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Eagle Asset Management

Navigating growth with friction

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Navigating growth with friction

We began the year expecting the US economy to remain in a Goldilocks environment that would favor broadening performance across risk assets. However, because of the war in the Middle East and rising oil prices, our outlook for the second half of 2026 now focuses on “growth with friction.” The path forward has become more challenging even as the economy maintains a buffer supported by resilient consumption and labor market conditions, plus continued infrastructure investment tied to the build-out of artificial intelligence (AI). Inflation remains sticky, thanks in part to higher energy costs. Still, although higher input costs are expected eventually to weigh on both the consumer and corporate margins, the environment has yet to become truly stagflationary.

Over the near term, we expect the US Federal Reserve to stay on the sidelines as inflationary pressures complicate the future path of interest rates. For capital markets, that creates a more complicated but, we believe, manageable environment. Corporate earnings, healthy balance sheets, and continued access to capital have helped support equity markets. Meanwhile, AI-related investment is still an important source of growth and market leadership. In fixed income, carry remains our base case as US Treasury yields have continued to be range-bound and credit spreads have remained tight. With the rapid rebound since April, current valuations leave less margin for error, and future equity performance may depend less on multiple expansion and more on whether earnings can continue absorbing higher costs, higher-for-longer interest rates, and potentially slower real demand.

Key takeaways

  • The economy still has a buffer, but the mix has deteriorated.

    • Growth remains resilient. Inflation is picking up.

  • Equity markets remain supported, but valuations are less forgiving.

    • Corporate earnings continue to surprise to the upside.

  • Carry continues to be the primary return driver for fixed income.

    • With rates range-bound and spreads tight, carry should continue to do the heavy lifting.

 

 

Starting yields — not credit spreads — have been the main driver of long-term returns

Chart showing 5-year corporate bond returns sorted by starting option-adjusted spread distribution June 1990–April 2026 and 5-year corporate bond returns sorted by starting yield-to-worst distribution January 1974–April 2026

Source: Bloomberg ; monthly data as of 4/30/2026. Corporate bond returns as reflected by the Bloomberg US Corporate Bond Index.

Risk Information:

Investing involves risk, including risk of loss.

Diversification does not ensure a profit or guarantee against loss.

Disclosures

There is no assurance that any prediction, projection or forecast on the economy, stock market, bond market or the economic trends of the markets will be realized.

Index or benchmark performance presented in this document does not reflect the deduction of advisory fees, transaction charges, or other expenses, which would reduce performance. Indexes are unmanaged. It is not possible to invest directly in an index. Any investor who attempts to mimic the performance of an index would incur fees and expenses that would reduce return.

This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature, or other purpose in any jurisdiction, nor is it a commitment from Raymond James Investment Management or any of its affiliates to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical, and for illustration purposes only. This material does not contain sufficient information to support an investment decision, and you should not rely on it in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and make their own determinations together with their own professionals in those fields. Any forecasts, figures, opinions, or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions, and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements, and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

Many investors consider bonds to be “risk free” investment vehicles. Historically, bonds have indeed provided less volatility and less risk of loss of capital than has equity investing. However, there are many factors that may affect the risk and return profile of a fixed-income portfolio. The two most prominent factors are interest-rate movements and the creditworthiness of the bond issuer. Bonds issued by the U.S. government have significantly less risk of default than those issued by corporations and municipalities. However, the overall return on government bonds tends to be less than these other types of fixed-income securities. Investors should pay careful attention to the types of fixed-income securities that comprise their portfolio and remember that, as with all investments, there is the risk of the loss of capital.

The views and opinions expressed are not necessarily those of the broker/dealer or any affiliates. Nothing discussed or suggested should be construed as permission to supersede or circumvent any broker/dealer policies, procedures, rules, and guidelines.

Sector investments are companies engaged in business related to a specific sector. They are subject to fierce competition and their products and services may be subject to rapid obsolescence. There are additional risks associated with investing in an individual sector, including limited diversification.

Indices

Bloomberg US Corporate Bond Index — Measures the investment grade, fixed-rate, taxable corporate bond market.

BLOOMBERG, BLOOMBERG INDICES and Bloomberg Fixed Income Indices (the “Indices”) are trademarks or service marks of Bloomberg Finance L.P. Bloomberg Finance L.P. and its affiliates, including Bloomberg Index Services Limited, the administrator of the Indices (collectively, “Bloomberg”) or Bloomberg’s licensors own all proprietary rights in the Indices. Bloomberg does not guarantee the timeliness, accuracy or completeness of any data or information relating to the Indices.

About Eagle Asset Management

Eagle Asset Management provides a broad array of fundamental equity and fixed-income strategies designed to meet the long-term goals of institutional and individual investors. Eagle’s multiple independent investment teams have the autonomy to pursue investment decisions guided by their individual philosophies and strategies.