Outlook As companies grow sales and earnings, they become worth more. Despite a variety of geopolitical and economic headlines that may cause your head to spin, companies are doing well by growing and becoming more fundamentally valuable in 2026. Specifically, earnings for the 500 largest U.S. public companies (the S&P 500) are growing as the second-quarter earnings season gets underway. The index is on track to grow profits by 24% compared to last year, marking the second consecutive quarter of earnings growth above 20%. Looking ahead, this momentum is expected to continue, with analysts forecasting a 24% earnings expansion for the full year 2026, followed by growth of 17% in earnings and 8% in revenue for 2027. This corporate growth is distributed across the index, with 10 out of 11 sectors expected to post higher earnings this quarter, and every sector projected to grow top-line revenues—driving an overall revenue gain of 12% this quarter compared to one year ago. While sectors like Information Technology and Energy are leading the upward estimate revisions, industries across the board are growing revenues. Even with elevated market valuations and a sector pullback in Health Care, the forward guidance and widespread revenue growth indicate that corporate fundamentals remain resilient.1
. . . Markets experienced a volatile week as investors balanced moderating economic growth, evolving Federal Reserve expectations, renewed geopolitical tensions, and some profit-taking across parts of the technology sector. While these factors influenced day-to-day trading activity, they also reflected many of the same themes that have shaped market performance throughout 2026. What Has Driven Markets This Year? Since the beginning of 2026, markets have been largely defined by three key forces: the resilience of the U.S. economy, changing expectations for Federal Reserve policy, and continued enthusiasm surrounding artificial intelligence and technology-related investment opportunities. The U.S. economy has continued to exceed expectations despite higher interest rates, with consumer spending, employment, and corporate earnings generally remaining firm. At the same time, investors have been closely monitoring inflation trends and Fed policy, attempting to gauge whether the central bank's next move will be to maintain rates, tighten further, or eventually begin easing monetary policy. Meanwhile, artificial intelligence has remained one of the most influential themes. Strong demand for AI infrastructure, semiconductors, data storage, and cloud computing has fueled significant gains in technology stocks and helped drive broader market returns. While market headlines often focus on the events of a particular week, last week's movements were largely a continuation of these broader trends. Investors continued to evaluate economic data, monitor Federal Reserve expectations, and assess the sustainability of the AI-driven growth story, while renewed geopolitical developments added another layer of uncertainty. Economic Data Supported the Soft-Landing Outlook The week began with a boost following softer labor market data released ahead of the holiday weekend. Investors interpreted the data as evidence that economic growth may be cooling gradually at a manageable pace rather than heading toward a significant slowdown. This outcome would allow inflation pressures to ease without pushing the economy into recession and could provide the Federal Reserve with additional flexibility regarding future policy decisions. Technology Saw Profit-Taking Another notable development was a pullback across semiconductor and AI-related stocks, areas that have been among the strongest performers this year. In our view, the pullback appeared less about concerns over AI's long-term potential and more about elevated expectations. After substantial gains, investors are becoming more selective and looking for evidence that future earnings growth can justify current valuations. The long-term investment theme surrounding artificial intelligence remains intact, but markets are becoming more selective and demanding stronger evidence that future earnings can support current valuations. Geopolitical Risks Returned Geopolitical developments also played a significant role during the week. Renewed tensions involving Iran and concerns surrounding shipping activity near the Strait of Hormuz pushed oil prices sharply higher and increased market volatility. These developments benefited energy stocks but also raised concerns that elevated oil prices could slow progress on inflation, potentially complicating the Federal Reserve's path toward future rate cuts or policy easing. Energy markets remain especially sensitive to events in the region because of the potential impact on global supply. Higher oil prices provided support for energy stocks but also raised concerns that inflation could prove more persistent than anticipated. Investors will be closely watching these developments as sustained increases in energy prices have the potential to influence both economic growth and Federal Reserve policy expectations. Market Leadership Continues to Improve Beyond the major headlines, another encouraging development was continued evidence of broader market participation. While some technology stocks came under pressure, investors shifted toward sectors such as healthcare, financials, utilities, consumer staples, and energy. This rotation suggests that market performance is becoming less dependent on a narrow group of mega-cap technology companies. Broader leadership is generally viewed as a healthy sign because it creates a more balanced foundation for future gains and reduces some of the concentration risk that has characterized the market over the past several years. What We're Watching Looking ahead, as earnings season begins, we will remain focused on corporate earnings results and management guidance. Markets will be looking for confirmation that the fundamental drivers continue to support equities and that economic resilience, stable earnings growth, and continued investment in technology and innovation remain intact. | 
