Economic and Financial Market Update - June 2026

Recent Market News

Major equity indices recorded their strongest quarter in several years, with the Nasdaq, S&P 500, and the Dow gaining 20.20%, 14.38%, and 12.36%, respectively. ¹ In June, the market broadened and rotated away from technology and communication services stocks – which have primarily driven the earnings-led meltup in equities – and into defensive sectors, led by health care, industrials, utilities, and financials.² The AI trade lost momentum on multiple fronts: renewed skepticism surrounding ongoing capital expenditure commitments, concerns over pricing pressure that may compress margins or reduce demand, and the possibility of interest rate hikes in the near-term following the Fed's hawkish tone at the June FOMC meeting.³ We are unsurprised by this healthy pullback in the technology sector, given that the SMH semiconductor index gained 67.33% in the second quarter. Mid and small-cap equities also benefited from the market’s rotation, with the S&P 400 and S&P 600 gaining 13.50% and 19.05%, respectively, outperforming the Dow and further demonstrating the importance of strategic diversification.¹

As geopolitical fears subside, the fundamental economic backdrop for equities remains constructive. Earnings results and forecasts are remarkably strong, U.S. economic growth has been revised upward, and relief in energy markets should ease inflationary pressure in the coming months, helping to improve sentiment and reinforce corporate earnings projections. Despite intermittent retaliatory strikes amidst the temporary ceasefire, oil prices have returned to pre-conflict levels as markets bet on a resolution to the conflict.⁴

Maritime traffic through the strait has gradually increased following the signing of the 60-day Memorandum of Understanding on June 17^th, but remains well below pre-conflict levels of approximately 100 vessels per day. U.S. officials have indicated that vessels will move freely through the strait, but messaging remains mixed from the Iranian regime, which intends to control maritime traffic through the strait.⁵ Increased traffic (i.e., oil supply) should spur global economic activity and provide inflationary relief to consumers in the coming months, but these effects may take time to materialize as depleted oil reserves are replenished.

Equity Market Valuations

As the market continues to reach new highs, there are a few valuation dynamics we believe are particularly noteworthy. Despite the solid year-to-date returns and a significant rally from March 30^th, major U.S. equity indices are currently trading at lower multiples than at the beginning of the year, indicating that equity gains are driven by earnings growth, not multiple expansion. The forward price-to-earnings multiple (P/E) of the S&P 500 remains elevated relative to its long-run (30-year) average of 17.02, but has fallen from over 22 in January to 20.3 at the end of June, while delivering a return of 10.21% year-to-date. Similarly, the Nasdaq forward P/E has declined from 27.02 in January to 25.86 despite its even stronger year-to-date return of 13.13%. Meanwhile, the Mag-7 trades at its lowest level since the tariff-induced selloff in April 2025 – now below the Nasdaq – further demonstrating the broadening of the market.¹

Particularly interesting is the trend in the Price/Earnings-to-Growth Ratio (PEG) of the S&P 500. Unlike forward P/E, which is a measure only of the current price relative to earnings, the PEG ratio adds additional context by incorporating the rate at which earnings are expected to grow. Typically, a stock or index is considered undervalued relative to its earnings growth rate if the PEG is below 1.0, and vice versa. Historically, periods of low PEG valuation levels are rare and occur following significant market declines due to recessions or periods of significant inflation. Remarkably, the PEG ratio is currently 0.79 – its lowest level in decades – while major indices have continued to climb to new all-time highs, the U.S. economy continues to expand at a healthy pace, and labor markets remain solid. This trend is not intended to signify a ‘market-timing’ signal, only to contextualize the impact of the remarkable earnings growth of the S&P 500.

It is also important to note that this strength in earnings growth is not limited to the large-cap artificial intelligence trade. Earnings momentum continues to broaden across market cap segments, with large, mid, and small-cap forward earnings climbing to record highs.²

Economic Growth

The U.S. economy expanded at an annualized rate of 2.1% in Q1 2026 against expectations of 1.6% growth, and up from 0.5% in Q4 2025. Growth was driven by investment, exports, government spending, and consumer spending. Growth in imports slowed, while exports rose, and government spending rebounded to 4.4% from the contraction in Q4 2025 due to the government shutdown. Notably, domestic investment increased 7.9% (compared to 2.3% in Q4 2025), helping to offset weaker growth in consumer spending (0.5% in Q1 compared to 1.9% in Q4 2025).⁶ Though consumer spending growth decelerated from the prior quarter, it remains positive and continues to support economic growth.

For the current measured quarter, the Atlanta Federal Reserve GDPNow model forecasts GDP growth of 2.5%, now converging with upwardly revised institutional consensus estimates. The recent downward revision to the Atlanta Fed model reflects a decrease in its current reading of personal consumption expenditures growth (to 2.0% from 2.7%) and a decrease in domestic investment growth (to 8.6% from 10.2%). Both readings are improvements from Q1.

Our Thoughts

The resilience of U.S. financial markets has been tested repeatedly in recent years by geopolitical events, volatile and rising commodity prices, and trade policy uncertainty. The broader U.S. economy has weathered these challenges and remains well positioned to do so. Two structural mega-trends have meaningfully improved the fundamental health of the U.S. economy: capital-intensive re-shoring of manufacturing capacity following COVID, and the ongoing buildout of AI infrastructure, both of which continue to sustain elevated capital expenditures and drive the strong corporate profit growth that supports equity valuations.

The consumer remains on solid footing, buoyed by a baby boomer generation flush with assets and spending power, consistent income growth, and full employment (4.3% unemployment rate). Higher energy costs have weighed on both consumers and businesses; however, we believe that current supply constraints of crude will be short-lived. We continue to monitor the health of the consumer very closely; consumer balance sheets remain strong, spending continues to grow, and household debt service ratios remain well below levels seen in recent decades.

As we have often emphasized, to benefit from long-term investment in capital markets it is imperative to have patience, stay focused on economic fundamentals, and maintain a balanced and strategically diversified stock portfolio of companies that consistently demonstrate strong fundamental characteristics. It is equally important to avoid behavioral market-timing decisions driven by excessive optimism or pessimism in relation to the economy and financial markets.

We appreciate the opportunity to serve you and highly value our relationship. We look forward to meeting you in the near future and are always available and pleased to assist in the interim. We trust you and your family enjoyed a safe and relaxing Fourth of July holiday weekend.

Sources

1 FactSet Research Systems, Inc

2 Yardeni Research

3 https://www.wsj.com/finance/stocks/stock-rally-collides-with-a-new-slate-of-worries-5843a9e0?st=jbFdYo&reflink=desktopwebshare_permalink

4 https://www.wsj.com/finance/commodities-futures/oil-falls-on-possible-position-adjustments-before-expected-u-s-iran-talks-f5581ebd?st=LeAQk5&reflink=desktopwebshare_permalink

5 https://www.wsj.com/livecoverage/stock-market-today-dow-sp-500-nasdaq-06-29-2026/card/traffic-slows-at-strait-of-hormuz-after-weekend-of-fighting-efoZI5awgduUBaxvuGP2?mod=Searchresults&pos=2&page=1

6 https://www.bea.gov/news/2026/gdp-third-estimate-industries-corporate-profits-state-gdp-and-state-personal-income-1st

7 https://www.atlantafed.org/research-and-data/data/gdpnow/current-and-past-gdpnow-commentaries

Disclosures

Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Stratos Wealth Partners, Ltd., a registered investment advisor. Stratos Wealth Partners, Ltd. and Parkview Partners Capital Management are separate entities from LPL Financial.

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