From the US Market Desk: Meet the New Boss. Different from the Old Boss.

Get early access. Subscribe to the From the US Market Desk LinkedIn newsletter.

Macro

• Our forecast for US real gross domestic product (GDP) growth in 2026 is 2.5% (based on our Global Investment Management Survey), versus the Federal Reserve (Fed) forecast of 2.2% and the Wall Street consensus of around 2%. The main drivers of our GDP forecast are the continued, massive capital expenditure by big technology companies to build out artificial intelligence infrastructure, the resilient consumer, and fiscal stimulus connected to the One Big Beautiful Bill Act. 
• We expect the Fed to stand pat as the market works through this conflict. The new Fed Chair, Kevin Warsh, spoke at his first press conference Wednesday. The Open Market Committee’s Summary of Economic Projections (known as the “dot plot,” which Warsh did not participate in) showed that five Fed voters favor two rate hikes this year. They moved their forecast for core Personal Consumption Expenditures (PCE) to 3.3%, which happens to be right on top of our forecast (see Franklin Templeton Institute’s Global Investment Management Survey). My takeaway from the press conference was that we should expect changes in the way the government collects economic data and assesses the timeliness of that data. This is an issue that we have been talking about for decades—namely that using backward-looking, hard-to-collect data is not ideal when it comes to setting policy. My favorite part of the press conference was this quote from Warsh: “Financial markets are the most important source of information.” I agree with that wholeheartedly.
• To that end, the bond market, fed fund futures market, and currency markets all moved quickly as Warsh spoke, especially bond yields. The reason that I referenced the two-year note yields every week is because, historically, two-year note yields have led Fed action. Warsh doesn’t have to provide guidance on the “balance of risks,” the bond market tells us what we need to know. US two-year Treasury yields closed at 4.19% on June 18, about 50 basis points (bps) above the effective fed funds rate. That suggests the bond market is taking the possibility of two rate hikes seriously. Fed fund futures are now pricing in one-and-a-half rate hikes by December of this year. As of this writing, 10-year Treasury yields are 4.48%. As a result, the yield curve flattened significantly at the end of the trading week, and the 2-year/10-year yield spread fell to 29 bps.
• Inflation expectations have taken a round trip. One-year breakeven rates are now 1.97%, the lowest in two years. Two-year breakeven rates are also at two-year lows, near 2.25%. Finally, five-year breakeven rates are 2.32%, back to where they were in January. The bond market seems less concerned about inflation becoming untethered relative to the headlines. These numbers represent the bond markets’ pricing of annualized inflation out one, two and five years. It’s worth pointing out that oil prices are 37% off the US-Iran war highs. Something must give here, as breakeven rates are showing us a different look at forward inflation risk relative to both the two-year yield and the Fed’s new core PCE forecast.
• On the currency front, we are expecting the US dollar to be essentially flat for the year despite the recent volatility. The US Dollar Index is trading at US$100.38, near the highs of its 12-month range, defined as US$96‒US$100. It has traded here a handful of times in the last 12 months.

Equities

• We are constructive on US equities and have established a new target range of 7,400-7,800 for the S&P 500 Index, driven by 15+% year-on-year (y/y) earnings-per-share (EPS) growth. First-quarter (Q1) earnings exceeded consensus expectations, which has served to drive the S&P 500’s 2026 earnings estimate to US$341 today, up from US$310 at the start of the year. Would you believe that the tape is cheaper today than it was on January 1, despite being up 8% year-to-date (YTD)? It is. Coming into the year, the tape was 22.5x 2026 estimates. Today, the tape trades at 21.7x earnings. (See Franklin Templeton Institute’s Global Investment Management Survey for more on earnings.) When it comes to equities, keep in mind that the single most important variable is forward earnings growth/corporate profitability. According to my analysis, the only thing that puts earnings under severe pressure is a recession. Markets might challenge a new Fed chair in the near term, but a lot would have to go wrong to cause earnings degradation.  
• We reiterate our “broadening” call on equities and emphasize our bullish call on US small- and mid-cap stocks; we also continue to favor emerging market (EM) equities and Japan. Additionally, the risk/reward profile in the Magnificent 7 names is more appealing today versus the start of the year. Earnings estimates have steadily ticked up all year, and history shows that in the long run, earnings drive stock prices—not geopolitics.
• Dispersion continues within the S&P 500 Index. There are 209 stocks in the index that are outperforming the S&P 500 index YTD. Also, 293 stocks are underperforming the index YTD. Looking closer, 194 names are up more than 10% and 128 names are down more than 10%.
• Dispersion is also true at the sector level. Energy, information technology, industrials, materials and real estate are all ahead of the S&P 500 YTD.  Consumer staples, utilities, communication services, financials, consumer discretionary and health care are lagging YTD. That’s five of 11 sectors outperforming YTD.
• We have dispersion at the index level in the United States as well. The Russell 2000 Index, the Russell 2000 Value Index, and the Russell 2000 Growth Index have been leading YTD performance in the United States. The Russell 1000 Growth Index is the laggard at +3.06%. The S&P 500 Equal Weight Index leads the (cap-weight) S&P 500 by 65 bps YTD. In other words, small caps have been leading large caps, value over growth, and the average stock over the index as a whole.
• Bottom line: We reiterate that it makes sense to have a diversified equity playbook that includes large-, mid-, and small-cap exposure in the United States, with a balance of growth and value. The same can be said for ex-US equity exposure—including EM and developed international markets. Our takeaway is to reduce concentration and spread one’s bets. Consider using any further consolidation to an advantage.

Fixed Income

• We expect the 10-year US Treasury bond yield to range from 4.25%‒4.75% for the year, above our prior range of 4.25%‒4.50%. Last week it traded to 4.48%. We think duration risk becomes more attractive with a yield near 4.75%.
• The US yield curve flattened quickly on the heels of Fed Chair Warsh’s comments on June 17. The 2-year/10-year Treasury yield spread moved all the way down to 29 bps. This is a function of the move higher in two-year yields (10-year yields have been well-behaved), and two-year yields exploded 15 bps after Warsh spoke. More hawkish than expected.
• We expect short-duration fixed income mandates and corporate credit to outperform cash again this year. Considering our views on US 10-year yields, we do not expect duration to be a significant driver of total return this year. Rather, all-in yield capture seems to be the play, although recent spread-widening might create an opportunity for additional total return. It’s attractive to clip coupons.
• Credit spreads have made big moves (tightening) in the last two months. Investment-grade (IG) bond spreads are now only 45 bps over Treasuries, and high-yield (HY) spreads, as proxied by the Bloomberg US Corporate HY Option-Adjusted Spread (OAS), are now 265 bps over. The market is calm relative to what happened with two-year yields.  
• We are bullish on municipal bonds and find taxable-equivalent yields to be attractive, along with robust fundamentals. Importantly, municipal bonds offer potential diversification benefits relative to most taxable fixed income mandates. Consider using some cash to add muni exposure in taxable accounts. Read our latest research on this asset class: “Municipal bonds are back.”

Sentiment

• The percentage of bullish investors in the latest American Association of Individual investors (AAII) survey was 37%. The percentage of bearish investors in the AAII survey was 39%. No signal here but a swing back to the wall of worry.
• Bull markets typically peak on euphoria. I think we are a long way from that.

I will continue to analyze the markets and will offer insights again next week.
 

Source of data (except where noted) is Bloomberg and Franklin Templeton Institute, as of June 18, 2026. Important data provider notices and terms available at www.franklintempletondatasources.com .

The Franklin Templeton Institute Global Investment Management Survey is a biannual outlook survey designed to give a view across our investment teams. The Franklin Templeton Institute identifies the median across the survey answers and develops the outlook. The survey received responses from around 200 portfolio managers, directors of research and chief investment officers, representing participation across equity, private equity, fixed income, private debt, real estate, digital assets, hedge funds and secondary private markets. Each of our investment teams is independent and has its own views.