PUBLISHED June 28, 2026
GDP Rebounds, But the Consumer Data Deserves Scrutiny
According to Charles Schwab’s Schwab Center for Financial Research, real GDP growth has rebounded from its recent soft patch at the end of 2025 and is expected to look solid in the second quarter, with the Atlanta Fed’s GDPNow model currently tracking growth at 3% on a quarter-over-quarter annualized basis. However, since a good chunk of second-quarter data was still unavailable when the report was published, Schwab cautions that the current estimate needs to be taken with a grain of salt — not least because inflation-adjusted wage growth is currently in negative territory and the savings rate is about half of what it was right before the 2022 inflation spike triggered by Russia’s invasion of Ukraine.
A Labour Market That’s Stable, But Barely Hiring
The main message from the labor market over the past year has been that a high and rising total number of nonfarm payrolls has mattered more than a slowdown in monthly job creation. The hiring rate sits near a multi-decade low, and job postings have not risen much over the past six months — a “low-hire, low-fire” backdrop that Schwab does not expect to dramatically change in the second half of the year. One gap worth monitoring: household employment data, drawn from a separate survey, has continued to weaken on a six-month average basis even as the more closely watched nonfarm payrolls figure has stabilized — and at key turning points in economic cycles, the household survey tends to be “right” in the end.
Energy and “Supercore” Inflation Both Stay Sticky
Inflation has jumped to the top of investors’ concerns chiefly because of the rapid increase in energy’s contribution to both the CPI and the Fed’s preferred PCE price index — a factor entirely absent from Schwab’s expectations heading into the year, since the firm, like most forecasters, did not have a US-Iran war on its list of expectations. Beyond energy, PCE core services excluding housing has settled into an uncomfortable range above 3% year-over-year, picking up to 3.5% in April. Since this measure excludes any direct effects from tariffs and the energy sector, it offers a clear view into just how sticky underlying inflation has become — and how difficult it will be for the Fed to reach its 2% target anytime soon.
An increasingly dominant factor in the inflation surge has been a basket of goods and services tied to the AI buildout, from computer equipment to software, as the capex cycle continues its march. This creates an unusual policy puzzle: AI represents a demand shock happening alongside a major supply shock from the Iran war, and Schwab expects both to continue weighing on consumer attitudes. The misery index — combining unemployment and inflation — has started drifting higher thanks to the recent climb in inflation, even though it hasn’t yet reached double-digit territory.
An increasingly dominant factor in the inflation surge has been a basket of goods and services tied to the AI buildout, from computer equipment to software, as the capex cycle continues its march. This creates an unusual policy puzzle: AI represents a demand shock happening alongside a major supply shock from the Iran war, and Schwab expects both to continue weighing on consumer attitudes. The misery index — combining unemployment and inflation — has started drifting higher thanks to the recent climb in inflation, even though it hasn’t yet reached double-digit territory.
The bullish case for US equities rests on earnings that have defied virtually every cautious forecast laid out at the start of the year: Wall Street analysts now project S&P 500 earnings growth of 25% for the full calendar year, up from less than 16% at the start of the year. But this growth is concentrated: the largest jumps in expectations have come in Energy, Materials, Technology, and Communication Services, while Consumer Discretionary, Consumer Staples, Health Care, Industrials, and Real Estate now have lower estimates than at the start of the year. The four largest hyperscalers — Amazon, Microsoft, Alphabet, and Meta — are on track to spend nearly $800 billion on capex this year, an increase of more than 80% from last year, with capex reaching about 75% of these companies’ cash flows, a ratio reminiscent of tech spending in the late 1990s.
The University of Michigan Consumer Sentiment Index has plunged to a record low, largely driven by the war in Iran and its impact on the cost of living — a reading below every recession trough in the survey’s 75-year history. Normally, that would be treated as a bearish signal for equities, yet the S&P 500 has continued to grind higher. The explanation lies in a structural divergence: equity ownership is heavily concentrated among higher-income households, and the share of equities in household financial assets has reached more than 47%, nearly tripling from the 2008 financial crisis low. Real wealth excluding the stock market has been far more tepid, meaning, in Schwab’s words, the stock market is effectively carrying the household balance sheet — a dynamic that works until it doesn’t.
The selloff in US Treasuries recently pushed some yields, like the 30-year, to their highest levels in years, spurring a narrative that markets are “testing” new Fed Chair Kevin Warsh, whose tenure began with the June FOMC meeting. New Fed chairs have historically faced an early market probe of their inflation credibility and policy tolerance, and Warsh’s known skepticism of the Fed’s balance-sheet footprint and preference for tighter communication discipline may usher in more volatility than markets grew accustomed to under his predecessor. The 10-year Treasury yield, which sat below 4% on the eve of the Iran war, recently jumped above 4.6% before retreating slightly — a surge Schwab attributes to a combination of inflation risk and growing government debt issuance competing for capital.
The bullish case for US equities rests on earnings that have defied virtually every cautious forecast laid out at the start of the year: Wall Street analysts now project S&P 500 earnings growth of 25% for the full calendar year, up from less than 16% at the start of the year. But this growth is concentrated: the largest jumps in expectations have come in Energy, Materials, Technology, and Communication Services, while Consumer Discretionary, Consumer Staples, Health Care, Industrials, and Real Estate now have lower estimates than at the start of the year. The four largest hyperscalers — Amazon, Microsoft, Alphabet, and Meta — are on track to spend nearly $800 billion on capex this year, an increase of more than 80% from last year, with capex reaching about 75% of these companies’ cash flows, a ratio reminiscent of tech spending in the late 1990s.
The University of Michigan Consumer Sentiment Index has plunged to a record low, largely driven by the war in Iran and its impact on the cost of living — a reading below every recession trough in the survey’s 75-year history. Normally, that would be treated as a bearish signal for equities, yet the S&P 500 has continued to grind higher. The explanation lies in a structural divergence: equity ownership is heavily concentrated among higher-income households, and the share of equities in household financial assets has reached more than 47%, nearly tripling from the 2008 financial crisis low. Real wealth excluding the stock market has been far more tepid, meaning, in Schwab’s words, the stock market is effectively carrying the household balance sheet — a dynamic that works until it doesn’t.
The selloff in US Treasuries recently pushed some yields, like the 30-year, to their highest levels in years, spurring a narrative that markets are “testing” new Fed Chair Kevin Warsh, whose tenure began with the June FOMC meeting. New Fed chairs have historically faced an early market probe of their inflation credibility and policy tolerance, and Warsh’s known skepticism of the Fed’s balance-sheet footprint and preference for tighter communication discipline may usher in more volatility than markets grew accustomed to under his predecessor. The 10-year Treasury yield, which sat below 4% on the eve of the Iran war, recently jumped above 4.6% before retreating slightly — a surge Schwab attributes to a combination of inflation risk and growing government debt issuance competing for capital.
