In-depth Analysis of the U.S. Stock Market: Investment Outlook Amidst Geopolitics and Corporate Earnings

Introduction

On June 23, 2026, global financial markets entered a new wave of volatility. Against the backdrop of a breakthrough in U.S.-Iran nuclear negotiations, European stocks reacted first by rising broadly, while Hermès shares fell against the trend, creating a stark contrast. At the same time, the U.S. stock market is at a critical turning point: multiple factors such as the Fed's monetary policy path, corporate earnings expectations, geopolitical risks, and tech stock valuation pressure are overlapping, making investors both hopeful and cautious. This article will comprehensively analyze the current U.S. stock market from four dimensions: macro economy, industry structure, valuation logic, and risk management, and provide medium-to-long-term allocation suggestions.

1. Macro Environment: Dual Impact of Fed Policy and Geopolitics

1.1 Monetary Policy Shift Expectations

Since starting the rate cut cycle in 2025, the Fed has cumulatively lowered the federal funds rate by 150 basis points. The market generally expects two more 25-basis-point cuts in the second half of the year. However, the recent core PCE price index still hovers around 2.8%, above the Fed's 2% target. This means the pace of policy easing may be more cautious than the market expects. Interest rate futures show that the probability of a September rate cut has fallen from 65% last month to 52%, indicating growing market concern about a 'hawkish cut.'

This uncertainty is directly reflected in the U.S. Treasury yield curve: the spread between 2-year and 10-year notes has been narrowing since April, now only 15 basis points, suggesting that market confidence in a soft landing is weakening. For U.S. stocks, growth stocks sensitive to interest rates (e.g., tech, biotech) will face greater valuation pressure, while defensive sectors (e.g., utilities, healthcare) may attract capital inflows.

1.2 Geopolitical Variables: Spillover Effects of U.S.-Iran Talks

The U.S.-Iran nuclear talks reached a preliminary consensus, causing international crude oil prices to fall 3.2%, with WTI crude dropping back to near $72 per barrel. This directly impacted the U.S. energy sector, with Exxon Mobil (XOM) and Chevron (CVX) both falling over 2.5% in a single day. However, lower oil prices could boost profit margins for downstream manufacturing and airlines, and help ease inflationary pressures. The S&P 500's industrial and consumer discretionary sectors actually rose 0.8% and 0.6% respectively that day, indicating that the market is repricing the impact of geopolitics.

Notably, European stocks generally strengthened due to progress in talks, but luxury giant Hermès fell 1.2% against the trend. Analysts point out that easing Middle East tensions may reduce safe-haven capital flows into Europe, coupled with concerns about slowing luxury demand in China, leading to profit-taking in the stock. This 'asymmetric reaction' reminds investors: the impact of geopolitical events is not linear but depends on the supply chain structure and end demand of specific industries.

2. Industry Structure: Tech Stock Valuation Adjustment and Cyclical Stock Recovery

2.1 'Divergence' Among the Tech Seven Giants

In the first half of 2026, the performance of the 'Tech Seven Giants' represented by Apple (AAPL), Microsoft (MSFT), and NVIDIA (NVDA) showed significant divergence. NVIDIA rose 28% year-to-date due to sustained strong AI chip demand; while Apple rose only 3% due to lower-than-expected iPhone sales. Tesla (TSLA) fell 5% due to intensified competition in the electric vehicle market.

This divergence reflects a core issue: the marginal return on AI investment is diminishing. NVIDIA's data center business revenue growth, while still 62% year-over-year, has slowed from 78% in the previous quarter. The market is beginning to question whether capital expenditure on AI infrastructure can continue after the computing power demand for foundational model training saturates. On the other hand, cloud service providers (e.g., Amazon AWS, Microsoft Azure) still maintain double-digit capital spending plans, but the improvement in input-output ratio is not as fast as expected. This leads investors to shift from 'buying dreams' to 'buying reality' when it comes to tech stock valuations.

2.2 Value Return in Financial and Industrial Sectors

Compared to the high volatility of tech stocks, the financial and industrial sectors performed steadily in 2026. The S&P 500 Financial Index rose 12% year-to-date, mainly benefiting from net interest margin expansion and a recovery in corporate loan demand. Earnings reports from JPMorgan Chase (JPM) and Goldman Sachs (GS) showed investment banking revenue up 15% year-over-year and commission income up 8%. The industrial sector benefited from U.S. manufacturing reshoring policies, with equipment orders at Caterpillar (CAT) and Union Pacific (UNP) hitting record highs.

Notably, the U.S. ISM Manufacturing PMI has been above the 50 boom-bust line for four consecutive months, with May data at 52.3, indicating a moderate expansion in manufacturing. This complements the services PMI (54.1), supporting the base case of a soft landing. However, the manufacturing employment index is only 48.9, reflecting cautious hiring by companies, which may restrain consumer momentum.

3. Valuation Logic: Risks and Opportunities at Current Levels

3.1 S&P 500 P/E Analysis

As of June 23, the S&P 500's forward P/E ratio is 21.5x, at the 78th percentile of the past decade. Excluding the Tech Seven Giants, the remaining 493 companies have a forward P/E of only 17.2x, roughly in line with the historical median of 16.8x. This means the overall high valuation of the current market is mainly driven by a few heavyweight stocks, not a broad bubble.

From an equity risk premium (ERP) perspective, the S&P 500's ERP is 2.1%, lower than the 5-year average of 2.8%, indicating that stocks are less attractive relative to the risk-free rate. However, considering the momentum of corporate earnings growth (estimated 8.5% EPS growth in 2026), valuations are not extreme. The question is: is this 8.5% growth rate sustainable? If the economy slows and earnings are revised downward, valuation pressure will emerge.

3.2 Rotation Opportunities Between Growth and Value Stocks

Recent market style has seen a subtle shift: the Russell 2000 small-cap index has outperformed the S&P 500 by 3.2% in the past month. This is usually a signal of capital rotating from large-cap growth to value stocks. Historical experience shows that when Fed rate cut expectations stabilize and economic data does not significantly deteriorate, small-cap value stocks tend to perform well. The current U.S. economy is not in a recession, with unemployment at 3.8% and corporate balance sheets healthy, providing fundamental support for value stocks.

Investors may focus on the following areas: energy infrastructure (due to oil price volatility but long-term growth in natural gas exports), regional banks (benefiting from regulatory easing and M&A activities), and medical devices (benefiting from aging trends and accelerated drug approvals).

4. Risk Management: Three Major Uncertainties and Countermeasures

4.1 Risk of Fed Policy Tighter than Expected

Although the market expects rate cuts, if inflation re-accelerates due to oil price rebounds or wage growth, the Fed may delay rate cuts or even resume hikes. This would impact all risk assets. As a countermeasure, it is recommended to increase allocations to floating-rate bonds and TIPS, and reduce growth stock weights to below neutral.

4.2 Geopolitical Black Swan

While U.S.-Iran talks have made progress, the Middle East situation still holds uncertainties, such as conflicts between Israel and Hezbollah, and resistance from hardliners within Iran. Additionally, the U.S. midterm elections in November 2026 could trigger policy swings. Investors should maintain portfolio liquidity, moderately allocate to gold (GLD) and safe-haven currencies (e.g., Swiss franc-related assets), and reduce concentration in any single country or sector.

4.3 Chain Reaction from Earnings Downgrades

According to Refinitiv data, the proportion of S&P 500 constituents with negative pre-announcements for Q2 earnings is 34%, higher than the 5-year average of 28%. If economic growth slows further, analysts may significantly lower full-year EPS estimates. In that case, even if P/E ratios remain unchanged, the index would face downside. The countermeasure is to focus on companies with pricing power and stable cash flows, and avoid high-debt, low-margin companies.

Conclusion

The current U.S. stock market is in a delicate balance of 'high valuation, medium growth, low volatility.' In the short term, geopolitical easing and rate cut expectations provide support, but high valuations and earnings uncertainty create pressure. Medium-to-long-term investors should adopt a 'barbell strategy': on one hand, hold structural growth drivers like AI and cloud computing leaders; on the other hand, allocate to value-prominent financial and industrial stocks, and use bond ETFs and alternative assets to hedge tail risks.

European stocks performed actively due to progress in talks, while Hermès's decline against the trend reminds us: market pricing often implies complex strategic games. Investors should look beyond short-term news and return to fundamentals and valuation discipline. Finding opportunities in volatility and maintaining prudence in prosperity is the way to stand firm in uncertainty-driven markets.

Keywords: U.S. Stocks, Federal Reserve, Geopolitics, Valuation, Sector Rotation, Risk Management