The Stock Market is Not the Economy
The second quarter of 2026 was another powerful reminder that markets rarely move in line with the headlines.
Investors faced no shortage of reasons for caution. The conflict between the US and Iran briefly pushed oil prices above $100 per barrel for the first time since Russia’s invasion of Ukraine in 2022, reigniting fears of another inflation shock. Markets also questioned whether interest rates might move higher again and whether the extraordinary investment in artificial intelligence (AI) could ultimately justify elevated expectations.
Yet despite this backdrop, global equities rose 15.6% during the quarter, UK equities gained 4.7%, and bonds also delivered positive returns. For global equities, it was the strongest quarter since the rebound following Covid in 2020.
Markets climbed another wall of worry.
In our view, the explanation is straightforward: Markets are not priced on today’s economic data; they are priced on tomorrow’s corporate profits.
Looking Beyond Today’s Economy
Much of the concern during the quarter centred on the consumer. Confidence remains subdued in both the US and UK, while households continue to feel the impact of higher interest rates.
Despite weak sentiment, consumers have continued to spend, helping economic data consistently surprise to the upside.
Perhaps more importantly, today’s stock market looks very different from today’s economy.
The US now accounts for around 70% of the global equity market. Within the S&P 500, technology companies represent around 40% of the index, whilst consumer staples account for just 4.5%. Investors are therefore increasingly exposed to businesses whose fortunes depend less on whether consumers spend an extra pound or dollar today, and more on whether companies continue investing in technology, automation and productivity.
Artificial intelligence is accelerating this structural shift.
The dominant companies in today’s market are increasingly selling productivity rather than consumption. In many respects, equity markets are already looking beyond today’s economic uncertainty towards tomorrow’s productivity gains.
