually normalize and the one-time price shock from the conflict fades, we expect price pressures to ease, even if inflation settles at an elevated level above the Federal Reserve’s 2% target.
On monetary policy, the Federal Reserve has clearly shifted to a more hawkish tone. Under new Chair Kevin Warsh, the Fed held rates steady in June but signaled that its next move could be a hike rather than a cut, a notable reversal from the rate cuts many expected earlier this year. Markets are now pricing in the possibility of one or more rate increases before year-end. Our view differs modestly, as we think it’s more likely that no hikes occur this year, and that we’ve simply entered a “higher for longer” environment, where rates stay elevated as the Fed waits for clear evidence that inflation is firmly under control. For savers and conservative investors, this prolonged period of higher rates continues to offer attractive yields on floating rate debt, which includes much of the private credit landscape.
Importantly, what has driven markets higher this year is corporate earnings, and they’ve been strong. First-quarter profits grew at their fastest pace in years, led by technology and communication companies, and Wall Street analysts expect this strength to continue, with full-year earnings growth estimates now in the range of 20% or more. Solid earnings are the foundation of durable market gains, and this is the most constructive part of the current backdrop for the stock market. It’s worth noting that much of this growth is concentrated among a handful of large AI-related companies, which is something we monitor closely from a diversification standpoint.
Looking toward the second half, the November midterm elections are likely to introduce some additional volatility. History bears this out: midterm years tend to be among the more volatile and lower-returning years in the four-year presidential cycle, with much of the turbulence concentrated in the months leading up to election day. The encouraging pattern, however, is what tends to follow. Once the results are in and political uncertainty clears, markets have historically rebounded strongly, with the S&P 500 averaging gains of roughly 15% in the year following midterms. Pundits also note that the years following second-term midterms have historically been particularly favorable. We’d encourage you to view any election-driven dips as noise rather than reason to abandon a well-built plan.
In summary, given the resilient economy, a strengthening job market, inflation likely near its peak, a patient Fed, and strong corporate earnings, we remain optimistic despite the potential election-year choppiness ahead. Our approach remains the same as always. Stay disciplined, stay diversified, while we keep our eyes fixed on your long-term goals rather than the day-to-day headlines. And remember, volatility is the price of admission. As always, please don’t hesitate to reach out if you need anything.
Best,
Joshua Flade, Chief Investment Officer
