Economic and Market Environment
Second Quarter 2026
The Economic & Market Environment
The Economy
The economy is experiencing uneven growth with several emerging risk factors:
- Iran/oil prices
- Inflation above target/affordability pressures persist
- Low consumer confidence
- “K” shape
- Low hire/low fire employment
- Artificial Intelligence (AI) and related capital spending
- Credit deterioration (private)
- Federal budget deficit/debt
There are a number of highly constructive domestic conditions still in place:
- Low unemployment rate
- Consumers are still spending
- Interest rates have been reduced
- OBBB stimulus
- Positive wealth effect
- Strong corporate profit growth/productivity
Summary: Recession risks have increased, but the outlook for ~2% Gross Domestic Product (GDP) growth remains intact.
Stocks & Bonds
Stocks:
- Stocks are more volatile amid the Iran conflict
- Economic risk factors have the potential to outweigh positive influences
- Volatility has been below the surface for some time now
- Rolling corrections have occurred across economic sectors
Bonds:
- Longer term interest rates remain range-bound (4-5%)
- The path of shorter-term interest rates is uncertain
- Bond yields and inflation have been relatively stable
The "Big Four" Indicators of U.S. Economic Health
GDP Growth Becoming Increasingly Concentrated
- GDP is the broadest measure of economic growth
- Real GDP growth (adjusted for inflation) is projected to be approximately 2% for 2026 and over the long term
- Growth is increasingly driven by upper income consumption and AI capital expenditures
- The drivers of economic growth are becoming increasingly narrow, raising the risk of imbalance and fragility
Low Unemployment, Uneven Job Growth
- Unemployment typically rises during recessions
- The unemployment rate remains low by historical standards
- “No-hire, no-fire” employment picture with job growth concentrated in lower paying sectors
Interest Rates Remain in 4-5% Range
- The 10-year Treasury yield is a key benchmark for interest rates
- Interest rates influence mortgage rates, corporate borrowing, and equity valuations
- Inflation is a key influence on interest rates
Stalled Disinflation
- Inflation is not yet down to the Fed’s 2% target
- Higher oil prices put upward pressure on inflation
Economic Growth Sensitive to Oil Prices
- Most recessions have been preceded by spikes in the price of oil
- Energy prices have a psychological drag on consumers but also represent a broader based cost-push for businesses
Nominal GDP and Corporate Profits are Highly Coorelated
- When GDP declines in a recession, corporate earnings decline as well
- When corporate earnings decline, stock prices go down
- Absent a recession, corporate earnings are projected to rise meaningfully in 2026
Signals Across Markets
- Macro pressures are emerging, reinforcing a more uncertain and potentially less supportive backdrop for stocks
- We believe high-quality stocks will remain a good place to be invested and help reduce much of the volatility
Summary: Key Points
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Stocks have declined from recent highs
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Volatility has returned to broad market indices
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Interconnected risks are becoming more evident
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Valuations have reset; earnings outlook remains constructive
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Sustained earnings growth remains the key support for markets
Disclosure Statement
Crawford Investment Counsel (“Crawford”) is an independent investment adviser registered under the Investment Advisers Act of 1940, as amended. Registration does not imply a certain level of skill or training. More information about Crawford, including our investment strategies, fees, and objectives, can be found in our Form ADV Part 2and/or Form CRS, which is available upon request.
This material is distributed for informational purposes only. The statements contained herein reflect opinions, estimates and projections of Crawford as of the date hereof, and are subject to change without notice. This material is not financial advice or an offer to sell any product. Forecasts, estimates, and certain information contained in this commentary are based upon proprietary research and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Any projections herein are provided by Crawford as an indicator of the direction Crawford’s professional staff believes the markets will move, but Crawford makes no representation such projections will come to pass. Crawford makes every effort to ensure the contents have been compiled or derived from sources believed reliable, and contain information and opinions that are accurate and complete; however, Crawford makes no representation or warranty, express or implied, in respect thereof; takes no responsibility for any errors that may be contained herein or omissions; and accepts no liability whatsoever for any loss arising from any use of or reliance on this report or its contents. Crawford reserves the right to modify its current investment strategies and techniques based on changing market dynamics or individual portfolio needs.
Forward-looking statements cannot be guaranteed. This document may contain certain information that constitutes “forward-looking statements” which can be identified by the use of forward-looking terminology such as “may,” “expect,” “will,” “hope,” “forecast,” “intend,” “target,” “believe,” and/or comparable terminology. No assurance, representation, or warranty is made by any person that any of Crawford’s assumptions, expectations, objectives, and/or goals will be achieved. Nothing contained in this document may be relied upon as a guarantee, promise, assurance, or representation as to the future. CRA-2509-8
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