Published June 18, 2026
Below we offer a brief of Delta Research’s review of the economy and markets at mid-year. We have noted many of these themes in recent weeks as the stock market bulls have consistently fought off bearish uncertainty to drive stock prices higher. Now, we have a new Fed Chair, which often brings a bout of volatility as investors get used to the change in tone, and possibly policy implications, of the new Fed leader.
Here’s what Delta’s research sees:
“The US economy is not headed for a recession in the foreseeable future. The latest Atlanta Fed GDPNow estimate for second-quarter GDP growth is 3%. At newly appointed Fed Chair Kevin Warsh’s first FOMC meeting this week, the Fed sounded noticeably more optimistic about economic growth than in prior statements. The statement noted “economic activity is expanding at a solid pace despite elevated uncertainty” and specifically highlighted strong productivity growth and capital investment, which was not mentioned in April.
When the economy is not in recession, the S&P 500 has almost always delivered positive calendar-year returns over the past 45 years.
Beyond the positive growth outlook, other bullish signals include:
- Corporate earnings growth and profitability are strong,
- AI capital expenditures (a major driver of economic activity) continue to accelerate,
- Discretionary spending by consumers is not slowing down,
- Uncertainty regarding war with Iran is subsiding, and
- Oil prices are falling which could help cool inflation, support discretionary spending and allow longer-term interest rates to retreat further.
Earnings and Valuation Look Solid
The S&P 500 year-to-date return reflects a 17% rise in consensus forward 12-month earnings estimates alongside a 7% decline in the P/E multiple, from 22x to 21x. The S&P 500’s trailing four-quarter Return on Equity (ROE), a measure of profitability, is at a record high 22%. High profitability helps support a higher P/E multiple. The current 21x P/E ranks in the 87th percentile since 1980.
AI Capex Driver in Place
JPMorgan estimates AI capex will total $5.5 trillion through 2030. Last November, its estimate was $5.1 trillion.
The direction matters. AI investment is not merely a stock-market theme; it is becoming a real economic input, supporting capital spending, infrastructure demand, earnings growth, and productivity expectations.
The Consumer Remains Resilient
Total retail sales reported this week increased 0.9% month-over-month in May versus consensus expectation of 0.5%. Excluding autos, retail sales jumped 0.8% (consensus: 0.5%) on the heels of an unrevised 0.7% increase in April.
The key takeaway is that the report showed real demand. The data are not adjusted for price changes, and retail sales activity in May outpaced the rate of inflation (+0.5%). Moreover, excluding gasoline station sales (+3.4%), retail sales were still up 0.7%.
At institutional investor conferences this week, Capital One and Bank of America both emphasized the strength of the consumer.
“I would say if we didn’t read any news and all we did was just really look at the data that we see in the economy and the data that we see on our portfolio, we have a really quite positive view….I think the consumer is really the strong shoulders the economy stands on. Unemployment continues to be low.” – Capital One CEO Rich Fairbank
“There’s more, I would say, concern and cautiousness than is reflected in the general level of activity. I was joking around with someone recently and saying it’s kind of what you see broadly whether it’s on the consumer side or on the business side, where the surveys, various surveys are reflecting considerably more caution than what we actually see in the numbers.” – Bank of America Co-President James DeMare
That gap between what people say in surveys and what they do in the economy remains important. Sentiment may be cautious, but spending behavior continues to be resilient.
Uncertainty is Down
The US – Iranian agreement removes a significant source of uncertainty from markets. Future price spikes for energy, aluminum, fertilizer, saffron and other commodities now appear less likely. CFOs and treasurers should experience less volatility around their future business activities which should give asset buyers and sellers increased certainty around valuations. This should further open up the merger and acquisition (M&A), IPO and lending markets to buyers, investors and bankers.
Markets can handle bad news. What they struggle with is uncertainty. The reduction in geopolitical uncertainty is therefore meaningful.
Inflation Pressure is Down
Oil is trading at the lowest level since the war began in March. Persian Gulf exports are expected to normalize to pre-war levels by the end of July (vs. end of August). Rather than $150-$200 per barrel in 2027, the expectation is for $70 per barrel.
Word of Caution
During the Fed press conference, Chair Walsh made clear that the Federal Reserve remains committed to delivering “price stability.” With inflation currently running above 3%, the market expectation is moving towards at least one rate hike by year end.
Inflation is proving persistent and may remain higher for longer. Higher interest rates are the main bearish offset to the bullish factors described above. Through year end, we expect the bullish forces to outweigh the bearish possibility of rate hikes.”
Market Update
News of a U.S.-Iran deal to end the war sent stocks flying higher Monday. The tech-heavy Nasdaq surged +3%. Some profit-taking Tuesday after Monday’s big run-up found the Nasdaq giving back -1%. Investors turned their attention to the mid-week meeting of the Federal Reserve, the first under new Fed Chair Kevin Warsh. Stocks gave back another -1% Wednesday when new Fed Chair Warsh issued a statement that was more hawkish than expected, meaning that his focus is on fighting inflation. His words sent interest rates higher as investors pulled in possible rate hikes to October from December. But investors bought the dip in stocks Thursday when President Trump noted a possible deal between Apple and Intel to manufacture chips for the smartphone provider. The Nasdaq surged +2.5% with the AI hardware sector powering the lift. Markets were closed Friday for the federal Juneteenth holiday. The drop in oil prices from the peace deal pushed longer-term interest rates notably lower while Fed Chair Warsh’s inflation-fighting tone pushed short-term rates higher.
Another volatile week for stocks saw the S&P 500 (SPY) add +0.93%. The Nasdaq 100 (QQQ) recovered its downdraft from two weeks’ prior with a +2.67% gain. Small caps(IWM) again moved to record highs with a +1.14% lift.
Warm wishes and until next week.