Strong foundations, stronger case: Clearbridge on staying invested

Markets have had a big run. The S&P 500’s surge across April and May ranks among the top 10 strongest two-month stretches since 1950. For many investors, that kind of move triggers a familiar anxiety. Is this as good as it gets? Is a pullback around the corner?

Jeff Schulze, head of economic and market strategy at ClearBridge Investments, has a different read. The rally, he argues, is not built on hype. It is built on earnings. And that changes everything.

Capex is doing the heavy lifting

The story starts with corporate capital expenditure. Businesses are spending, and spending meaningfully, on the infrastructure that powers the modern economy.

AI is the headline act. Investment in data centres now accounts for roughly 1 per cent of US GDP. But the ripple effects go well beyond the data centres themselves. Every new facility needs power, cooling, networking, semiconductors and software. That spending flows through the entire economy, creating a broad and durable capex cycle rather than a narrow technology bet.

Schulze is quick to point out that AI is not carrying this alone. Other indicators are flashing green as well. The ISM Manufacturing PMI survey has held above 50 for each of the past five months. That is the threshold that separates expansion from contraction, and the consistency of that reading tells its own story.

Industrial production is picking up. Core capital goods orders and shipments, which strip out defence and aircraft to give a cleaner read on business investment, are also moving in the right direction.

There is a policy tailwind helping things along too. Corporate tax incentives from the One Big Beautiful Bill are providing an additional nudge for businesses considering capital investment. It is a marginal boost, but in a cycle already showing momentum, marginal boosts add up.

Earnings are driving the market, not just optimism

This is where Schulze’s argument gets particularly compelling for advisers thinking about portfolio positioning.

Bull markets that run on sentiment alone are fragile. When the mood shifts, there is nothing underneath to catch the fall. But the US market’s gains over the past year have come from a different place. Multiples have actually de-rated modestly, meaning stocks have not gotten more expensive relative to earnings. Instead, earnings themselves have grown into the market’s valuation.

That is an important distinction. It means the market’s strength reflects real business performance rather than investor exuberance. Consumers are spending. Companies are investing. Profits are holding up. These are the conditions that sustain a bull market, not the conditions that end one.

What the US equities outlook tells us about sharp rallies

The natural concern after a surge like April and May is that the market has run too far too fast. History offers some reassurance here.

Yes, several similarly sharp two-month rallies have occurred around recessions. But many others landed squarely within economic expansions. The rallies of 1997, 1998, 2019 and 2025 all fit that description. Markets moved sharply higher and then kept going.

When you focus specifically on non-recessionary periods, the data is encouraging. Following similar surges, stocks have on average returned 5.3 per cent over the subsequent three months and 8.5 per cent over six months. That is not a guarantee. But it is a meaningful counterweight to the instinct to sell after a strong run.

Volatility will come. The strategy stays the same.

Schulze does not pretend the road ahead is without bumps. Bouts of volatility are likely. That is simply the nature of markets.

But his response to that volatility is clear. Robust corporate earnings provide a solid foundation. Pullbacks, when they come, are buying opportunities. The strategy is to buy the dips, not run from them.

For advisers, that framing is useful. Clients who have watched markets rally strongly may be feeling nervous about what comes next. The ClearBridge view gives you something concrete to anchor that conversation: the fundamentals are sound, the earnings are real and the historical pattern in non-recessionary expansions favours staying invested.

For clients sitting on the sidelines waiting for the right moment to deploy capital, the ClearBridge analysis suggests the wait may be costing them. Markets rarely send clean all-clear signals.