Strong earnings, resilient consumer spending, and lower rates continue to support stocks in 2026.
Middle East conflict has raised oil supply and inflation risks, but the market impact hinges on how long the disruption lasts.
Tax cuts for households and businesses are helping support growth even as policy uncertainty keeps volatility elevated.
Investors have spent the past year learning a familiar lesson: policy changes can move markets quickly, but markets can recover just as quickly when the outlook becomes clearer. In 2025, President Trump’s tariff announcements and shifting trade rules triggered a sharp selloff, with the S&P 500 falling nearly 20% in seven weeks around the April 2 “Liberation Day” briefing. The rebound that followed was equally powerful, with the index rising nearly 40% from its April 8 low and remaining close to an all-time high despite a modest recent sell-off. 1
That recovery did not happen because all uncertainty disappeared. It happened because investors regained confidence that businesses could adjust, company profits could grow, and the economy could absorb policy changes better than many had feared. “Since April 2025, investors have overcome concerns that tariffs would negatively impact economic growth, earnings, and inflation,” says Bill Merz, head of capital markets research for U.S. Bank Asset Management Group.
Broader equity market participation reinforced that view as 2026 began. Smaller-company stocks rose nearly 50% from last April’s lows, suggesting that gains did not remain concentrated in just a handful of large names. 1 When more parts of the market participate, rallies can look more durable, even when day-to-day volatility remains part of the picture.
In recent weeks, U.S. and Israel strikes against Iran and its nuclear ambitions has become the most immediate geopolitical catalyst for market volatility, while the war between Russia and Ukraine remains the longer-running backdrop. Energy costs spiked, with the oil prices jumping more than 25%, while global stock markets pulled back in response, with the S&P 500 falling roughly 3.5% below its prior peak before stabilizing, and developed and emerging international stock indexes declined about 8% to 10%. 1 International markets reacted more sharply because many economies in Europe and Asia import more of their energy and are more sensitive to higher prices.
“The key market question is not whether conflict creates headlines. It is whether higher energy prices last long enough to slow growth, lift inflation, and change the path for interest rates,”
Tom Hainlin, senior investment strategist for U.S. Bank Asset Management Group.
The main market concern is the Strait of Hormuz, a critical shipping corridor with limited near-term alternatives. The U.S. Energy Information Administration estimates about 20% of global oil supplies and about 20% of global liquefied natural gas trade moved through the Strait in 2024. 2 Fertilizer flows also matter because nearly 50% of global nitrogen-based fertilizer exports typically transit that route, according to the Fertilizer Institute. 3 “The key market question is not whether conflict creates headlines. It is whether higher energy prices last long enough to slow growth, lift inflation, and change the path for interest rates,” says Tom Hainlin, senior investment strategist for U.S. Bank Asset Management Group.
Three broad outcomes help frame the range of possibilities. In a best-case outcome, shipping conditions improve quickly, commercial traffic becomes more reliable, and energy prices ease as supply concerns fade. In a more prolonged outcome, disruption lasts several weeks and keeps energy and transport costs elevated, while a tail-risk outcome would stretch into the summer and increase the chances that higher energy and fertilizer costs begin to weigh more clearly on spending, profits, and growth.
Trade policy remains an important part of the market story, though investors are no longer reacting to each tariff headline. A Supreme Court ruling canceled most 2025 tariffs imposed under one legal authority, and the Trump Administration later announced a temporary 15% global tariff under Section 122 while White House staff explore other options. As a result, the effective tariff rate may ease somewhat from its earlier peak, but it remains well above 2024 levels.
Investors have gradually shifted from asking whether tariffs will create volatility to asking whether they will materially change growth, inflation, and profit trends. That shift helps explain why the market has held up despite legal changes, ongoing negotiations, and unresolved trade relationships. It also explains why energy shocks now carry more weight, because higher oil prices can reach households and businesses faster than many tariff effects.
Fiscal and monetary policy help buoy the outlook. The One Big Beautiful Bill Act (OBBBA) cut both corporate and individual taxes – lower tax burdens should support consumers in the first half of 2026, and estimates point to a net $127 billion consumer boost. 4 And the Federal Reserve cut its policy interest rate three times in late 2025, while easier global monetary policy adds further support for growth and financial conditions.
Households are beginning to see more direct benefits. Refunds are tracking almost 10% higher than in 2025, with two-thirds of refunds still to come, and several sources of consumer tax savings are now in focus, including a higher state and local tax deduction, a larger child tax credit, and new deductions tied to tips, overtime, seniors, and car loan interest. 1 Those measures may not eliminate every headwind, but they do provide a practical cushion for spending at a time when markets are watching growth closely.
The strongest support for equities still comes from corporate profits. Fourth-quarter 2025 results showed that with 99% of S&P 500 companies reporting, revenues rose 9.3% and earnings rose 13.7%, well above the initial 7.9% growth forecast. 1 Company commentary also pointed to healthy demand from middle- and higher-income households, generally stable credit quality, and continued business investment, especially in technology.
Those fundamentals help explain why stocks have remained resilient despite tariffs, conflict, and inflation concerns. “The equity market is still trending higher. That goes back to healthy fundamentals,” says Terry Sandven, chief equity strategist for U.S. Bank Asset Management Group. “Most importantly, consumer and corporate technology spending remain strong, corporate margins remain robust, and inflation doesn’t appear problematic.”
Markets are still sensitive to valuation risk, especially if inflation rises again fueled by higher energy costs. “Sustained earnings growth is crucial for supporting these valuations,” says Rob Haworth, senior investment strategy director with U.S. Bank Asset Management Group. “With valuations rich by historical measures, companies can’t afford earnings stumbles, and so far, most have hit the mark.”
Several forces are helping keep the broader market outlook constructive this year. Investors continue to see support from fiscal and monetary stimulus, resilient consumer spending, business capital investment, and robust earnings growth, even as they monitor slower job growth, elevated valuations, tariffs, inflation, geopolitical tension, and pockets of credit stress. That balance helps explain why the market tone has stayed constructive without becoming complacent.
The broader outlook also remains supported by stable inflation, lower interest rates, and rising earnings. Current year-end assumptions for the S&P 500 still rely on continued earnings growth and no further expansion in valuations, which means investors do not need every headline to improve for markets to make progress. They do, however, need growth, profits, and inflation to remain broadly aligned with that constructive path.
This is still an environment where discipline matters more than prediction. The geopolitical conflict backdrop, tariff uncertainty, and interest-rate path can all create short-term market swings, but profits, household support, and easier monetary policy are still working in favor of economic growth. Market declines and recoveries remain part of a normal rhythm, not a sign of fundamental weakness.
For many investors, the more useful question is not whether to react to every headline, but whether a portfolio still matches long-term goals, time horizon, and comfort with volatility. A thoughtful review with your U.S. Bank Wealth Management team can help investors separate temporary market noise from developments that truly change the long-term outlook.
Since 2024’s election day (November 5, 2024), the S&P 500’s total return climbed 19.3% as of March 10, 2026, despite periods of significant volatility. 1 Investors responded to the election outcome, policy changes, and geopolitical conflict but other forces also shaped the market’s path. Federal Reserve rate cuts in late 2024 and late 2025, along with steady consumer spending and profit growth, helped support gains even as tariff uncertainty temporarily increased volatility.
Geopolitical conflict is affecting markets most directly through oil prices and shipping risk. The current focus is the Strait of Hormuz because a meaningful share of global oil and liquefied natural gas trade moves through that route, and any disruption can quickly influence inflation expectations and stock prices. The market impact still depends heavily on duration, because a short disruption may fade quickly while a longer disruption can pressure growth, profits, and consumer spending.
Shifting trade policies and fluctuating tariffs triggered volatility in the early months of President Trump’s second term, though markets since recovered. In 2025, the S&P 500 generated a total return of 17.9%. During the primary years of former President Biden’s four-year term (2021-2024), the S&P 500 generated a 57.8% total return. Trump’s first term (2017-2020) saw an 81.4% total return. Since 1980, Trump’s first term ranks fourth for investor returns over a four-year presidential term. The top three terms were: Ronald Reagan (1985-1988, 91.8%) Bill Clinton (1993-1997, +88.6%), and Clinton again (1997-2000, +88.6%). 1
A look at historical equity market performance around midterm elections.
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