Despite the concerns and uncertainty, global markets closed higher as strong fundamentals supported markets—as they always do. In this case, those strong fundamentals were evident in phenomenal earnings growth from corporate America. First-quarter earnings growth for the S&P 500 came in over 27 percent, compared to analyst estimates at the start of the quarter for growth of just under 14 percent. That result is impressive in any environment and particularly encouraging given the challenges companies have faced over the past year.
So, will the remainder of 2026 be more of the same as investors navigate short-term headlines and long-term fundamentals? Let’s take a closer look.
My colleagues at LPL have identified four themes that could impact headlines and influence markets over the next several months:
While these themes are likely to dominate headlines, investors should remain focused on the economic and earnings backdrop that ultimately drives long-term market returns.
From an economic perspective, there are certainly concerns to monitor. While inflation and Fed policy remain important variables, solid job growth and resilient consumer spending should support continued, albeit slower, economic expansion. After all, slow growth is still growth.
Against that backdrop, corporate America should continue to deliver strong earnings growth. Consensus estimates for the S&P 500 are for 24 percent growth for full-year 2026. Equally as encouraging for investors is that the 493 non-Magnificent Seven stocks in the index are expected to grow 20 percent for the full year, according to J.P. Morgan Asset Management. This is an important inflection point for investors, as market returns have relied heavily on the earnings contribution of the biggest names in the index over the past several years. If broad earnings growth momentum continues, it should provide a foundation for markets over the longer term.
Improving fundamentals are key to a sustainable rally. There is still a lot of excitement around AI, the SpaceX (SPCX) IPO, and large-cap growth, which is understandable. But the rest of the market trades at more attractive valuations, and fundamentals are improving. Historically, attractive valuations paired with improving fundamentals have created favorable conditions for investors.
The result has been a year of "stealth diversification." Large-cap value has outperformed growth, small-caps have outperformed large-caps, and international has continued to outperform just as we saw in 2025.
As illustrated in LPL’s 2026 Midyear Outlook,* the LPL Research team takes a similar big-picture view, providing valuable insights from their macro and asset class experts. Here are a few of the team’s key takeaways:
Economy. The U.S. economy is likely to continue to grow over the second half of the year but at a slower rate. Hundreds of billions of dollars in AI spending will power strong business investment. This growth should offset weakness in housing and other rate-sensitive parts of the economy.
If geopolitical tensions do subside, led by a resolution in the Middle East that fully reopens the Strait of Hormuz, inflationary pressure could ease. At the same time, subdued growth in job creation should be enough to support resilient consumer spending given the ongoing wealth effect.
Stocks. The trajectory of stocks during the second half will likely depend on two factors:
Progress between the U.S. and Iran as well as the ability of companies to deliver on earnings expectations will determine the magnitude of any moves higher or lower for stocks. Stocks should be able to continue to grind higher, but diversification will be important to portfolio construction to navigate the uncertain macro backdrop.
Bonds and cash. With the Fed unlikely to lower rates over the remainder of the year, yields on the 10-year U.S. Treasury bond are expected to be range-bound between 4.00 percent and 4.50 percent. In this scenario, income will likely be a key driver of bond returns.
The best way to capture this opportunity is through core bonds, as opposed to the riskier, lower-credit areas of the market where spreads are historically tight. A longer-term opportunity exists in slightly extending duration to lock in higher yields on the assumption that eventually the Fed will return to lowering interest rates as inflation moves back down toward its 2 percent target.
As we have seen over the past 18 months, headlines can challenge consensus views in the short term. The remainder of 2026 is unlikely to be different. But as we have also learned in the past, no matter what is happening on the surface, opportunities will present themselves amid the dislocation. The key is finding them.
Risks always exist. Uncertainty about the path forward is high. But as the first half has shown us, the opportunity set for investors is expanding. We anticipate that this will continue. Our goal as always will be to focus on long-term investment objectives and construct well-diversified portfolios that meet them.
For more insights into what’s ahead for the economy and markets over the remainder of the year, check out the LPL Research 2026 Midyear Outlook, available here.
*This material has been prepared by LPL Financial LLC (“LPL Financial”), a registered investment adviser and member of FINRA/SIPC. LPL Financial is an affiliate of Commonwealth Financial Network (“Commonwealth”), a registered investment adviser and member of FINRA/SIPC. Commonwealth and LPL Financial are under control of a common parent company.