Written by Steve Andrews
Market Performance
The U.S. economy remained resilient through the first half of 2026, as reflected in equity market performance. The small-cap Russell 2000 Index led major market indices, rising 22% during the first six months of the year. The technology-focused NASDAQ gained more than 13%, while the S&P 500 and Dow Jones Industrial Average increased 10% and 8.9%, respectively.
Global Economy and Investment Flows
The global economy also remains on solid footing. The MSCI All World Index recently reached record highs in forward earnings per share, a trend mirrored by the S&P 500.
Although the U.S. dollar has weakened somewhat since tariffs were introduced last year, the United States still represents more than 60% of the MSCI World Index. Foreign investment in U.S. assets remains strong. Over the 12 months ending in April, net foreign capital inflows into U.S. equities reached a record $884 billion. Private foreign investors purchased $763 billion in U.S. stocks and more than $942 billion in U.S. Treasuries and corporate bonds.
Manufacturing and Industrial Activity
Consumer spending and continued investment in technology -- including artificial intelligence, biotechnology, nanotechnology, and robotics -- have supported industrial production, manufacturing activity, and employment.
The manufacturing sector expanded for a sixth consecutive month in June. The ISM Manufacturing Index registered 53.3, down slightly from 54.0 in May but still indicating growth. Similarly, the S&P Global Manufacturing Index rose to 53.9, marking its eleventh straight month of expansion.
Services Sector Growth
The much larger U.S. services sector also continued to expand in June. The ISM Services Index eased to 54.0 from 54.5 in May but remained firmly in expansion territory.
Key indicators remained healthy. The Business Activity Index registered 55.4, while the New Orders Index also came in at 55.4. Fourteen of eighteen service industries reported growth during the month, reflecting continued business activity across much of the economy.
Employment Trends
The U.S. economy added 57,000 nonfarm payroll jobs in June, below expectations. Revisions to prior months also reduced previously reported job gains.
However, labor market conditions remain relatively stable. Through June, the economy has added an average of 92,000 jobs per month, compared with approximately 10,000 jobs per month during the same period last year. Recent employment trends suggest that fewer monthly job gains may be needed to maintain a stable unemployment rate than previously believed.
Unemployment Rate
The unemployment rate declined to 4.2% in June from 4.3% in May.
ADP reported that private-sector employers added 98,000 jobs during the month, with gains occurring across most industries. Over the past three months, private-sector payrolls increased by 329,000 positions.
Job Openings
According to the JOLTS survey, job openings rose to 7.6 million in May, the highest level in two years.
During the month, 5.2 million workers were hired and approximately 5.1 million left their jobs. Of those departures, 3.1 million were voluntary resignations, while 1.7 million were layoffs or discharges. Employers continue to report demand for workers, particularly in skilled trades and other blue-collar occupations.
Consumer Spending and Household Fianances
Strong employment, wage growth, and elevated household net worth continue to support consumer spending.
Consumer credit reached a record $5.2 trillion in May, representing a 2.1% increase from one year earlier. Despite higher credit usage, serious credit card delinquency rates have remained relatively stable at approximately 7% for more than three years.
The New York Federal Reserve reported that the probability of households missing a minimum debt payment over the next three months declined to 10.8% in June, the lowest level since April 2023. Meanwhile, credit use as a percentage of disposable personal income remains on a long-term downward trend. Consumer spending also remains healthy, with same-store sales increasing 10.1% year over year for the week ending July 3, according to the Johnson Redbook Index.
Inflation, Interest Rates, and Federal Reserve Policy
Energy prices have risen significantly in recent months, contributing to broader inflation pressures. Durable goods prices increased 3.3% in May compared with the same month a year earlier. Higher demand for artificial intelligence infrastructure and semiconductor chips has been a key contributor, along with some tariff-related price increases.
At its June meeting, the Federal Open Market Committee (FOMC) left the federal funds rate unchanged at 3.63%. Meeting minutes indicated differing views among policymakers regarding the direction of rates later this year. Some members favored lower rates, while others expressed concern about inflation and saw potential for additional rate increases.
Future policy decisions are expected to remain data dependent. Inflation trends, labor market conditions, and Treasury yields will likely be important factors influencing upcoming rate decisions.
Bond Market Signals
The yield on the 10-year U.S. Treasury note remains an important indicator for financial markets and monetary policy expectations.
Historically, movements in longer-term interest rates have influenced financial conditions even when the Federal Reserve changes short-term rates. Currently, the 10-year Treasury yield is near 4.55%, reflecting ongoing uncertainty regarding the future path of interest rates and inflation.
Outlook
The U.S. economy continues to demonstrate resilience. Manufacturing and services activity remain in expansion territory, labor market conditions are stable, consumer spending remains healthy, and corporate earnings expectations are positive.
Investors have broadened their focus beyond technology stocks into other sectors of the market, while earnings forecasts for S&P 500 companies suggest another quarter of strong year-over-year growth. Overall, current economic and market indicators continue to point toward steady expansion, although inflation and interest rate developments remain important areas to watch.
