Maxine Cuffe, VP – Director of Global Strategies
Mcuffe@haverfordquality.com

Resilient Growth, Rising 2026 Earnings, and Renewed Inflation Risk

U.S. equity markets have continued their upward trajectory, reaching new all-time highs underpinned by resilient economic data, robust earnings growth, and disciplined investor behavior. Notably, investors have demonstrated a consistent willingness to add capital during periods of market uncertainty. Historical data has shown that those who remain fully invested in the market throughout periods of volatility are better positioned for favorable outcomes, including higher market returns. Even investing at market highs has historically delivered returns above the average. Today this dynamic is reinforced by structural factors such as automatic retirement contributions and professionally managed portfolios, which provide steady flows into equities regardless of geopolitical risks or market volatility.

The macroeconomic environment also remains supportive. Recent data indicate that economic momentum is holding firm, particularly within the labor market. Initial unemployment claims have been unexpectedly low, and continuing claims have declined, supporting a stable “no-hire-no-fire” dynamic which sustains consumer spending. Business surveys, including Purchasing Manager’s Index (PMI) readings, point to modest expansion, while GDP growth continues at a pace that supports corporate revenue growth. Collectively, these factors have helped maintain investor sentiment that the economy can avoid a sharp downturn, even as risks in the Middle East and their impact on business confidence and energy prices demand close attention.

Earnings growth remains the most important foundation for current equity performance. Expectations for 2026 S&P 500 EPS growth have steadily increased throughout the year, now approaching 22% following strong earnings reports and upward guidance revisions. Much of this growth is driven by large-cap technology companies, particularly those in the semiconductor and AI-adjacent sectors, where demand and margins remain robust. Companies tied to data center buildouts, cloud infrastructure, and advanced computing have delivered results well ahead of expectations. Looking forward, earnings contributions are expected to broaden in the second half of the year, with energy companies positioned to benefit from firmer commodity prices and improved capital discipline.

Inflationary risks are becoming more visible and warrant ongoing monitoring. Core PCE inflation, the Federal Reserve’s preferred measure, has risen to 3.2% year-over-year, driven by persistent increases in services such as healthcare and insurance. Geopolitical tensions, particularly with Iran, pose additional inflationary risk through energy markets. These developments have complicated the Fed’s policy outlook, with inflation proving less cooperative and labor market conditions stabilizing. The likelihood of near-term rate cuts has decreased, as underscored by a divided Fed decision and less dovish language than anticipated. With policy likely on hold for longer, one potential tailwind for markets is fading, and we may see increased volatility as investors reassess equity valuations, policy expectations, and geopolitical risks.

Our team stands ready to provide guidance and help navigate these evolving market dynamics, ensuring your investment strategy remains aligned with your objectives and the principles of Haverford Quality Investing.

S&P 500 Earnings for 2026 have risen from $309 to $330 year to date, representing growth of 22% over 2025 EPS of $270.