Broad Growth, Cooler Sentiment, and Long-Term Themes
Weekly Market Update
Takeaways
The expansion continues to broaden, with surveys indicating that manufacturing activity is growing across 94% of major economies while our U.S. inflation breadth measure eased to 30% in June from 39% in May. We see a high-growth, high but moderating inflation backdrop that remains fundamentally supportive.
U.S. equities have stalled since May 29 when a S&P 500 sentiment and positioning indicator we use signaled complacency. Such readings are typically followed by range-bound returns, and indeed since then, the S&P 500 is down about 1% and the Nasdaq Composite down about 6%. Strong underlying fundamentals leave us comfortable adding risk, within risk parameters.
Our long-term themes remain intact. Cybersecurity, Natural Resources and commodities, Energy Infrastructure and Security, and Physical AI have the potential to benefit from durable, multiyear demand drivers, and recent pullbacks in sectors like Natural Resources and Energy offer potential opportunities to add exposure over time.
This Week in Charts
Looking Closer
Manufacturing activity has broadened significantly, with 94% of major economies now in expansion, according to Purchasing Managers’ Indices (PMI), signaling increasingly synchronized global growth. This strengthening backdrop supports our constructive macroeconomic outlook and reinforces the case for adding equity risk as earnings and fundamentals continue to shine.
Market and Data Recap
Global manufacturing broadens as U.S. inflation breadth stabilizes
The global economy remains in an overheating phase, characterized by high-growth and high inflation. Economic strength has broadened, with 94% of major economies’ Manufacturing PMIs indicating expansion of activity (Figure 1). In the U.S., the Philadelphia Fed survey indicated the strongest business outlook since 2021.
Trade data reinforces the picture. South Korea's semiconductor exports nearly tripled year-ago levels in the most recent data, and Chinese high-tech exports rose roughly 52%. AI-centric capital expenditure (capex) strength flows through global economies and industries, supporting the broadening in manufacturing worldwide.
We watch inflation breadth closely to judge whether price pressures are broadening or narrowing. The share of Consumer Price Index (CPI) components rising at a 5% or higher one-month annualized rate fell to 30% in June from 39% in May, compared with a 25% pre-pandemic average and the 2022 peak of 74%.
Not every signal is benign. Growth in import prices firmed to the strongest pace in four years, a pattern historically accompanied by a weak U.S. dollar - as imports become more expensive with a weaker currency. Today, however, we read it as a demand story, and robust demand for technology-related imports keeps us confident in underlying macroeconomic trends.
Bottom line: The expansion continues to broaden, with manufacturing growing across 94% of major economies while U.S. inflation breadth eased to 30% in June. We see a high-growth, high but moderating inflation backdrop that remains fundamentally supportive of equity risk.
Equities stall after the complacency signal, but fundamentals support adding risk
A S&P 500 sentiment and positioning indicator we reference flashed a complacency signal on May 29, when the six-month z-score crossed the 1.2 threshold (Figure 2). Equity markets have stalled since then, with the S&P 500 down about 1% and the Nasdaq drawing down roughly 6%.
With sentiment having moderated, we can again turn our attention towards fundamentals, which in our view remain constructive. For clients holding excess cash, now may be a good time to consider allocating within stated risk tolerance parameters.
We are monitoring two key developments this week as we assess the fundamentals. Roughly 23% of S&P 500 by market capitalization is scheduled to report. These earnings will help give context on how corporates are doing in this economic environment. Despite higher input prices, corporate margins continue to expand, in aggregate. We will keep a close eye on earnings and margins going forward.
On the policy front, we will watch the European Central Bank (ECB) closely this week. Markets do not expect a hike in this meeting, but we will pay attention to the messaging around the ECB’s assessment of economic conditions and its implications for their path forward.
Bottom line: The May 29 complacency signal preceded the recent stall in U.S. equity market returns, in line with historic precedent. Strong underlying fundamentals leave us comfortable adding risk, particularly given more neutral sentiment, within risk parameters.
Four long-term CIO themes
Cybersecurity enters a new phase as the agentic economy takes hold. As more AI agents work alongside humans, firms need greater observability around agents’ permissions and access to proprietary data.
The cyber threat environment is intensifying: the average time for an attacker to reach high-value assets fell to 29 minutes in 2025, a 70% reduction from 98 minutes in 2021, according to the CrowdStrike Global Threat Report. Security spending more than doubled as a share of enterprise software budgets, from 4.8% in 2011 to 10.6% in 2025, and we expect it to keep taking share. We would look to build positions in the Cybersecurity theme and would welcome multiple compressions when adding to this theme over the long run.
Natural Resources and commodities remain a core expression of scarcity and resilience. Critical mineral refining stays highly concentrated, with China controlling roughly 91% of rare earths, 96% of graphite, 78% of cobalt, and 70% of lithium refining capacity.1 As a result, nations have begun stockpiling key natural resources and commodities as a matter of national security.
Natural resources and commodities may also strengthen portfolio construction in specific macro regimes. Diversification benefits have historically proved most valuable in high inflation regimes: in overheating environments, investors captured growth-driven commodity gains plus the scarcity premium, and in stagflation, the equity-commodity correlation turned sharply negative while the equity-bond correlations remained positive, highlighting the benefits of commodity diversification in this regime. Broad commodities and global upstream natural resources remain a CIO theme and a risk-additive asset during high-growth macro regimes and as a portfolio ballast when growth slows and inflation runs hot.
Energy infrastructure and security gained urgency following the conflict in Iran, which reframed resilience for companies, countries, and economies. Data center growth is accelerating power needs: global data center electricity demand could more than double from 416 TWh in 2024 to 946 TWh by 2030. In our recent collaboration with Citi Research, we estimate that meeting 2030 electricity demand requires annual grid investment to rise about 50% from today's roughly $400 billion. Renewable generation reduces reliance on imported fuels and supply disruptions.
Physical AI continues its strong run, and the recent drawdown on memory-related worries and profit taking in semiconductors offers a potential entry point for long-term investors. We see robotics penetration expanding across industries, supported by labor supply constraints, demographic shifts around the globe, and an increasing number of partnerships between global robotics companies and AI developers. We maintain conviction on this theme.
Bottom line: Each of our four themes rests on durable, multi-year demand drivers rather than short-term momentum. We believe clients should consider adding to these themes opportunistically, consistent with their objectives and risk tolerance.
For more on our latest themes and investing priorities, check out our latest quarterly report, The Short and Long | Q3 Macro Investment View.
1 International Energy Agency and Haver Analytics as of July 16, 2026.
See our weekly CIO Strategy Bulletin for more details