BY STRATEGIC ADVISERS INVESTMENT TEAM — AUGUST 2026
Market Conditions
Mixed economic signals, concerns over interest rates, and renewed Middle East tensions have led to some market volatility. However, the second-quarter earnings season is off to a strong start, which has helped to support stock prices. Meanwhile, the U.S. Federal Reserve (Fed) held rates steady at its most recent meeting, as it continues to balance a resilient economy and persistent inflation related to energy supply disruptions.1
- Earnings season overview: 86% of reporting companies have exceeded earnings-per-share estimates, with financial institutions leading the way. Meanwhile, 76% of reporting companies have reported revenue above expectations.2
- The most recent jobs report came in weaker than expected, shedding 23,000 jobs in July. However, the unemployment rate also edged down to 4.1%, suggesting a stable labor market.3
- Gross domestic product (GDP) grew in the second quarter. Despite ongoing Middle East tensions, real GDP increased at an annual rate of 1.5%, with consumer spending contributing to the growth.4
What it may mean for your portfolio
U.S. stocks experienced modest change in July. While earnings results were strong, uncertainty in the Middle East, the potential for Fed rate hikes later in the year, and the announcement of new tariffs may have led to limited gains for stocks.
However, despite some of these concerns, the U.S. economy continued to expand. The job market remains healthy, with relatively low unemployment and manufacturers’ surveys suggesting that new orders are picking up, often a sign of economic growth. At the same time, services such as retail stores and financial services firms are also generally experiencing growth.
In terms of managing client accounts, the investment team remains focused on managing risk through diversification. At a higher level, this means investing in areas beyond traditional stocks, bonds, and short-term investments. Most well-diversified client accounts also likely hold positions in high-yield bonds, alternatives, commodities, real estate stocks, and Treasury inflation-protected securities (TIPS). These types of investments have historically tended to retain or gain value when stocks or bonds experience bouts of volatility. Many of them have also shown resilience through periods of higher-than-average inflation, which is a current potential risk for investors.
We also hold a wide range of investments within each asset class. For example, within U.S. stocks, investments are spread across large, mid, and small company stocks, as well as core, growth, and value stocks.
Digging even deeper, our team seeks to invest in different types of funds within each of those categories. For instance, within value funds, the team has historically invested in traditional value funds, which seek to invest in companies with low valuations, and deep value funds, and typically invest in companies with extremely low valuations. This level of diversification has the potential to deliver smoother investment returns for investors through a wider range of market outcomes.
Outlook
The U.S. and many other countries are experiencing economic growth. Stocks may also find support from ongoing earnings growth. Corporate profit growth was strong in the second quarter, and the outlook for profit growth appears constructive into 2027. This backdrop has the potential to support further stock market gains.
As for potential risks, inflation remains above the Fed’s long-term target. This may lead the Fed to hike interest rates later in the year. Additionally, the situation in the Middle East remains uncertain, which could impact oil prices and global trade.
We believe the risk of an imminent recession remains low. However, bouts of volatility are likely to occur. We are closely monitoring and researching these watch areas and are prepared to act as the situation evolves.
Stick with your plan and stay invested
Market conditions can change quickly. We aim to guide clients through these varying conditions, which have largely led to strong performance over the past three years. Historically, the market has shown resilience even when news headlines may feel discouraging. As a result, we have maintained healthy exposure to stocks, even during bouts of market volatility. We believe that staying invested and managing risk through evolving market conditions can ultimately help you reach your financial goals in the long run.
