Quarterly Economic Update
Second Quarter 2026
The second quarter of 2026 demonstrated
an important lesson for investors: markets
can continue to advance even when
uncertainty dominates the headlines.
Persistent inflation concerns, heightened
geopolitical tensions, high energy prices,
and evolving expectations for Federal
Reserve policy all contributed to periods of
market volatility. Despite these headwinds,
U.S. equities recovered from a difficult first
quarter and continued their longer-term
upward trend, leaving the major market
indices higher after the first half of the year.
Once again, equity markets recorded new
highs during the quarter.
Following a volatile first quarter, investor
confidence strengthened during the second
quarter. Strong corporate earnings, a
resilient U.S. economy, and continued
enthusiasm for artificial intelligence (AI)
and technological innovation helped drive a
broad-based equity market recovery.
Equity markets also navigated an important
leadership
transition
at
the
Federal
Reserve. Following the departure of Chair
Jerome Powell, Kevin Warsh presided over
his first Federal Open Market Committee
(FOMC) meeting. As widely expected,
policymakers left the federal funds target
range unchanged at 3.50% to 3.75%. While
interest
rates
remained
steady,
the
Committee adopted a more hawkish tone,
signaling that inflation still remains a
(252) 451-0488
www.StrategicFreedom.com
Anthony (Tony) Engrassia, ChFC, LUTCF, NSSA®
Certified Financial Fiduciary®
primary
concern
and
they
reduced
expectations for possible interest rate cuts
later this year.
After a down first quarter, both the S&P 500 and
DJIA indexes made impressive rebounds. The
S&P 500 closed the quarter at 7,499.36 up
14.4%. The Dow Jones Industrial Average
closed the quarter at 52,319.20, gaining
approximately 12.8% for the quarter. (Source:
statmuse.com)
Through the first six months of 2026, the S&P
500 has gained 9.6%, and the Dow has
advanced 8.9%. (Source: apnews.com; 6/30/26)
One of the most important drivers of equity
markets is the direction of corporate America –
and it continued to deliver solid results.
According to FactSet, on June 26, the
estimated year-over-year growth for S&P 500
companies is 23.1%, which would mark the
seventh consecutive quarter of double-digit
earnings increases and the second-straight
quarter of earnings growth over 20%.
Technology companies remained market
leaders, driven by continued demand for
artificial intelligence and digital infrastructure,
while the energy sector benefited from sharply
higher oil prices during much of the quarter.
The energy sector was among the largest
contributors to market volatility. West Texas
Intermediate (WTI) crude oil surged to over
$110 per barrel amid escalating geopolitical
tensions and concerns over potential supply
disruptions. As tensions eased later in the
quarter,
crude
oil
prices
retreated
to
approximately $70 per barrel, helping relieve
some inflationary pressure and improving
investor sentiment. (Source: ycharts.com)
The
U.S.
labor
market
continued
to
demonstrate resilience. According to the U.S.
Bureau of Labor Statistics, the unemployment
rate remained steady at 4.3% in May, reflecting
continued labor market stability despite signs
of moderating economic growth.
Overall, the second quarter reinforced an
important
investment
principle:
while
headlines often create short-term market
volatility, long-term market performance is
KEY TAKEAWAYS
• After a rough start to the year, the second
quarter brought new highs in equities,
continuing the advancing trajectory many
analysts forecasted for 2026.
• Strong corporate earnings, a resilient U.S.
economy, and continued enthusiasm for
artificial
intelligence
(AI)
and
technological innovation helped create an
upward
drive
broad-based
market
movement.
• The Federal Reserve adjusted its stance to
have a more hawkish outlook on interest
rate adjustments this year but kept
interest rates unchanged at 3.5% – 3.75%.
• Oil prices rose heavily during the quarter
but began to subside toward the quarter’s
end with hopes of a possible resolution
with Iran.
• Focusing on your long-term goals and
staying the course of a well-structured
investment approach can help you stay
grounded and confident during these
times of uncertainty.
• We are here for you. Please reach out
with any questions or concerns. Your
financial well-being is always our
highest priority!
ultimately driven by healthy, long-term
focused
fundamentals.
During
the
quarter, potential catalysts for market
downturns were balanced by factors that
continued to support economic growth
and a healthy investment environment.
These competing forces underscored
that volatility remains a normal part of
investing,
while
reinforcing
the
importance of focusing on long-term
fundamentals rather than reacting to
short-term market noise.
As market conditions continue to evolve,
maintaining
a
disciplined,
well-
structured investment approach remains
essential. As financial professionals, our role is
to closely monitor market developments and
help ensure your portfolio remains aligned with
your broader financial goals. We remain
committed to keeping you informed, prepared,
and well-positioned to navigate changing
market conditions with confidence.
Inflation & Interest Rates
Key Points:
•
The Federal Reserve left the federal
funds rate unchanged during the
second quarter of 2026, maintaining
the target range at 3.50%–3.75%.
•
Inflation remains above the Fed's
long-term target and continues to be
a primary concern.
•
The Federal Open Market Committee
(FOMC) has adopted a more hawkish
stance, reducing expectations for
rate cuts and signaling the possibility
of future rate increases.
During the first half of 2026, the Federal Open
Market
Committee
(FOMC)
kept
its
benchmark federal funds rate unchanged,
maintaining the target range at 3.50%–3.75%,
leaving borrowing costs the same for five
consecutive meetings.
At the April FOMC meeting, the final meeting
chaired by Jerome Powell, the Federal Reserve
held interest rates steady. This decision was
widely anticipated amid persistent inflationary
pressures fueled in part by elevated global
energy prices.
The June meeting marked the first FOMC
gathering under newly appointed Federal
Reserve Chair Kevin Warsh. Policymakers
again voted to maintain the target rate range of
3.50%–3.75%, while signaling a more hawkish
outlook for the remainder of the year.
According to updated projections, nine of the
eighteen committee members now expect at
least one rate increase before year-end, and
previous indications of potential rate cuts have
largely been removed. (Source: CNBC, June 17,
2026)
In its June policy statement, the FOMC noted:
"Economic activity is expanding at a solid pace
despite elevated uncertainty that owes, in part,
to the conflict in the Middle East. Productivity
growth and capital investment are strong. Job
gains have kept pace with the workforce, and
the unemployment rate has changed little."
Consumer spending also remains healthy.
According to May data from the Bureau of
Labor Statistics, the core Consumer Price
Index (CPI), which excludes food and energy,
increased 2.9% year-over-year. Food prices
rose 3.1%, while shelter costs, the largest
component of the CPI, increased 3.4% from a
year earlier. (Source: Bureau of Labor Statistics)
The June meeting also brought updated
inflation forecasts. In March, FOMC members
projected that the Personal Consumption
Expenditures (PCE) Price Index would end
2026 at an annual rate of 2.7%. By June, that
estimate had been revised upward to 3.6%,
while core PCE, which excludes food and
energy prices, was projected to finish the year
at 3.3%. (Source: CNBC, June 17, 2026)
Looking ahead, currently the prospect of a rate
cut in 2026 appears increasingly unlikely. In
fact, the possibility of a rate increase later this
year has gained momentum. The path forward
will largely depend on the trajectory of
inflation, labor market conditions, and overall
economic growth.
Geopolitical developments may also influence
inflation trends. As of late June, negotiations
toward a potential framework for peace
between Iran and the Trump administration
were
reportedly
underway.
Should
an
agreement be reached, lower crude oil prices
could help ease energy-related inflationary
pressures.
Interest rates and inflation remain critical
factors in financial planning and investment
decision-making. We will continue to monitor
these economic indicators closely and provide
updates as conditions evolve.
The Bond Market and
Treasury Yields
Key Points:
• Treasury yields remained elevated as
investors continued to consider the
prospect of higher-for-longer interest
rates.
• The Treasury yield curve continued its
gradual normalization following an
extended period of inversion.
During the second quarter of 2026, U.S.
Treasury yields remained elevated as investors
assessed
persistent
inflation,
resilient
economic growth, and evolving expectations
for Federal Reserve monetary policy. While
Treasury yields experienced short periods of
volatility, particularly in response to economic
data releases and shifting interest rate
expectations, the bond market remained
relatively resilient as investors balanced
inflation concerns against continued signs of
economic strength.
Throughout the quarter, the 10-year Treasury
yield generally traded in the mid-4% range,
while the 2-year Treasury yield remained above
4%, reflecting expectations that short-term
interest rates would stay higher for longer.
At the end of the second quarter, the 10-year
Treasury yield closed at 4.44%, the 5-year
Treasury yield at 4.19%, and the 30-year
Treasury yield at 4.91%. (Source: U.S. Department
of the Treasury Resource Center)
After remaining inverted for much of the
previous two years, the Treasury yield curve
continued normalizing during the quarter. The
spread between shorter- and longer-term
Treasury yields moved into positive territory,
suggesting investors anticipate continued
economic expansion alongside a more
balanced long-term interest rate environment.
Although expectations for the timing and pace
of future interest rate adjustments continued
to shift, Treasuries and bonds remain an
important
component
of
diversified
investment portfolios. They may offer a
relatively more stable alternative to equities,
particularly during periods of heightened
market uncertainty. At the same time, the
possibility of rising interest rates could create
price volatility for existing bonds. Please
remember that while diversification in your
portfolio can help you pursue your goals, it
does not ensure a profit, or guarantee against
loss.
As always, bond investments should be
evaluated within the context of an investor’s
risk tolerance, time horizon, and overall
financial objectives. Bonds remain a core
component of many well-balanced portfolios,
and we will continue to monitor developments,
Federal Reserve policy and Treasury markets
as conditions evolve.
Oil
Key Points:
• National
average
gasoline
prices
increased nearly 32% during the second
quarter of 2026.
• Easing geopolitical tensions late in the
quarter contributed to a decline in crude
oil and gasoline prices.
National gasoline prices increased significantly
during the second quarter of 2026. After
averaging approximately $2.98 per gallon at the
end of February, the national average climbed to
approximately $4.56 per gallon by mid-May.
Higher
crude
oil
prices,
coupled
with
geopolitical tensions in the Middle East,
contributed to the rise in fuel costs. (Source:
gasprices.aaa.com)
As the quarter neared its end, oil prices started
to moderate as geopolitical tensions eased at
the prospect of avoiding more major disruptions
to global energy supplies. Because the Middle
East remains a critical source of global oil
production and exports, developments in the
region continue to have a meaningful influence
on energy prices and investor sentiment.
While recent declines in oil prices have
provided some relief, uncertainty remains.
Future
negotiations
and
geopolitical
developments could either support additional
price stabilization or lead to renewed volatility if
supply concerns reemerge. Lower energy
prices, if sustained, could help moderate
inflationary pressures, improve consumers'
purchasing power, and provide additional
support for economic growth.
At the end of the second quarter, oil prices
retreated back toward the pre-conflict levels.
Global benchmark Brent crude fell below $73, a
much more manageable number than the April
highs of over $125 per barrel. (Sources: cnn.com;
bbc.com)
We will continue to monitor developments in
global energy markets and assess their
potential impact on inflation, interest rates,
corporate earnings, and overall market
performance.
Investors’ Outlook
Key Points:
• We remain cautiously optimistic. While
volatility is likely to remain, continued
earnings growth, a resilient economy,
and the possibility of a resolution in Iran,
provides an encouraging backdrop for
investors as we move through the
remainder of 2026.
• Maintaining a long-term focus and
avoiding short-term distractions has
been one of the most effective ways to
pursue financial goals.
As we enter the second half of 2026, the
investment landscape remains, for the most
part, positive, although investors should
continue to expect periods of elevated
volatility. The same factors that influenced
markets during the first half of the year are
likely to remain the primary drivers of market
performance:
• the direction of inflation,
• Federal Reserve policy,
• corporate earnings,
• geopolitical developments, particularly
regarding the Strait of Hormuz,
• confidence
in
advancements
in
technology and artificial intelligence.
Looking
ahead,
we
remain
cautiously
optimistic. Although volatility is expected, the
combination of healthy corporate earnings and
a resilient economy provides a supportive
backdrop for investors as we move through the
remainder of 2026.
Most
analysts
are
suggesting
higher
movements
in
equity
markets
when
deliberating the outlook for the remainder of
2026. Ed Yardeni, the President of market
advisory firm Yardeni Research and former
Chief Investment Strategist at Deutsche
Bank's U.S. equities division, expects the stock
market to continue its rise over the second half
of this year and is forecasting a further 9% gain
in the S&P 500. To the contrary, a handful of
others, including Tyler Richey, an analyst at
Sevens Report Research, are predicting a
decline in major indexes through the end of
2026. (Source: abcnews.com; 6/30/26)
The pace of equity market growth has
accelerated over the last decade, however, we
are not in the business of predicting the future.
Regardless of what may transpire, history has
consistently demonstrated that maintaining a
disciplined, diversified investment strategy
remains one of the most effective ways to
navigate uncertain markets. Rather than
attempting to predict short-term movements,
or falling prey to the day-to-day noise from the
media, investors are generally better served by
remaining focused on their long-term financial
objectives
and
allowing
high-quality
investments time to compound. We will
continue
to
closely
monitor
market
developments and make thoughtful portfolio
adjustments when appropriate, always with
your long-term goals at the forefront of our
investment decisions.
Short-term volatility is likely to remain. Please
remember that volatility is a normal and
expected part of the investment experience.
While
market
fluctuations
can
feel
uncomfortable, they are not always negative
and may create opportunities for disciplined
investors. Periods of market weakness can
bring the ability to invest at more attractive
prices, rebalance portfolios, or harvest losses
to help offset capital gains. As always,
portfolios should be thoughtfully selected and
aligned with each investor’s unique objectives,
time horizon, and risk tolerance.
We believe an informed client is the best
client. Our commitment is to exceed our
clients’ expectations by delivering exceptional
service,
maintaining
consistent
and
meaningful communication throughout the
year, and proactively planning to help clients
navigate the changing economic environment.
We
will
keep
clients
informed
about
developments that could impact their personal
situation, and as always, we encourage clients
to inform us of any changes to their
circumstances, risk tolerance, or time horizon.
Our team is here to help clients with every
step of their journey toward their financial
goals. We would welcome the opportunity to
help you with your financial decisions.
Please feel free to reach out to us with any
questions or concerns you may have.
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Sources: Barron’s; apnews; statmuse.com; cnbc.com; gasprices.aaa.com; nytimes.com; cnn.com; bbc.com; investing.com; factset.com; yahoofinance.com; U.S. Department of Treasury.
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