The S&P 500 rose more than 10% year-to-date, the Dow Jones index delivered similar gains, and the Nasdaq rallied more than 18%, despite the closure of the Strait of Hormuz and resulting concerns that the Federal Reserve could maintain tighter monetary policy. The market's advance occurred as the U.S. economy showed resilience, with first-quarter 2026 GDP growth of 2.1% on an annualized basis, up from 0.5% in the fourth quarter of 2025. The rally reflects investor confidence in corporate fundamentals and macro stability, even as geopolitical tensions and central bank policy uncertainty persist in global markets.
Economic Indicators Support Market Rally
The U.S. economy continued to show resilience in the first quarter of 2026, with GDP growth of 2.1% on an annualized basis, up from 0.5% in the fourth quarter of 2025. The latest GDPNow estimate points to around 1.2% growth in the second quarter.
Consumer confidence stabilized, with the University of Michigan's final June consumer sentiment index rising to 49.5 from a record low of 44.8 in May. The labor market performed better than expected, with an unemployment rate of 4.3% and an increase of 172,000 nonfarm jobs, well above the forecast of 85,000.
Corporate Earnings Beat Estimates in First Quarter
Corporate fundamentals remained solid in the first quarter. Eighty-five percent of S&P 500 companies reported earnings per share above analysts' estimates, the highest share since the second quarter of 2021. Fifty-nine companies issued positive earnings guidance, marking the strongest reading since the second quarter of 2021.
Tech Sector Faces Valuation and Spending Concerns
Valuations in parts of the tech sector appear stretched, though companies like NVIDIA, Micron Technology, SK Hynix, and TSMC are generating strong profits and cash flow or continue to benefit from tight supply in key semiconductor markets. The massive AI spending from hyperscalers raises concerns, as Big Tech capital expenditures reached approximately $500 billion, up from around $250 billion two years ago, driven by investments from Microsoft, Amazon, Google, and Oracle in AI infrastructure and data centers.
Barclays Maintains Equity Preference with Caution
Barclays continues to favor equities over bonds, supported by the resilience of the U.S. economy and strong corporate earnings. However, following the recent rally, the firm noted that much of the positive news is already priced in and that upside potential is becoming more limited.
FAQ
What drove US stocks higher year-to-date despite geopolitical concerns?
The S&P 500 rose more than 10% year-to-date, the Dow Jones index delivered similar gains, and the Nasdaq rallied more than 18%, driven by U.S. economic resilience with first-quarter 2026 GDP growth of 2.1% on an annualized basis, stabilizing consumer confidence, and strong corporate earnings, with 85% of S&P 500 companies beating earnings per share estimates in the first quarter.
How did corporate earnings perform in the first quarter of 2026?
In the first quarter, 85% of S&P 500 companies reported earnings per share above analysts' estimates, the highest share since the second quarter of 2021, while 59 companies issued positive earnings guidance, also marking the strongest reading since the second quarter of 2021.
What concerns exist regarding Big Tech capital expenditures?
Big Tech capital expenditures reached approximately $500 billion, up from around $250 billion two years ago, driven by investments from Microsoft, Amazon, Google, and Oracle in AI infrastructure and data centers, raising concerns about whether these projects will generate sufficient returns.
