Source: Federal Reserve Economic Data, Bureau of Economic Analysis, The Conference Board, The University of Michigan Consumer Sentiment, Bureau of Labor Statistics

The recent memorandum of understanding between the United States and Iran has helped reduce geopolitical and economic uncertainty. Reflecting this improved outlook, Goldman Sachs lowered its 12-month U.S. recession probability from 25% to 15%, in line with its long-term average. The firm also raised its forecast for second-half U.S. GDP growth to 2%, citing the positive impact of lower gasoline prices on household purchasing power and the continued economic tailwinds from the AI investment cycle, including higher equity valuations and robust capital spending. 

Source: Goldman Sachs Global Investment Research, Bloomberg

A Look into Earnings and Q2 Expectations: By the Numbers

Q1 earnings season delivered the strongest results since Q4 2021.

Earnings momentum has carried into Q2. The S&P 500 is now expected to report year-over-year earnings growth of 23.1% for Q2 2026, up from the estimate of 18.8% at the start of the quarter on March 31. If realized, it would mark the second consecutive quarter
of earnings growth above 20% and the seventh straight quarter of double-digit earnings growth. Revenue growth expectations have also risen, with the index now projected to report 12.3% revenue growth, the highest revenue growth rate since Q2 2022 and the second consecutive quarter of double-digit top-line expansion. All
eleven sectors are projected to report year-over-year revenue growth.

Energy: Projected to lead all eleven sectors in Q2 2026 earnings growth at 123.2%, up dramatically from an estimate of 48.3% at the start of the quarter. The primary driver is a sharp year-over-year recovery in oil prices: the average price of oil in Q2 2026 to date is $93.71, roughly 47% above the $63.68 average in Q2 2025. At the sub-industry level, four of five sub-industries are expected to post growth, led by Oil & Gas Refining & Marketing (216%), Integrated Oil & Gas (161%), and Oil & Gas Exploration & Production (112%). Chevron and Exxon Mobil are the largest contributors to the dollar-level earnings increase since March 31.

Technology: Expected to report the second-highest earnings growth rate of all sectors at 63.2% for Q2 2026, up from 48.5% at the start of the quarter. All six industries within the sector are projected to grow, led by Semiconductors & Semiconductor Equipment at 131%. Revenue growth for the sector is expected to
come in at 34.2%, the highest of any sector, with Semiconductors leading at 75%. Micron Technology, NVIDIA, Apple, and Sandisk are the largest contributors to the dollar-level earnings increase since March 31. 44 of the 63 S&P 500 companies issuing positive EPS guidance for Q2 are from the Information Technology sector.

Materials: Expected to report the third-highest earnings growth rate of all eleven sectors at 35.3% for Q2 2026, up from 29.6% at the start of the quarter. All four industries within the sector are projected to grow: Metals & Mining (45%), Chemicals (43%), Containers & Packaging (18%), and Construction Materials (2%). Dow and LyondellBasell Industries are the largest contributors to the dollar-level increase in earnings since March 31.

Financials: Upward revisions to EPS estimates in the Financials sector have been among the contributors to the increase in Q2’s overall earnings growth rate. In Q1, Financials grew approximately 15%, driven by record equities trading revenues at Goldman Sachs and robust net interest income at JPMorgan. The forward 12-month
P/E ratio for the S&P 500 now stands at 20.1, above both the 5-year average of 19.9 and the 10-year average of 19.0, with the Financials sector continuing to offer relative value appeal at lower multiples (15.0x).

Communication Services: Expected to report the third-highest revenue growth rate of all eleven sectors in Q2 at 13.7%, with all five industries within the sector projected to grow, led by Interactive Media & Services at 22%. The sector remains among the market’s top revenue growers heading into the back half of 2026. Health Care: The only sector expected to report a year-over-year earnings decline in Q2 2026, at -9.0%, a sharp reversal from the +6.7% growth expected at the start of the quarter. The sector has recorded the largest percentage decrease in estimated dollar-level
earnings of all eleven sectors since March 31, down 14.7%. The decline is driven almost entirely by Gilead Sciences, which on May 7 issued annual non-GAAP EPS guidance of -$1.05 to -$0.65 due to $11.5 billion in IPR&D charges. If Gilead were excluded, the sector would be expected to report earnings growth of 7.1% rather than a decline.

For Q2 2026, expected S&P 500 earnings growth stands at 23.1% and revenue growth at 12.3%, which would mark the seventh consecutive quarter of double-digit earnings growth if realized. Ten of the eleven sectors are projected to post year-over-year earnings gains, led by Energy, Information Technology, and Materials, while Health Care isthe only sector expected to decline.

For Q3 and Q4 2026, analysts are projecting earnings growth of 26.7% and 24.2%, respectively. For full-year 2026, analysts are calling for 24.0% earnings growth and 11.2% revenue growth. The forward 12-month P/E ratio sits at 20.1, above historical averages but supported by an earnings cycle that continues to broaden and accelerate.

Source: FactSet Earnings Insight, June 26, 2026

Consumers received some welcome relief during the quarter as gasoline prices declined following the easing of Middle East tensions. The University of Michigan Consumer Sentiment Index increased to 49.5 in June from 44.8 in May, marking the first improvement in three months. While confidence remains subdued and the cost of living continues to pressure household budgets, lower fuel prices and easing geopolitical uncertainty have begun to stabilize consumer expectations.

Source: University of Michigan Institute for Social Research, June 6, 2026

Interest Rates

The Federal Reserve held the federal funds rate steady throughout Q2 2026, keeping its target range at 3.50%–3.75% for the fourth consecutive meeting. Policymakers cited job gains that have kept pace with the workforce alongside inflation that remains elevated relative to the Fed’s 2% goal, with PCE inflation projections revised sharply higher to 3.6% for 2026, well above the March estimate of 2.7%. The June 17th decision also marked the debut of new Fed Chair Kevin Warsh, who removed forward guidance language from the FOMC statement and signaled that a rate hike remains on the table, with markets now pricing in a possible move as early as October.

Sources: Trading Economics – United States Fed Fund Interest Rate, 6/17/2026, CNBC – Federal Reserve, 6/17/2026

On the mortgage side, both the 30-year and 15-year fixed rates have trended lower on a year-over-year basis, the 30-year easing from 6.81% to 6.47%, and the 15-year from 5.96% to 5.81% as of June 18, 2026 (Freddie Mac, 6/18/2026). The 30-year rate has ranged between 5.98% and 6.52% so far in 2026, reflecting sensitivity to inflation data and Middle East tensions driving energy prices. While borrowing costs remain historically moderate, the shift in Fed tone suggests the rate environment could firm in the second half of the year.

Sources: Mortgage Reports, 5/28/2026, Freddie Mac – Mortgage Rates

Trump Accounts

A new savings vehicle known as a Trump Account is scheduled to become available on July 4th 2026, providing families with another way to save and invest for a child’s future. Trump Accounts are custodial investment accounts for minors, with assets owned by the child and managed by a parent or guardian until age 18. Eligible children born between January 1, 2025, and December 31, 2028, may receive a one-time $1,000 government seed contribution, which does not count toward the annual contribution limit and is designed to jumpstart long-term savings. 

From a financial planning perspective, Trump Accounts may be most attractive for families seeking long-term, tax-deferred growth outside of traditional education-focused vehicles. Contributions of up to $5,000 annually (indexed for inflation beginning in 2028) may be made regardless of whether the child has earned income. Investments are generally limited to low-cost, broadly diversified U.S. equity index funds and ETFs. Funds generally cannot be accessed before age 18, after which withdrawals are subject to rules similar to those governing traditional IRAs, depending on the use of the funds. 

While the government seed contribution may make these accounts appealing for eligible families, they are unlikely to replace existing planning tools such as 529 plans, custodial Roth IRAs, or UGMA/UTMA accounts. For families primarily focused on funding future education expenses, 529 plans still offer more favorable tax treatment and greater flexibility for qualified education costs. In many cases, Trump Accounts may serve as a complementary savings vehicle rather than a primary one. 

As with any new legislation, implementation details continue to evolve. We recommend evaluating Trump Accounts within the context of your broader education, retirement, and estate planning goals before deciding whether they belong in your family’s financial plan.

Fidelity.com – Trump Accounts

TrumpAccounts.gov

Margin Debt Increase: Market Leverage continues to rise at a historic rate

• US Margin debt jumped by +$112B in May, to a record $1.42T
• This marks the 2nd consecutive monthly increase, totaling
  +$195B
• Margin debt has surged +$495B, or 54% over the last 12 months
• Adjusted for inflation, this metric rose +7.9% MoM and +47.4% YoY
• Real Margin debt has now grown +550% since 1997, far
  outpacing the S&P 500’s real gain of +357.7% over the same period

Credit Card Debt and Lending

The most recent data available from the Federal Reserve Bank of New York, shows total household debt reaching a record $18.8 trillion in Q1 2026, with credit card balances pulling back slightly to $1.252 trillion after hitting an all-time high of $1.277 trillion in Q4 2025. Average APRs on cards accruing interest eased to 21.52% from 22.30% the prior quarter, reflecting the Fed’s late-2025 rate cuts, though rates remain historically burdensome for revolving borrowers. Notably, 53% of consumers report carrying balances to cover essential expenses; a signal that debt levels reflect financial pressure more than consumer confidence.

On the lending side, the April 2026 Senior Loan Officer Opinion Survey reported tighter standards for commercial and industrial loans across firms of all sizes, while early-stage credit card delinquency transitions edged down marginally from 8.7% to 8.6%, a modest improvement, though serious delinquencies remain elevated. Consumer spending has remained resilient in spite of these pressures, with retail and food services sales for March through May running 5.3% above the prior year period, though energy price inflation tied to the Middle East conflict is inflating a portion of those nominal gains 

(Federal Reserve, 5/4/2026) (Federal Reserve Bank of New York, 5/12/2026) (U.S. Census Bureau, 6/17/2026). 

401(k) Loans and Early Withdrawals 

As market volatility and persistent cost pressures weighed on household finances during the second quarter of 2026, many consumers increasingly turned to their retirement accounts for short-term liquidity. Fidelity reported that 19.2% of participants had an outstanding 401(k) loan at the end of Q1 2026, up from 18.8% a year earlier, while hardship withdrawals also continued to rise. Although retirement savings remain an important financial safety net, the trend highlights the ongoing strain that inflation, housing costs, and economic uncertainty are placing on many households. 

 While 401(k) loans can provide access to funds without triggering taxes or penalties, they may reduce long-term investment growth and can become immediately due if employment ends. Hardship withdrawals can have an even greater impact, as withdrawn funds permanently leave the retirement account and lose future compounding potential. As consumers navigate an uncertain economic environment, maintaining adequate emergency savings remains one of the most effective ways to avoid disrupting long-term retirement goals. 

(Vanguard – How America Uses Hardship Withdrawals, 3/11/2026) (Vanguard – How America Saves, 6/1/2026) 

The agreement between the United States and Iran extends a pause and is not necessarily peace between the two countries.  Nevertheless, the agreement is a welcome step towards deescalation, but we would remind clients that the situation remains volatile.  Market relevance hinges on the details.  We are focused on sanctions relief, asset unfreezing, enrichment limits, and uranium stockpiles.  Further, we see risks to both the United States and Iran claiming “victory” in the short-term, which may raise the bar for restarting the conflict.  Implementation risks, miscalculation, and potential reescalations will continue to be tail risks.  

Despite the oil supply shock, improving business sentiment should continue to support US and global labor markets, allowing consumers to smooth through. Headwinds from fading One Big Beautiful Bill Act (OBBBA) fiscal stimulus should be offset by stronger business sentiment and declining uncertainty with the eventual reopening of the Strait.  

Commodities posted mixed returns during the second quarter, with energy prices rising due to heightened geopolitical tensions and concerns over global supply disruptions. Investors also remained focused on critical minerals and rare earth materials as governments accelerated efforts to strengthen domestic supply chains through initiatives such as Project Vault, highlighting the growing strategic importance of these resources beyond traditional commodity markets. 

Fiscal Snapshot – Q2 2026

The federal government’s fiscal position remains strained heading into the second half of FY2026. The cumulative deficit through the first eight months of the fiscal year reached $1.2 trillion, $116 billion less than the same period last year, with revenues up 5% and outlays rising 1% year-over-year. For the full fiscal year, CBO projects a $1.9 trillion deficit, equal to 5.8% of GDP, against total outlays of $7.4 trillion and revenues of $5.6 trillion (Congressional Budget Office – Monthly Budget Review, 6/8/2026). 

The modest year-to-date improvement in the deficit reflects a revenue picture that is better than it appears on the surface. Customs duties surged 132% year-over-year through the first five months of FY2026, driven by tariff policy, while corporate income taxes fell 30% as the reconciliation bill allowed larger deductions for certain investments. The structural spending side remains the dominant long-term concern. Through the first eight months of FY2026, net interest payments on the national debt have run 8.8% above the prior year and have become the second-largest spending category in the federal budget, trailing only Social Security. CBO projects net interest costs will cross $1 trillion this fiscal year, a 7% increase from 2025, and more than double to $2.1 trillion by 2036. With mandatory programs continuing to expand and interest costs compounding, the long-term structural gap between spending and revenues shows little sign of narrowing. (Bureau of the Fiscal Service, 4/16/2026) (Bipartisan Policy Center, 5/1/2026) 

As a reminder, most times it is best to ride out the ebbs and flows that the market experiences. Investors who bought on Jan. 1, 2025 and sold during the Liberation Day volatility would’ve experienced a realized loss of <15.09%> versus staying the course until Jan 1, 2026 and being up 17.88%, a 32.97% swing.