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Economy & Markets 

  • The U.S. economy grew at an annualized rate of 1.5% in the second quarter. When we look at real final sales to domestic purchasers, our preferred gauge, we see the economy grew at a robust 3.9%, the highest growth in over three years. This strong domestic demand was once again driven by consumer spending and technology-related capital expenditures.
  • Inflation remains elevated as the latest report for the PCE price index, the Fed’s preferred measure, rose 3.7%, while the core rate rose 3.3%. Manufacturing activity rose in July to the highest level since 2022. The PMI index, at 55.6, supports our favorable growth outlook for the remainder of the year.

 Equities

  • The S&P 500 was roughly flat in July following the strong gains recorded during the second quarter. Investor sentiment was tempered by uncertainty surrounding interest rates and inflation. Sector performance was mixed, with Technology and Industrials lagging, while Energy led during the month. Financials, REITs, and Health Care also posted solid gains.
  • Corporate earnings remain a key pillar of the investment outlook. Second quarter results have been terrific, with the S&P 500 on track to deliver one of its strongest earnings growth rates in several years. Analysts continue to forecast healthy profit growth through 2027, supported by AI-related investment, resilient enterprise spending and improving operating leverage.

Fixed Income 

  • The yield curve steepened during the month as Treasury yields moved higher, reflecting the market's reassessment of the Federal Reserve's path for future rate hikes.
  • IG credit spreads ended the month at 78 basis points, while all-in yields remain at 5.46%.

Employment

  • The July unemployment rate ticked down to 4.1%, partly due to the labor force participation rate declining to 61.4%. New unemployment claims are near historic lows, comparable to levels seen in the late 1960s.
  • Considering the declining labor force participation rate and the dramatic reduction in immigration, it has surprised many economists that wage growth has not accelerated.

Federal Reserve 

  • Many investors are beginning to question the Fed’s commitment to reduce inflation to its 2% target. Inflation has been above the Fed’s target for over five years. A growing economy, tight labor market and stubborn inflation will keep the pressure on the Fed to raise rates.
  • In post-meeting remarks, Chairman Warsh emphasized that markets should focus on economic “data” rather than the Fed itself. Nevertheless, we expect investors to remain focused on developments that could shape the rate outlook.

Issues to Watch

  • Increased war related disruptions in the Strait of Hormuz and the Bab-el-Mandeb Strait are once again putting additional pressure on energy prices.
  • As the midterm elections approach, investors are placing greater emphasis on election-related uncertainty, as these periods have historically been accompanied by elevated market volatility.
Chart of Economic Metrics

1 Data provided by Bloomberg. Metrics are as of month-end or most recent publication
2 Provided by U.S. Real GDP Economic Forecast Survey Median
3 Provided by World Real GDP Economic Forecast Survey Median
4 Provided by Bloomberg Intelligence Forecast
5 Provided by World Probability Forecast
6 Arrows represent a month-over-month change

Chart of Index Returns

Asset Allocation / Tactical Positioning 

Chart of Asset Class

7 Equity tactical weights are relative to the Cambridge Trust Wealth Management Core Equity allocation and is comprised of 80% S&P 500 and 20% MSCI AC World ex-U.S. Index.
8 Fixed Income tactical weights are relative to the Cambridge Trust Wealth Management Core Taxable allocation and is comprised of 100% Barclays Intermediate Gov/Credit Index.
9 Below investment grade holdings include high yield and emerging market debt mutual funds. Represents an out-of-benchmark allocation that will be reflected as an overweight position relative to the Barclays Intermediate Gov/Credit Index if any allocation is held.
10 Alternative tactical weights represent an out-of-benchmark allocation that will be reflected as an overweight position when utilized and neutral position when not.
11 Direction arrow highlights any recent changes of the overall allocation after a recent tactical asset allocation or strategy change. Last changes were made at July 2026 Asset Allocation Committee meeting.

 

Views are as of August 2026 and are subject to change based on market conditions and other factors. The opinions expressed herein are those of the author(s), and do not necessarily reflect those of Eastern Bankshares, Inc., Eastern Bank, or any affiliated entities. Views and opinions expressed are current as of the date appearing on this material; all views and opinions herein are subject to change without notice based on market conditions and other factors. These views and opinions should not be construed as a recommendation for any specific security or sector. This material is for your private information, and we are not soliciting any action based on it. The information in this report has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is neither representation nor warranty as to the accuracy of, nor liability for any decisions made based on such information. Past performance does not guarantee future performance.