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Resilient Through Uncertainty

June 30, 2026

Time to Read: 2 minutes

U.S. policy uncertainty has remained elevated and consumer sentiment has weakened. Even so, the economy has stayed resilient, and because growth has held up better than sentiment and headlines suggest, we continue to forecast 2% U.S. growth in 2026, in line with trend.

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U.S. policy uncertainty — a dependable catalyst for investor anxiety — has remained elevated in recent years, with the Economic Policy Uncertainty Index running well above its long-run average. At the same time, consumer sentiment has deteriorated amid fears of a growth slowdown, which have prompted a reassessment of the outlook for risk assets.

Still, the economic backdrop has remained notably resilient — stronger than many investors and analysts expected — despite policy shocks like tariff changes and government shutdowns.

While the noise around the growth narrative has been loud, it has still been mostly noise. Policy uncertainty and investor unease have been real, but the economy has continued to absorb both. As a result, we reiterate our growth forecast for 2026 of 2%, in-line with trend.

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Is the Market Rally Broadening?

Stocks, as measured by the S&P 500, are up over 13% through early August. The solid gains have been fueled by a resilient economy, steady consumer spending, optimism around artificial intelligence and better-than-expected earnings growth. Still, some investors worry the advance may be too concentrated in technology and AI-capex monetization may fall short of expectations. A closer look suggests that it is not just tech moving the market higher.

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Fed Friction?

Markets are navigating tensions caused by a Federal Reserve that offers less guidance and an inflation backdrop that remains sticky. Added uncertainty from the Middle East conflict and energy-price swings are further shaping sentiment, with recent moves in Treasury yields suggesting the market wants the Fed to hike. However, with yield volatility expected to linger in the near term, we see today’s elevated Treasury yields as an especially compelling opportunity in fixed income.

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Muni Yields Are Attractive

The war in Iran has increased volatility across fixed income markets, pushing municipal bond yields higher as investors reassess inflation risk, energy costs and the path of Federal Reserve policy. Even so, historically elevated municipal bond yields present a compelling opportunity for tax-sensitive investors.

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Sizing Up Small Caps

Small caps have outperformed this year despite the threat of higher interest rates, suggesting the rally is being driven by more than just diversification away from large cap tech stocks. Improving earnings expectations and a resilient U.S. economy support our view that small caps have further upside from here.

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