A mix of erratic political choices has chipped away at confidence in Washington. Yet, as the economic backdrop remains stubbornly solid, the case for US assets is alive and kicking, America’s largest investors say.
The sell-off that followed a spike in oil prices after disruptions in the Strait of Hormuz has largely reversed, even as ceasefire talks have stalled and a durable resolution remains distant. Long-term U.S. Treasury yields have drifted lower again and the S&P 500 has clawed back almost all of its losses and is trading near record levels.
That optimism is justifiable, said Saira Malik, CIO at Nuveen. Despite revising down U.S. growth expectations for 2026 to 1.8 percent from 2.2 percent due to higher energy prices, “the key structural drivers of the U.S. economy, including productivity gains and continued investment linked to AI, remain firmly in place,” she told Investment Officer in an email. Asset managers who scale back exposure to the U.S. may be misreading the bigger picture, she said.
The U.S. economy expanded 2.2 percent in 2025 and is expected to grow at a similar pace this year, with the International Monetary Fund projecting an acceleration to 2.4 percent in 2026. Employment growth is slowing, but unemployment is holding near 4.3 percent. The so-called misery index, which combines unemployment and inflation, remains far below the levels seen in past crises.
Capital expenditure expectations have reached their highest level since mid-2022, based on an indicator derived from Federal Reserve regional surveys.
Meanwhile, corporate America is showing steady earnings growth despite the conflict, prompting Blackrock to turn positive again on U.S. equities this week.
Blackrock notes that corporate profit expectations for 2026 have been revised higher even since the conflict began, led by the technology sector. Semiconductor earnings alone are forecast to surge, helping drive broader upgrades across U.S. equities.
The asset manager had dialed down risk earlier in the conflict, but now sees signs that the macro fallout is likely to remain contained.
That does not mean all investors are turning uniformly bullish on U.S. assets. Invesco, for one, continues to favor non-U.S. markets, citing a more attractive relative outlook and expectations for a weaker dollar. Still, the firm cautions against overly defensive positioning, noting that recent market moves show risk assets can rebound quickly as conditions stabilize.
Inflation
The inflation-risk nonetheless remains intact as long as the conflict pushes oil prices higher. According to Nuveen, that could add around 0.9 percentage point to headline inflation this year and lift core inflation by roughly 0.4 percentage point through indirect effects. Headline consumer prices already rose 0.9 percent month on month in March to 3,3 percent, driven largely by a more than 20 percent surge in gasoline prices.
Yet the underlying trend looks more benign. The producer price index rose 0.5 percent in March, well below expectations of 1.1 percent, while core PPI increased just 0.1 percent. Services inflation, a key focus for Federal Reserve policymakers, was flat, suggesting companies are absorbing higher costs rather than passing them on.
According to Adam Schickling, US economist at Vanguard, core inflation continues to move in the right direction. “That distinction matters for the Fed, which is far more focused on persistent pressures like labor-driven services inflation than short-term swings in oil prices,” he wrote in a note.
Looking ahead, the inflation outlook remains constructive. As tariff effects fade and energy prices stabilize, core PCE inflation is expected to return to the Federal Reserve’s 2 percent target in the first half of 2027. That leaves the bar for further rate hikes high, while the case for rate cuts is building, even as the Fed remains cautious.