Mid-Year Outlook: Private Demand Outpaces GDP

Shelton Capital Management’s mid-year assessment finds private-sector activity in the United States stronger than headline GDP in the first half of 2026, with a negative contribution from net exports reducing overall growth.

The firm bases its view on measures including Real Final Sales to Private Domestic Purchasers, which show private demand running ahead of headline GDP. Shelton’s report notes the first half of 2026 featured a geopolitical shock in the energy market, a reacceleration in the labor market and upward revisions to corporate earnings for the latest quarter.

On inflation, Shelton reports that May likely marked the peak of the recent cycle. Energy-driven price spikes have faded and shelter inflation, the largest component of the consumer-price basket, slowed to its weakest pace since before the pandemic. The firm projects further easing of inflation through the remainder of 2026 and into 2027 in its base case scenario.

Shelton characterizes the labor market as tight rather than strong and prefers a broader unemployment measure that includes all Americans aged 16 and over. Using that wider population set, the firm finds the unemployment rate near an all-time low, reflecting limited available labor across age groups. Shelton expects hiring to cool in coming quarters primarily because fewer workers are available rather than because employers sharply reduce demand.

The firm flags weak inflation-adjusted income growth on its Recession Tracker as the main risk to the outlook. As a counterpoint, Shelton cites strong corporate earnings: FactSet estimates referenced in the report show S&P 500 earnings for 2026 tracking more than 24% higher year over year, and earnings revisions for the recent quarter have been upward.

Shelton’s positioning remains overweight equities versus fixed income with an emphasis on U.S. exposure. The report identifies targeted overweights to health care services, industrials, regional banks, and companies tied to semiconductor and electronic equipment for AI infrastructure, and it notes the addition of a healthcare service providers ETF to several of its strategies.

Within fixed income, the firm favors high-quality asset-backed and mortgage-backed securities concentrated in intermediate maturities around 2031–2032. Alternative allocations referenced in the report include multi-asset real-return strategies and options-based equity overlays. Shelton’s Cash Indicator, a market-stress gauge updated twice monthly, remains low; the firm reports it is fully invested and that credit spreads are contained.

The report records the recent mix of forces-energy-market disruption, tight labor supply and upward earnings revisions-without offering policy prescriptions. It notes the combination of those factors as the context for Shelton’s mid-year investment positioning.