Market Expectations KPI Deck
Forward-looking economic indicators for near-term U.S. equity market expectations
The U.S. equity market is sending two contradictory messages heading into the second half of 2026. May PCE hit 4.1% and PPI reached 6.5% year-over-year — both multi-year highs. The June FOMC dot plot officially signaled a rate hike by year-end for the first time since 2022. Yet S&P 500 earnings estimates for CY 2026 have been revised up to 24.0%, analysts have raised Q2 EPS estimates by 3.4% (vs. the typical 2% decline), and the S&P 500 has gained 12.7% since March 31. The market is voting for earnings over inflation — but with real wages negative and a Fed hike on the horizon, that bet carries real risk.
Prepared by Willis & Machnik Financial Services · For informational purposes only. See disclosures at the end.
Updated: June 29, 2026 · Full cycle complete: PCE · CPI · PPI · NFP · FOMC · GDP · Earnings
Data: BLS · BEA · FactSet · U.S. Treasury · CME FedWatch · CNBC · CNN Business
Inflation — May 2026 (COMPLETE · CPI JUNE 10 · PPI JUNE 11 · PCE JUNE 25)
Every major inflation gauge came in above expectations for May. Headline CPI rose above 4% for the first time in three years, driven heavily by energy — gasoline surged 40.5% year-over-year. Core PCE, the Fed's most-watched measure, reached 3.4% YoY (its highest reading since 2023) and has now remained above 3% for eight consecutive months. PPI jumped to 6.5% YoY — the largest 12-month rise since November 2022 — with goods prices posting a record single-month gain of 2.8%.
| Indicator | May 2026 (YoY) | Prior Month | Context |
|---|---|---|---|
| CPI - May (YOY) | 4.2% | 3.8% | Above 4% for first time in 3 years · Gasoline +40.5% |
| Core PCE - May (YOY) | 3.4% | 3.3% | Highest since 2023 · 8 consecutive months above 3% |
| PCE - May (YOY) | 4.1% | 3.8% | Highest since June 2023 · Personal income +0.7% MoM |
| PPI - May (YOY) | 6.5% | 6.0% | Largest 12-mo rise since Nov 2022 · Goods +2.8% MoM (record) |
Federal Reserve — June 17 FOMC · WARSH ERA OFFICIALLY HAWKISH
The Fed held rates at 3.50–3.75% for the fourth consecutive meeting on a unanimous 12-0 vote, but the tone shifted meaningfully. The statement was notably shorter with no forward guidance offered. The updated dot plot now shows a year-end median of 3.8% — the first hike signal since 2022 — with 9 of 18 officials projecting at least one additional 25 basis-point increase and 17 of 18 citing upside inflation risk. Markets reacted immediately: the 2-year Treasury yield jumped 16 basis points on FOMC day to 4.21% (a 1-year high), while the S&P 500 fell 1.2% and the Nasdaq fell 1.3%. The FOMC also raised its 2026 year-end PCE forecast sharply, from 2.7% in March to 3.6%.
Earnings & Growth Momentum — REVISED SHARPLY HIGHER (FACTSET JUNE 25)
Against that backdrop, the earnings picture is arguably the strongest it has been in years. Q1 2026 delivered an 84% EPS beat rate — the highest since Q2 2021 — with all 11 S&P 500 sectors beating estimates and revenue growing 11.3% year-over-year. Full-year 2026 EPS growth is now projected at 24.0% (revised up from 21.3% in May), with Q2 estimates having risen 3.4% since March 31 rather than falling the typical 2.0%. Q1 GDP was revised up to +2.1% (from 1.6%), and May payrolls came in at +172,000 — more than double the 85,000 estimate. The earnings story is broad-based, not limited to mega-cap technology: AI-driven productivity gains appear to be expanding margins across all 11 sectors.
| Indicator | Reading | Context |
|---|---|---|
| Forward P/E (S&P 500) | 20.1x | Above 5-yr avg (19.9) & 10-yr avg (19.0) · Index at 7,357 |
| CY 2026 EPS Growth Est. | +24.0% | Revised up from 21.3% in May · Estimates rose 3.4% since March 31 |
| Q1 2026 EPS Beat Rate | 84% | Highest since Q2 2021 · All 11 sectors beat · Revenue +11.3% |
| GDP Q1 — 3rd Estimate | +2.1% | Revised up from 1.6% · May NFP: +172K vs. 85K est. |
| 12-Mo Analyst Target (S&P) | 8,918 | +21.2% from June 25 close of 7,357 · All 11 sectors positive |
Supportive Signals
- Earnings estimates revised up — historically rare. Q2 2026 EPS estimates have risen 3.4% since March 31. In a typical quarter, estimates fall about 2.0%. This is one of the strongest pre-season upward revision cycles in five years.
- S&P 500 near record highs with 21% analyst upside. The index has gained 12.7% since Q1-end and closed at 7,357 on June 25. Analysts project a further 21.2% gain to a 12-month target of 8,918 — all 11 sectors carry buy-side upside.
- GDP resilience gives the bull case a floor. Q1 GDP at 2.1% (third estimate), May NFP at +172K, and personal income rising 0.7% MoM confirm the expansion is intact.
- AI driving earnings broadening beyond Mega-Cap. Revenue growth of 12.3% expected for Q2 2026 — the highest since Q2 2022 — with all 11 sectors positive year-over-year.
Elevated Risk Signals
- PCE at 4.1% — the Fed's 2% target is 200 basis points away. May PCE headline hit 4.1% and core PCE reached 3.4% YoY — both multi-year highs. With a rate hike now signaled, the inflation ceiling is real.
- PPI at 6.5% — the pipeline is still hot. May PPI surged to its largest 12-month gain since November 2022, with goods prices posting a record single-month increase. Cost passthrough into consumer prices is ongoing.
- Fed officially signaling a hike — first time since 2022. The June dot plot median sits at 3.8% year-end, implying at least one 25bp hike. This is the most hawkish posture since the tightening cycle began.
- Real wages remain negative — consumer squeeze persists. With PCE at 4.1% and wage growth at approximately 3.4% YoY, workers continue to lose purchasing power. The savings rate of 3.0%, while slightly improved, signals consumer stress is building.
Near-Term Market Outlook — June 29, 2026
Cautiously bullish on earnings — cautiously bearish on macro. The market is making a clear bet: 24% EPS growth, record highs, and broad-based revenue expansion outweigh 4.1% PCE, 6.5% PPI, and the first Fed hike signal since 2022. That bet may prove correct if AI-driven productivity continues to expand margins faster than input costs rise — but with a rate hike likely by October, real wages still negative, and PPI running at a 3-year high, the macro ceiling is not an abstraction. Earnings season in mid-July becomes the decisive test.
DATA SOURCES
FactSet Earnings Insight (June 25, 2026) · BEA — Personal Income & Outlays May 2026 (June 25) · BEA — GDP Q1 2026 Third Estimate (June 25) · BLS — CPI May 2026 (June 10) · BLS — PPI May 2026 (June 11) · BLS — NFP May 2026 (June 5) · Federal Reserve — June FOMC Statement & SEP (June 17, 2026) · CME Group FedWatch · Advisor Perspectives · CNBC · CNN Business
IMPORTANT DISCLOSURES
This material is provided for informational and educational purposes only and does not constitute investment advice or a solicitation to buy or sell any security. Content is developed from sources believed to be accurate; however, accuracy and completeness cannot be guaranteed. Not intended as tax or legal advice — please consult qualified professionals for guidance specific to your situation. Past performance is not indicative of future results. All investing involves risk, including possible loss of principal. Market and economic conditions are subject to change. Forward-looking statements and projections are based on third-party estimates as of the publication date and are subject to change without notice. Opinions expressed are those of Willis & Machnik Financial Services for general informational purposes only. Avantax is a distinct community within Cetera Wealth Services LLC. Securities offered through Cetera Wealth Services, LLC, Member, FINRA/SIPC. Advisory Services offered through Cetera Investment Advisors, LLC, a registered investment adviser. Cetera is under separate ownership from any other named entity. © 2026 Willis & Machnik Financial Services. All rights reserved. willismachnik.com
Securities offered through Cetera Wealth Services, LLC, Member, FINRA/SIPC. Advisory services offered through Cetera Investment Advisors, LLC, a registered investment advisor. Cetera is under separate ownership from any other named entity. 408 W. Michigan Ave., Jackson, MI 49201