ECONOMIC AND MARKET REVIEW AND OUTLOOK, July 2026

“America innovates, China replicates, Europe regulates.” – Greg Ip, The Wall Street Journal

Second Quarter Recap
This past spring delivered the strongest equity returns since the Covid pandemic.

  • Larger capitalization indices (S&P 500, NASDAQ 100) along with their smaller cap brethren (Russell 2000) rose sharply.
  • Foreign market performance varied. Indices featuring heavy semiconductor weighing such as South Korea and Taiwan surged while other markets lagged due to lingering effects of higher oil prices.
  • Bond yields moved higher as oil prices drifted lower after spiking in March during the onset of Persian Gulf hostilities.
  • Commodities continued mixed. Copper rose higher while gold served as a source of funds for countries needing to finance oil purchases.

Major Market Influences: Iran, Surging Earnings and AI

The Iranian war continued to weigh on the market in the second quarter although its impact has waned. The situation remains fluid, however, as deal-breaking events seem to occur almost daily. So far, discussions between the US and Iran have led to a slight narrowing of differences, and a partial reopening of the Strait of Hormuz.

Currently, Iran has become less of a factor as first quarter earnings still contributed significantly to stock market returns. Analysts had been projecting low-teens earnings per share for the S&P 500, versus 8-10% historically. Surprisingly, profits surged about 27%, with AI contributing nearly half the boost, especially in the Information Technology, Communication Services and Industrial sectors.

The separation of winners and losers within the AI trade is becoming more granular. Software stocks which traded lower as a homogeneous group, have now separated into cybersecurity – a new beneficiary of AI – and enterprise software – which continues to lag. Although hardware remains a favorite place, many of these stocks (especially semiconductors) are extremely overbought and are pulling back.

Consumer Spending, the K-Shaped Economy and Tariffs

Consumer spending remained good so far this year despite higher oil and gasoline prices. Most of the increase was due to the upper half of income earners, although normally, they tend to spend more than the lower half especially due to the wealth effect from rising equity prices. Lower income consumers on the other hand, have been helped by refunds from the new tax bill. Tariff rebates from court cases also contributed to some degree.

As 2026 progresses, inflationary effects from tariffs should diminish with the current Average Effective Tariff Rate (AETR) at 11.8% expecting to drift lower to about 9.7%. That rate is still higher than the approximate 3% that prevailed before 2025 but much lower than the 28% rate after Liberation Day in April of last year.

Federal Reserve Policy – for Better or for Warsh

New Fed Chair Kevin Warsh has signaled a return to many of the policies existing before the Great Financial Crisis of 2008 (pre-GFC). These include minimal or no formal Fed guidance (the “dot plot”), fewer speeches by various Fed officials and a smaller Fed balance sheet.

Although the White House has clamored for lower interest rates, Warsh sounded hawkish in his concern for inflation to return to its 2% target. Some economists, however, are saying that the Fed Chair is merely trying to “jawbone” the markets into believing that rates may go higher without actually raising them. This would help establish credibility that the institution is following its mandate regarding price stability. The new inflation reports should shed more light on this matter. Meanwhile employment, the other half of the Fed’s mandate, remains fairly stable with a “no hire, no fire” situation continuing.

Second Half Outlook

  • The Iranian conflict will continue to affect the US economy at the margin. We predict that oil as measured by West Texas Intermediate (WTI) will settle in the $75-$85/barrel range. Our real GDP, inflation and unemployment outlook is largely unchanged at 1.5-2.0%, 3.0-3.5% and 4.1-4.4%, respectively.
  • Due to the inflationary impact of the Iran war, we now forecast no Federal Fund rate cuts this year. We also do not see any rate increases anytime soon. Ten-year Treasury yields should stay between 4.25-4.75%.
  • Remember that mid-term election years can be volatile. Expect a similar situation as elections draw closer.
  • Corporate earnings should continue to shine. Second quarter results will be similar to the first and 2026 profit growth at +20%. This will ultimately be a great support for equities, as we maintain our constructive view on the markets.

The Rice Partnership Market Update June 2026


The Rice Partnership’s Senior Wealth Manager and Portfolio Manager, Ashley Wilken, and Senior Wealth Manager, Jacob Simons discuss the importance of financial planning in investments.

The Rice Partnership Market Update April 2026


The Rice Partnership’s Chief Investment Officer, Orest Saikevych, and Portfolio Manager, Brian Tokuuke discuss first quarter market events.

ECONOMIC AND MARKET REVIEW AND OUTLOOK, April 2026

“You have one tool, it can’t do two things at once.”

– Jerome Powell, Current Federal Reserve Chair

First Quarter Summary

As predicted, 2026 is turning out to be another volatile year, with most markets falling in the first quarter.

  • Following a turbulent March, the S&P 500 declined 4.3% while the NASDAQ 100 fell 5.8%. Bond yields crept higher, with the 10-year Treasury yield rising from 4.17% to 4.32%.
  • After remaining higher for most of the period, International markets dipped 1.1%.
  • Commodities continued their wild ways. WTI oil was up a stunning 76% while Brent almost doubled. Gold rose 8.1% after selling off sharply in March.

Early Developments

After the capture of Venezuelan leader Maduro, tensions rose between US and Denmark over the future status of Greenland. The White House insisted on purchasing the territory while Copenhagen remained firm in its resolve to maintain control over the world’s largest island. While the situation is largely unresolved, both sides have agreed to negotiate a solution.

The AI situation has morphed from elevated capital expenditure worries by hyperscale companies like Oracle to entire industries (such as software) being severely disrupted. This argument is somewhat contradictory as both concerns cannot be true. In other words, if business models of industries are at risk, then the capex spending is showing results. This is indicative of a phenomenon in its early, rather than late stages.

Meanwhile, the future composition of the Federal Reserve Board remains undecided. With Chairman Powell’s term expiring May 15th, the President has nominated Kevin Warsh, a former Fed governor, as the new Chair. However, Mr. Warsh has yet to be confirmed by the Senate and several Senators are threatening to hold up the vote until a criminal investigation of Chair Powell is completed. To complicate matters further, Powell will remain as a Fed Governor even if his term ends and he has not indicated if he intends to stay. Additionally, the status of Governor Lisa Cook is still in the courts.

All of this will make it more difficult for the FOMC to reach consensus on interest rate policy, even though Warsh is leaning towards lowering the short-term Fed Funds rate. Although the Chair has the most influential vote on the Board, it still requires a majority vote to determine direction of monetary policy.

With these events occurring simultaneously, it appears the tariff dilemma has been placed on the back burner. In late February, the Supreme Court (SCOTUS) struck down nearly half of the Administration’s tariffs, prompting a temporary imposition of 10% tariffs with the option of an increase to 15%. Also, tariffs on specific industries such as steel, aluminum and autos were increased. The temporary levies will last until the end of July, at which time congressional action will be necessary for a more permanent solution.

Conflict in Iran

At the end of February, the US and Israel launched an aerial and naval bombardment of suspected Iranian nuclear facilities. The Administration’s stated goal of permanently disabling Iran’s nuclear program was amended to include the achievement of regime change. Tehran responded by drone and missile strikes against American military bases in the Persian Gulf, along with military and energy infrastructure in neighboring countries and Israeli military and civilian targets.

The situation escalated as liquified natural gas (LNG) plants in both Iran and Qatar were severely damaged. Additionally, supplies of oil going through the Strait of Hormuz (SOH) were effectively cut, with only ships friendly to the Iranian regime allowed to transit. In effect, about 20% of global oil and natural gas supply has been cut off.

The current state is extremely fluid, centering around a two-week ceasefire and reopening of the SOH. Negotiations on April 11th failed and the US has since launched a total blockade of the Strait. Although path forward is unclear, it is imperative that traffic through the SOH must be entirely restored to prevent the global economy from getting worse.

Beyond that, sticky issues such as Iranian nuclear enrichment and Israeli strikes against the Hezbollah in Lebanon remain to be decided. Regarding the global energy situation, the US is now a net energy exporter due to the advances in fracking technology. Countries in Asia and Europe unfortunately, are net energy importers continuing to be hurt by the supply shock.

The Outlook for the Second Quarter

TRP anticipated some of the current market volatility by adding energy stocks to portfolios early during the first quarter and adjusting international holdings to reflect longer term impact of higher energy prices. Here is the outlook for the next quarter.

  • With energy prices likely to remain elevated for now, US inflation will climb higher, between 3.0-3.5%. Real GDP (inflation adjusted) growth may be clipped between 1.5-2.0%, although refunds from the new tax bill should offset the hit from higher gasoline prices to consumers.
  • There is an outside chance (30%) of a US recession at worst, because the United States is a net exporter of energy. For a recession to occur, however, it would still take significantly higher energy prices with West Texas Intermediate (WTI) contracts sustaining levels of over $140 per barrel for several weeks. Currently, WTI is at $92.
  • The employment picture will remain largely unchanged, with the “no hire, no fire” situation continuing.
  • The Fed is likely to keep short-term Fed Funds rate steady until the Iranian conflict is resolved, which may take several weeks. We still see the probability of rate cuts, but recent events have pushed out the timetable until late in the year. Longer dated Treasury yields could creep higher due to inflation and US fiscal concerns.
  • US equities should recover from their recent swoon, with corporate profits slated to rise in the low teens, continuing healthy growth. Volatility, however, could prevail the rest of the year.
  • Keep in mind that mid-term election years usually cause more market volatility than non-election years. As the British used to say during World War II, “Keep calm and carry on.”

The Rice Partnership January 2026 Outlook


The Rice Partnership’s Chief Investment Officer, Orest Saikevych, discusses the 2026 Market Outlook.