Ever since early April, when policy uncertainty took the market down around 20%, equity indices have been gaining, hitting all-time highs with notable frequency. The S&P 500 is now up over 13% year to date, which some investors didn’t see coming. What may come as a true surprise, however, is that the rally is broadening beyond big technology companies.

Cyclicals are outperforming defensive sectors, indicating that investors are becoming more positive on the outlook. Additionally, high beta stocks — or those that tend to experience larger price swings — are at a year-to-date high compared to the overall market, as measured by the S&P 500. When high beta stocks outperform, it typically signals the market is becoming more bullish. Consumer discretionary is leading staples, suggesting the consumer can remain resilient despite slowing job growth. Lastly, the equal-weighted technology sector is outperforming the average stock. This means technology stocks other than the Magnificent Seven are performing well too, implying a more diversified constellation of companies is gaining.

Together, these signals demonstrate that the market is more positive on the forward outlook. Slowing job growth remains a risk, and we will watch closely in case it spills over into consumer spending. Nonetheless, we believe equities can continue to move higher as the Federal Reserve eases into an improving earnings environment.In our view, despite slowing jobs growth, the economy is showing signs that the outlook heading into 2026 is improving. Earnings are strong and growing stronger, and companies only stand to benefit from easing monetary policy. Though gross domestic product may fall short of 2024 performance, we anticipate it will come in positive this year between 1.5%-2%. While we believe improving small business optimism is positive for growth, we will continue to monitor the attitudes of small business owners, watching to learn whether recent momentum can persist.