Earnings, not fear, should drive the outlook

Six weeks of a flat S&P 500 is enough to unsettle clients who watched the index surge earlier this year. ClearBridge Investments says the stall is not the start of something worse. It is a pause after one of the strongest quarters the market has had in decades, and the ClearBridge recession dashboard is still green.

That is the firm’s own read of the data, and it is worth keeping in mind whose read it is: a fund manager whose business benefits from investors staying invested. That does not make the case wrong, but it is a reason to weigh it against other data rather than take it at face value.

That call comes despite a run of market volatility and global political turmoil that has clients asking harder questions than usual. ClearBridge’s view is that the noise sits on top of a US economy with solid underlying fundamentals, not underneath one that is cracking.

Jeffrey Schulze, head of economic and market strategy at ClearBridge, argues the US economy is on track to avoid recession through the second half of 2026. His case rests on three things easing at once: the labour market, energy prices and earnings growth.

For advisers fielding client calls about a stalled index, that is what should shape the conversation, not the flat chart.

A rally too sharp to stop cold

The S&P 500 returned 14.9 per cent last quarter, ClearBridge says, the twelfth strongest quarterly gain since 1950. Big rallies like that do not usually stall for long.

“The market has typically advanced further following past similarly sharp rallies, averaging gains of 5.5 per cent over the next three months and 10.4 per cent over the next six,” Schulze says. “History suggests these episodes usually prove fleeting, meaning major indexes could move higher in the second half of 2026.”

What the ClearBridge recession dashboard is tracking

Last year’s job growth was weak: the US economy added just 116,000 jobs across the whole year. This year has looked different. Job creation averaged 111,000 a month in the second quarter of 2026, up from 73,000 a month in the first quarter.

“The job market appears to have stabilised, going from zero to hero in 2026, and giving the US economic expansion firmer footing as it heads onward into the second half of the year,” Schulze says.

Falling oil, falling rates

Energy is the second tailwind. ClearBridge points to a consistent historical pattern in how oil prices feed through to rates.

“Historically, headline inflation pressure often eases following the peak in oil prices, bringing inflation expectations lower. Investors begin to anticipate a less aggressive monetary policy path, which brings down intermediate and long-term interest rates,” Schulze says.

Since 1990, 10-year Treasury yields have fallen by an average of 28, 67 and 81 basis points over the three, six and 12 months after major peaks in Brent crude, according to ClearBridge. That is a consistent historical pattern, though past peaks are not a guarantee of how the current one plays out.

Earnings, not rate cuts, are doing the heavy lifting

None of this is really about rate cuts. Schulze is clear that earnings, not falling rates, have carried the market. The S&P 500’s expected earnings over the next 12 months are up 155 per cent cumulatively since April 2020. That has driven a 157 per cent price gain, or 16.6 per cent a year, over the same stretch.

Advisers can make a simple case to clients here: staying invested does not depend on the Fed cutting aggressively. It depends on companies continuing to deliver.

The mid-term election test

That earnings strength is vital for the next risk on advisers’ radar: the US mid-term elections. Mid-term years have historically been the weakest of the four-year presidential cycle, averaging returns of just 4.6 per cent.

“Control of Congress, and by what margin, has implications for taxes, regulation, government spending and sector-specific policies,” Schulze says. “This uncertainty has weighed on market returns in the past.”

But Schulze argues this cycle looks different. Sell-side consensus expects 2026 earnings-per-share growth of 23.9 per cent, nearly three times the historical mid-term average of 8.3 per cent. Consensus forecasts like this one are routinely revised as the year plays out, so the gap is worth watching rather than banking on.

“In our view, that earnings strength is a powerful tailwind that could help prove 2026 to be the exception to the rule.”

For advisers, this is what clients watching a flat chart and assuming the worst need to hear: a market that has gone nowhere for six weeks after a near 15 per cent quarter is not unusual. On ClearBridge’s reading, it is not a signal that the cycle is turning.

The stronger story sits underneath the index: jobs holding up, inflation pressure easing and earnings growing faster than the mid-term calendar would normally allow. The ClearBridge recession dashboard reflects all three, and right now, all three are moving in the right direction.

Whether that is enough to carry the market through an election year that has rattled it before is the question worth revisiting as the numbers come in.