Current macro outlook
The macro backdrop remains supportive for equities despite the strong run. Inflation is easing across the US, United Kingdom (UK) and Europe, giving central banks confidence that rate hikes are finished and cuts are likely later in 2026.
That shift has reduced downside risks to growth and improved visibility for earnings. The days of worrying about aggressive rate hikes are over, at least for now.
Economic data have been mixed but resilient. The US economy continues to grow above trend, labour markets are cooling without cracking, and consumer spending remains robust.
European growth is subdued but stabilising. China is benefiting from targeted policy support rather than broad stimulus. This “slowdown without recession” narrative remains constructive for risk assets.
Falling bond yields and a softer US dollar are helping as well. Lower real yields improve equity valuations, particularly for growth stocks, while a weaker dollar supports global liquidity and commodities.
Corporate balance sheets remain solid. Earnings momentum in technology, energy and financials continues, providing fundamental support beneath the market moves.
The macro environment still provides a reasonable foundation for further equity gains. Volatility will remain elevated, but the fundamental backdrop hasn’t deteriorated.
Even with its high valuation of 26 times earnings, the S&P 500’s high profitability compared to other global indices continues to provide a favourable outlook.