Favorite Fifteen – July 2026

By Vigilant Wealth Management on July 28, 2026

The Investment Policy Committee has finalized the quarterly Favorite Fifteen chart pack. Below please find the link to the slides for July 2026.

The broad economic backdrop remains constructive, but the balance of risks has changed. Our base case continues to anticipate a Goldilocks-like environment through the third quarter, supported by firm U.S. growth, a modest fiscal tailwind, and continued investment in artificial intelligence and related infrastructure. Monetary policy is now closer to neutral, but the Federal Reserve remains cautious as inflation has moved higher and the labor market continues to expand.

The main risk has shifted from tariffs to the duration of the conflict with Iran and the lasting impact of supply disruptions. The immediate shock to energy markets has eased from its peak, but the conflict is likely to remain tense through the summer as potential agreements are tested and durable off ramps prove difficult to achieve. A prolonged disruption would raise costs for consumers and businesses, keep inflation elevated, and weaken global demand. The U.S. economy appears better positioned than most developed markets, but it would not be immune to a sustained supply shock.

Global Economic Activity: Global economic activity (Chart #2) strengthened in June. The composite PMI rose to 52.0, with manufacturing at 52.2 and services at 51.7. Both sectors remain in expansion, and manufacturing has now moved modestly ahead of services. This is a meaningful improvement from March, when global momentum slowed sharply. The Economic Surprise Index (Chart #1) also improved, with developed markets at 42.5 and emerging markets at 23.7. Economic data are therefore exceeding expectations across both groups, although the stronger surprise in developed markets partly reflects previously subdued expectations. Overall, global growth has improved, but remains vulnerable to higher energy costs and geopolitical disruption.

U.S. Growth: High frequency data continue to point to firm U.S. growth. The Weekly Economic Index (Chart #3) stood at 2.8 in June, compared with 2.7 in March, and remains consistent with growth around the economy’s recent trend. The Atlanta Fed GDPNow estimate (Chart #4) currently points to 1.7% annualized growth, below the 2.1% pace recorded in the prior quarter but still positive. The ISM surveys (Chart #5) are more encouraging. Manufacturing output increased to 53.3 and services output reached 54.0, while new orders remained stronger than current output in both sectors. This suggests activity may retain momentum in the coming months. Taken together, the data indicate that the U.S. economy is expanding at a moderate pace, with stronger underlying business activity than the headline GDP estimate alone would imply.

U.S. Consumer: Consumer spending (Chart #6) remains strong in nominal terms. Total retail and food service sales increased 6.7% year over year, while sales excluding motor vehicles rose 6.9%. Monthly sales increased a more modest 0.2%, indicating that spending remains positive but has slowed from the stronger pace earlier in the quarter. These figures are not adjusted for inflation, so part of the acceleration reflects higher prices rather than greater consumption volumes.

Consumer Confidence: Consumer confidence (Chart #7) remains weak despite solid aggregate spending. Sentiment surveys give each household a broadly similar voice, while measures such as retail sales and corporate profits are disproportionately influenced by the wealthiest consumers and the largest companies. That gap reinforces the K-shaped economy: higher-income households are still driving growth, while many lower- and middle-income households feel they are not fully participating in it.

Labor Market: The labor market (Chart #8) continues to add jobs, but momentum has slowed materially. Total nonfarm employment reached 159.0 million and private employment rose to 135.6 million. However, the latest monthly payroll gain was only 57,000, well below the pace seen earlier in the spring. This suggests that employers remain reluctant to reduce staff broadly, but are becoming more selective about adding workers. Slower hiring is consistent with companies managing tariff pressure, higher input costs, softer demand in some industries, and potential productivity gains from AI. Paycheck growth is still supporting consumption, but the labor market is becoming a less powerful tailwind for the economy.

Inflation: Inflation (Chart #9) has reaccelerated at the headline level. Headline CPI increased to 3.5% year over year, up sharply from 2.4% early in the year, while core CPI remained more contained at 2.6%. Core prices were unchanged in the latest month, indicating that the recent inflation increase has been driven primarily by energy and other volatile categories rather than a broad acceleration in underlying prices. Even so, higher energy costs can eventually flow through to transportation, production, and consumer goods. This complicates the Federal Reserve’s outlook and increases the risk that inflation remains above target for longer, even if the initial supply shock proves temporary.

Bond Market: The Treasury yield curve (Chart #10) has shifted higher and remains upward sloping. The 2 year Treasury yields 4.31%, the 10 year yields 4.66%, and the 30 year yields 5.15%. Longer term yields have risen more than shorter term yields over the past year, reflecting persistent inflation, heavy Treasury issuance, fiscal concerns, and a higher expected neutral policy rate. The curve is no longer signaling an imminent recession, but current yields imply that investors expect interest rates to remain elevated for an extended period.

Investment grade credit spreads (Chart #11) remain tight. BBB spreads are approximately 70 basis points and AA spreads are about 35 basis points. Credit markets are therefore not signaling significant concern about corporate balance sheets or near term defaults. This remains consistent with sustained economic growth and healthy corporate fundamentals, though tight spreads also mean investors are receiving relatively little additional compensation for taking credit risk.

Corporate Profits: Corporate earnings expectations (Chart #13) have strengthened considerably. S&P 500 earnings were $270 in 2025, while consensus estimates now stand at $341 for 2026 and $398 for 2027. That implies earnings growth of approximately 26% in 2026 and 17% in 2027. Next twelve months earnings have increased to $372.70. Continued spending on AI and data center infrastructure remains an important driver of earnings growth, especially among the largest technology and communications companies. The earnings outlook remains the principal support for equity prices, but it also creates a high bar for companies to meet as expectations move higher.

Stock Market: The S&P 500 remains near record highs (Chart #12). The forward price to earnings ratio has declined from its recent peak but remains elevated at 20.2 times earnings (Chart #14). This is slightly above the plus one standard deviation level of 20.1 and well above the 20 year average of 16.7. Other valuation measures are also expensive, including a cyclically adjusted P/E of 40.9 times and a price to sales ratio of 3.3 times.

The combination of strong earnings growth and lower valuation than earlier in the year is constructive, but the market still reflects an optimistic future. Additional gains are likely to depend more on earnings growth than further multiple expansion. The key risk is that a disappointment in AI returns, corporate guidance, inflation, or economic growth causes investors to reassess both profit expectations and the premium valuation assigned to the market.