Portfolio Manager Commentary

August 1, 2026

Economic Outlook

The Atlanta Federal Reserve currently estimates real GDP growth of 6.2% for Q3 2026, well above the consensus estimate of approximately 2.0%. The Conference Board Leading Economic Index declined 0.2% in June to 99.1 and is nearly unchanged this year. The ISM Manufacturing PMI registered 55.6 in July, reaching a four-year high, indicating continued expansion in factory activity. Consumer sentiment improved for a second consecutive month, with the University of Michigan Consumer Sentiment Index posting a final July reading of 55.2, up from 49.5 in June. The labor market remains tight, with initial jobless claims falling to 187,000 in the week ending July 18. This represented the lowest weekly initial claims level since 1969. The 5-year breakeven inflation rate stands at 2.26%, down from a recent high of 2.72% in May. The average interest rate for a 30-year fixed-rate mortgage was approximately 6.66% as of July 30.

Fixed Income

The Federal Reserve left the federal funds target range unchanged at 3.50% to 3.75% at its July 29 meeting, though the 9-to-3 vote drew three dissents in favor of a 25 bps hike. The bond market's reaction was uneven across maturities. Front-end yields fell as investors grew skeptical of further hikes, while long-end yields surged. Notably, the 30-year climbed above 5.2%, its highest level since 2007. The 10-year yield rose 25 basis points in July, its largest monthly increase since March. Meanwhile, the ICE BofA MOVE Index, an estimate of future Treasury yield volatility, increased 20% in July, reflecting renewed uncertainty over the inflation and policy outlook. Even so, credit markets remained comparatively calm, with investment-grade and high-yield spreads holding near historically tight levels.

Yield Curve

Current Generic Bond Yields

Equities

The S&P 500 enters August near record levels as second quarter earnings season has exceeded expectations. With 61% of companies reported, the blended year-over-year earnings growth rate has climbed to 47.4%. Blended growth moderates to around 28.8% when excluding non-recurring investment gains at Alphabet and Amazon in private AI companies. Notably, the S&P 500’s 10% gain in 2026 has been driven entirely by earnings, not valuation. Corporate earnings have grown approximately 20% year-to-date, while the market's valuation multiple has contracted around 9% since the start of 2026.

In 2026, the best performing U.S. sectors have been Energy (+34.74%), Industrials (+16.64%), and Information Technology (+15.65%). The worst performing sectors have been Consumer Discretionary (+0.04%), Communication Services (+1.39%), and Financials (+4.91%). On a total return basis, the Russell 1000 Growth Index returned 0.32% year to date, while the Russell 1000 Value Index increased 20.67% over the same period.