Economy & Markets
- At the mid-year mark of 2026, the defining characteristic of the U.S. economy is resilience. Despite stubborn inflation, tariffs, war in the Middle East and the potential for interest rate increases, the economy kept growing. The final revision for 1st quarter GDP growth rose to 2.1% with expectations for the 2nd quarter at 2.0%.
- Inflation remains persistently high. The Fed’s preferred measure, the PCE, rose 4.1% over the last year ending in May, while the core rate rose 3.4% over the same period. Consumer spending has surprised to the upside during the first half of 2026 and should remain strong through year-end.
Equities
- The S&P 500’s 1% decline in the month of June diverged from the recent market strength in both April and May. Technology-centric sectors along with Energy stocks were laggards in the month, while Industrials and Health Care shares posted robust gains. International equities modestly outperformed domestic shares in the final month of the quarter.
- Expectations for strong corporate earnings remain in place as year-over-year growth finished at 24% in the quarter. Analysts continue to maintain a constructive tone and expect aggregate profits to grow by 25% in 2026. The market’s 20x multiple of forward earnings remains slightly above its long-term average but below its recent peak of 23x seen in late 2025.
Fixed Income
- The yield curve continued to flatten this month as short-term rates rose more than long-term rates due to inflation concerns and hawkish dissent from the June FOMC meeting.
- IG credit spreads finished the month at 74 basis points, while all-in yields remain at 5.2%.
Employment
- The June unemployment rate fell to 4.2%, partly due to the labor force participation rate declining to 61.5%, the lowest level since March 2021. Employers added 57,000 jobs during the month which was below expectations.
- Wage growth rose by 3.5% over the last year which is lower than the latest inflation data. One statistic we will be watching is labor productivity growth. Increased productivity from tech advances could lead to higher wages.
Federal Reserve
- With the employment data showing a healthy labor market, the new Fed Chairman, Kevin Warsh, focused his late June comments on inflation. There were divided opinions as to whether inflation was becoming embedded in the economy and whether a rate increase was warranted.
- The Fed is also watching manufacturing activity. The latest reading of activity was 53.3, which is still in expansion territory. Growth was broad based, and the PMI reading is indicative of an economy growing at a 2.0% rate.
Issues to Watch
- The latest attacks on shipping in the Strait of Hormuz do not augur well for peace anytime soon. Oil futures have started to move higher once again, and investors will need to factor in a resumption of market turmoil as events unfold.
- The election cycle, upcoming Fed deliberations and the ongoing Iranian conflict will keep investors on their toes during the summer vacation season.
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
Asset Allocation / Tactical Positioning
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 May 2026 Asset Allocation Committee meeting.
Views are as of July 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.