Q2 Economic Outlook

Economic Data

To summarize, the economy is still growing at a decent rate, at least as of the fourth quarter 2025. GDP grew at 0.7%, although that number is artificially low because of the 43-day government shutdown that knocked a full percentage point off of that statistic. The labor market added 205,000 jobs in the first quarter, unemployment hit 4.3%, and consumer spending has started to slow. The overall economic picture shows that we're seeing slower growth, but not yet seeing indications of a recession.

Implications of Geopolitical Events for Investors

A lot of the conversation recently has been about how to think about geopolitical events, including  the war in Iran, as an investor. One thing we explored in our written commentary was the history of geopolitical events and how they have affected markets.

As we saw, the markets typically bottom within three weeks and recover within a few months. One example of this was not that long ago in 2022 during the Russia-Ukraine conflict—the S&P 500 fell 8% over the course of three months and then recovered.

The important thing to remember is that markets ultimately follow the economy, including what's going on with economic growth, what's going on with inflation, and ultimately what's expected in respect to corporate earnings. Of course, geopolitical events have an impact, but the above factors will really matter over the long run, as opposed to short-run headlines about different global developments.

What’s On Our Radar for the Second Quarter

The primary thing we are paying attention to as we head into the second quarter is oil prices. Because we've seen a large increase in oil prices, we're expecting headline inflation to increase over the near term. Right now, the market doesn’t anticipate any interest rate hikes from the Fed this year. However, that could change if we see oil prices continue to increase, and more importantly, core inflation start to increase over the course of this year.

In stock markets in the first quarter, we saw that value outperformed growth by a fairly decent margin. The Magnificent Seven stocks were down about 12% on average in the first quarter.

The last thing we're paying attention to broadly is tariff policy. It remains somewhat unsettled and does have a big impact on expected corporate earnings.

In terms of what to expect, or what to do as an investor, our best advice is to stay the course with respect to your long-term plan.

Conclusion

It’s important to make sure that your portfolio is diversified in a way that can handle volatility from multiple different directions. There are many different things going on right now and diversification helps ensure your portfolio is resilient, no matter what happens over the balance of the second quarter and throughout 2026.

If you have any questions on anything covered in this video, please don't hesitate to reach out to your advisor.

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