Economic and Market Outlook Dashboard
3rd Quarter 2026
The Economy
The Markets
Interest Rate Outlook
Asset Allocation Outlook
The U.S. economy grew at an annualized rate of 2.1% in the first quarter of 2026, driven by steady consumer spending and business investment. While economic growth remained positive, it continued at a modest pace amid ongoing uncertainty.
Inflation remained above the Federal Reserve’s 2% target, with higher energy prices and geopolitical tensions contributing to persistent price pressures. As a result, consumers faced increasing financial strain, and the personal savings rate fell to a near‐record low of 2.6%.
The labor market remained relatively stable, with employers adding an average of 60,000 jobs per month during the quarter. Healthcare and social assistance continued to lead job growth, while the unemployment rate held steady at 4.3%.
Overall, the economy showed resilience through continued growth and a stable job market, though elevated inflation and declining household savings remain key challenges.
Market sentiment improved during the second quarter of 2026 as investors became more optimistic about economic resilience, easing inflation pressures, and continued corporate earnings growth.
The S&P 500 index gained 15.2% during the second quarter, supported by strong corporate earnings, improving investor sentiment, and continued strength in technology and artificial intelligence‐related companies.
Developed international markets (MSCI EAFE) gained approximately 10.8% during the second quarter. International equities benefited from improving economic expectations, attractive relative valuations compared to U.S. markets, and a more favorable outlook across several European and Asian markets.
Emerging markets (MSCI EM) were among the strongest performing areas of global equities, gaining approximately 24.1% during the second quarter.
At its June meeting, the Federal Reserve held rates steady in a range of 3.50%‐3.75%. The median interest rate outlook calls for one possible quarter point rate hike by the end of 2026 if inflation stays elevated.
There were moderate changes in the Federal Reserve’s Summary of Economic Projections. Growth estimates were downgraded for this year and left unchanged for next year, while inflation estimates were increased and unemployment rate forecasts were lowered for the remainder of 2026.
Headline year over year inflation decreased to 3.5% in June, while prices declined by 0.4% due to lower oil prices. Even though oil prices have dropped significantly from the March highs, we expect continued volatility until there is some type of resolution to the conflict with Iran.
We expect geopolitical tensions, policy uncertainty surrounding tariffs, and stretched valuations in the U.S. equity market to continue to cause market volatility.
Although we continue to be constructive on U.S. equities for the long term, our focus remains on high‐quality companies with strong balance sheets and sustainable earnings.
Long‐term growth prospects, improving fundamentals, favorable valuation levels and a further decline in the U.S. dollar support our allocation to both developed and emerging international equities.
Bonds offer attractive levels of income, as well as protection against an economic downturn. High-quality core fixed income with attractive yields continues to be our focus.
We continue to invest for the long term and to advocate for diversified portfolios as the best way to combat market volatility.
This newsletter contains general information that is not suitable for everyone and should not be construed as personalized investment advice. The views expressed herein are those of the firm as of the date indicated and are subject to change based on market and other conditions. Any references to asset allocation, investment strategies, or marketing positioning are for informational purposes only and should not be construed as a recommendation to buy or sell any security or adopt any particular investment strategy. Past performance is no guarantee of future results. Investing in the stock market involves gains and losses and may not be suitable for all investors. Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security. In preparing this presentation, we have relied upon information provided by third parties, including J.P. Morgan Asset Management, FactSet, Bloomberg, Federal Reserve, MSCI, Standard & Poor’s, BLS, and BEA. While we believe these sources to be reliable, the accuracy and completeness of the information is not guaranteed. We have provided performance results of certain indices for comparison purposes only. The historical performance results of each index do not reflect the deduction of transaction and custodial charges, nor the deduction of an investment management fee, the incurrence of which would have the effect of decreasing indicated historical performance results. It should not be assumed that your account performance or the volatility of any securities held in your account will correspond directly to any comparative benchmark index. Additionally, certain statements contained herein that indicate future possibilities are forward-looking statements. Due to known and unknown risks, actual results may vary materially than those portrayed in such forward-looking statements. There is no guarantee that the views and opinions expressed herein will come to pass. For additional information about Arbor Trust, including fees and services, send for our disclosure statement as set forth on Form ADV from Arbor Trust using the contact information herein. Please read the disclosure statement carefully before you invest or send money.