The U.S. began the second half of 2026 with optimism: celebrating the 250th anniversary of its founding, amid the exhilaration of hosting the Word Cup, fresh from the largest IPO in history, and marking a record high stock market after a strong earnings season.
Adding to the hopeful anticipation for quarters 3 and 4 were a cease-fire in the war with Iran and ongoing negotiations for a more permanent peace. The move away from open conflict in the Middle East and around the Strait of Hormuz helped cool soaring energy costs and brought some relief at the gas pump just as the busiest vacation season geared up.
Economists continued to be heartened by resilient consumer spending which remained the driver of GDP growth along with investment and exports.
The U.S. economy grew at an annualized rate of 2.1% in the first quarter of 2026, with a nominal GDP reaching approximately $31.86 trillion. The official advance estimate for the second quarter is scheduled for release at the end of July, but the Federal Reserve’s real-time model currently predicts a 1.7% growth rate.
Other hopeful signs at mid-year included a better-than expected report on job growth, a Federal Reserve meeting under a newly appointed chairman and their decision to leave interest rates unchanged, stock market highs boosted by AI enthusiasm and investment, and anticipation of steady economic growth for the rest of the year.
Signs of Optimism
The outlook for the first quarter shows an economy well positioned to build on the growth pillars of the first half of the year. AI enthusiasm and investment and the data center buildout it requires points to continued actual growth replacing what was once feared to be just speculation. One additional sign as the quarter began was an unexpected slight cooling of inflation in June.
Spikes in energy prices due to the Iran war had driven inflation up and sparked fears the Fed might be looking to raise, rather than lower, interest rates. The cease-fire brought oil prices down and hopes for a possible interest rate cut began to surface once more, although Fed Open Committee members remained divided on the issue. Newly appointed Fed Chairman Kevin Warsh oversaw his first meeting in June. The next Fed meeting on interest rates is at the end of July.
Much of how the third and fourth quarter economy will shake out rests upon uncertain ground with an almost daily shifting of the situation surrounding the Iran war and the Strait of Hormuz.
Uncertainty Ahead
The cease-fire and state of negotiations ended without fanfare and a sense of limbo or even a stalemate seems to be the pervasive atmosphere, although the U.S. and Iran continued air strikes. There are conflicting reports on the Strait of Hormuz. And even though the U.S. is not as dependent on oil traffic as many European countries are, the energy market is global and prices will continue to be affected.
Many analysts were pleasantly surprised that the resumption of hostilities didn’t initially cause prices to surge as much as when the war began at the end of February. And some energy exporters developed alternative shipping routes which have no doubt helped. However, recent expanded attacks on oil tankers in the Red Sea has renewed the surge in oil prices with fears of prolonged disruptions.
One other important factor as we move into the next two quarters is the political arena. The mid-term elections and the country’s deep partisan divisions can inject a worrisome uncertainty of their own.
For the time being, a cautious optimism has found new footing as we passed the midpoint of 2026. But much of that is dependent on the avoidance of a prolonged war in Iran.
Our Investment Committee Outlook
The Lesko Investment Committee (IC) continues to focus on the major issues at hand including the ongoing conflict in the Middle East. The reescalation does draw concerns that pressure on global energy prices, as well as the considerable cost of elevated defense spending, could put a damper on the global economy and the markets.
We’re also focused on Q2 earnings season which just began. For the markets to march higher into the second half of the year, we’ll need to see strong earnings and guidance, especially from the large technology companies that markets rely on for leadership and capital investment.
As a result of changing trends globally, the IC has been rigorously evaluating asset allocation models and investment options, including alternatives to traditional asset classes like stocks, bonds, and cash. The effort is focused on offering the best risk/reward scenarios for our clients.
The Committee’s initial projection of an annual S&P 500 return of 7–9 % has already been achieved. If the war is to continue and corporate earnings don’t meet expectations, we would anticipate a market correction that could exceed 10%. As always, we will continue to monitor economic and market conditions closely.
Even though uncertainty will continue to affect the markets and the economy, our team is committed to helping you navigate the upcoming challenges. Recent experience reminds us that volatility and even uncharted waters can present opportunities as we allow our strategies to be tested and refined. It’s critical for you to stay invested and remain patient, sticking to a plan based on your unique financial position, risk tolerance, and investment timeline. Please don’t hesitate to contact us with any questions or comments. We hope you have a healthy and prosperous season with the best part of Summer ahead.