Economy & Markets
- To the befuddlement of most forecasters this year, the U.S. economy has held up much better than expected. While first quarter GDP growth was revised down to 1.6%, real final demand to domestic purchasers, our preferred measure of growth, rose by 2.5%. Strength in capital spending in the technology sector remains strong and is a good harbinger of future growth.
- Inflation data remains stubborn. The Fed’s preferred measure, the PCE, rose 3.8% over the last year, which is much higher than their 2.0% target. The latest reading of the CPI for May was 4.2%, with the Core rate at 2.9%.
Equities
- The S&P 500 continued its upward ascent in May, advancing +5.26%. Information Technology was the standout sector, leading the index higher, even as 8 of the other 10 sectors posted negative returns during the month. International equities posted positive returns but modestly underperformed domestic markets.
- Corporate earnings came in well ahead of expectations, with year-over-year growth exceeding 28% in the first quarter. The outlook remains constructive, with analysts estimating earnings growth of over 22% for 2026. Valuations are approximately 21x forward earnings, above 5- and 10-year historical averages, but below 2025 levels.
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 expectations for tighter Federal Reserve policy.
- Investment grade credit spreads tightened with the option adjusted spread at 73 basis points.
Employment
- The May unemployment rate was unchanged at 4.3%. Employers added 172,000 jobs and prior months were revised up by 93,000. The labor market in the U.S. is healthier than it appeared just a few months ago.
- Wage growth rose by 3.4% over the last twelve months which is lower than the latest inflation reports. One statistic we will be watching is labor productivity growth. If the increased spending on technology filters through to the workforce, we expect to see increasing productivity.
Federal Reserve
- With the employment data showing a healthy labor market, the Fed’s focus has shifted to inflation. There are calls for the next Fed move to be an increase, which is a shift from earlier this year when expectations were for 1-2 cuts.
- The Fed is also watching manufacturing activity which has expanded for the fifth month in a row in May. The latest reading of activity was 54, which is the highest level since May 2022.
Issues to Watch
- While the U.S. economy is managing higher energy prices, the global economy is slowing markedly. The OECD cut its expectation for global growth in 2026 to 2.8%, down from 3.4% growth in 2025.
- The election cycle does not normally gain investor attention until after Labor Day but a few primary results over the last few days signal that this Fall will see a very contentious election 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 June 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.