According to ClearBridge Investments, although markets often pause to digest after large gains, history suggests these episodes usually prove fleeting, meaning major indexes could move higher in the second half of 2026. Below is a summary of the most recent Recession Indicators report:
Key Takeaways: According to Jeff Schulze, CFA, Head of Economics & Market Strategy with ClearBridge Investments:
~ Several economic clouds receded last quarter with the labor market turning the corner and oil prices returning to pre-conflict levels. Combined with the strong overall green signal from the ClearBridge Recession Dashboard, ClearBridge Investments believes the U.S. economy remains on solid footing.
~ While the S&P 500 has been in a higher valuation regime since the pandemic, earnings strength has single-handedly powered the market rally, a trend ClearBridge Investments believes will continue.
U.S. Recession Risk Dashboard
Source: ClearBridge Investments
It was a good quarter for investors, as stock markets pushed higher on both the domestic and international front. The Total U.S. Stock Market Index rose 15.3%, marking its best quarter since Q2 of 2020. Meanwhile, the MSCI ACWI ex-U.S. International Index gained 11.2%, making International Equities the best performing asset class YTD. Not every asset class fared as well, though. Fixed Income (bonds) was relatively flat, with the Total Bond Market Index dropping 0.3%. Lastly, Commodities took the biggest hit, as the Continuous Commodity Index dropped 5.4%, driven by weakness within energy commodities and precious metals.
The DALI (Dynamic Asset Level Investing) Indicator is designed to help us identify where strength (or weakness) resides across and within the broad asset classes. From an asset class perspective, market leadership was consistent in Q2, with the strongest asset classes continuing to demonstrate relative strength. As a result, there were no changes in DALI’s asset class rankings. That said, we did see some movement within the tally signal counts for different groups, which is what the rankings are based on. Domestic Equities and International Equities each gained around 30 Relative Strength signal tallies. Meanwhile, Fixed Income, Currencies, and Cash each picked up fewer than 10 signals. The only asset class to lose ground in the quarter was Commodities, dropping a whopping 75 signals despite maintaining its third-place ranking, with it now within 20 signals of being overtaken by Cash. Overall, the strength of stocks at the top of DALI highlights a risk-on posture, especially as risk-off areas like Fixed Income sit in the bottom half of rankings.
Source: Nasdaq Dorsey Wright
The current reading for the PR4050 is: U.S. Equity Core = 97.89% & Money Market = 3.52%. For the PR4050 indicator to trigger and alert us when we should consider moving to cash, U.S. Equity Core must be 40% or below and Money Market must be 50% or above.
Source: Nasdaq Dorsey Wright
Below is the most recent D.A.L.I. (Dynamic Asset Level Investing) Indicator showing International Equities and Domestic Equities in the top two spots, while both maintain a commanding lead over Cash and Fixed Income.
Source: Nasdaq Dorsey Wright
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These views are those of the author, not of the broker-dealer or its affiliates. This material contains an assessment of the market and economic environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. All investments involve risk, including loss of principal. Forward-looking statements are subject to certain risks and uncertainties. Actual results, performance, or achievements may differ materially from those expressed or implied. Information is based on data gathered from what we believe are reliable sources. All indices are unmanaged and may not be invested into directly.
Technical analysis is based on the study of historical price movements and past trend patterns. There is no assurance that these movements or trends can or will be duplicated in the future. Nasdaq Dorsey Wright developed the indicators described above. They have been prepared without regard to any particular investor's investment objectives, financial situation, and needs. Accordingly, investors should not act on any recommendation (express or implied) or information in this report without obtaining specific advice from their financial advisors and should not rely on information herein as the primary basis for their investment decisions.
Nasdaq Dorsey Wright’s “DALI" employs relative strength-based analysis to rank macro asset classes based on developing leadership trends within the global capital markets. The objective guidance within DALI provides the tools necessary to properly allocate portfolios across all major asset classes in an effort to emphasize strength wherever it exists. Domestic Equities, International Equities, Commodities, Currencies, Fixed Income and Cash are evaluated daily to identify dynamic developments across investment genres, as well as within them. This tool provides the tactical precision that allows investors to adapt as the market leadership changes.
International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.
The NASDAQ Composite Index measures all NASDAQ domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index.
The S&P 500® Index: A free-float capitalization-weighted index published since 1957 of the prices of 500 large-cap common stocks actively traded in the United States. The stocks included in the S&P 500® are those of large publicly held companies that trade on either of the two largest American stock market exchanges: the New York Stock Exchange and the NASDAQ.
MSCI World Index: A broad global equity index that represents large and mid-cap equity performance across 23 developed markets countries.
Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.