BY STRATEGIC ADVISERS INVESTMENT TEAM — MAY, 2026
Market Conditions
Middle East tensions have led to volatility in global stock markets and energy prices. However, despite these ongoing geopolitical developments, U.S. companies have continued to show strong earnings growth. Additionally, the U.S. Federal Reserve (Fed) held interest rates steady at their most recent meeting, citing elevated inflation as a key driver for its decision.1
- Earnings season recap: For companies who have reported earnings for Q1 2026, 84% have reported positive earnings above expectations and 80% have reported revenue above expectations.2
- GDP grew in the first quarter of 2026: Real GDP increased at an annual rate of 2.0%, with investments, exports, as well as consumer and government spending contributing to the growth.3
- U.S. job growth continued to gain momentum in April: With the economy adding 115,000 jobs. The overall unemployment rate was also unchanged, signaling stability in the job market.4
What it may mean for your portfolio
In April, U.S. stocks posted some of their strongest monthly gains since 2020.5 Robust earnings growth likely drove stocks higher, with most companies exceeding their expected earnings growth.
April’s rally took place amid investor concerns regarding tensions in the Middle East. This market performance appears similar to the historical pattern where global stock markets often recover shortly after the start of prior conflicts throughout the years. Such recoveries frequently occur as investors get confirmation that economic and earnings growth are holding up well despite some uncertainty stemming from geopolitical events.
Along with earnings, we are also following a wide range of indicators to determine how the U.S. economy is likely faring. For instance, rising gas prices appear to be weighing on consumer sentiment. However, overall consumer spending has continued to rise, which may lead to further economic and earnings growth. The U.S. job market also remains relatively healthy, despite some signs of softer growth. While some high-profile layoffs have taken place at a few well-known companies, many other employers are hiring workers or maintaining their staffing levels across the country.
As for recent investment decisions within our well-diversified portfolios, our research gave us the confidence to maintain our positioning towards U.S. stocks through bouts of volatility so far this year. In contrast, investors who de-risked due to Middle East tensions likely missed out on some of the April rally.
Lastly, we modestly reduced our exposure to most international stocks. While the growth outlook remains promising overseas, volatile energy prices may impact some of those markets more so than the U.S., which produces much of its own oil. As a whole, we believe our positioning is likely to benefit our investors if stock markets continue to rise, while providing some potential risk management through diversification.
Outlook
Developments in the Middle East are still top of mind and updates to the fragile ceasefire or closure of the Strait of Hormuz could potentially impact the markets. As a result, military tensons can lead to uncertainty for investors. While every situation is different, historically, markets tend to recover within months of a conflict breaking out. On the other hand, the U.S. economy has shown resilience. U.S. companies have continued to show strong earnings growth, and GDP rose in the first quarter of 2026. Periods of volatility may occur for various reasons. However, a focus on diversification may help investors experience smoother investment returns over time.
We continue to monitor and research developments related to the economy, corporate earnings, policy changes, and geopolitical events. Developments in the Middle East are quickly shifting, and we are closely following these events as they unfold. We believe the risk of imminent recession remains low, but we are prepared to take action as the situation evolves.
Stick with your plan and stay invested
Market conditions can change quickly. We aim to guide clients through these varying market 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.
