Global equity markets delivered a strong first half of 2026 despite geopolitical tensions, inflation concerns, and questions about economic growth. Importantly, the rally has been driven more by improving corporate earnings than expanding valuations, providing a healthier foundation for future returns. Earnings expectations continue to rise, particularly in technology and innovation-related industries, while lower energy prices and moderating inflation have reduced pressure on policymakers to tighten further.
Artificial intelligence remains a powerful force shaping the global economy, but the opportunity set is broadening. What began as an investment theme centered on large technology companies is now driving demand across industrials, utilities, energy, infrastructure, and capital equipment. Government spending on defense, energy security, and infrastructure is reinforcing these trends, creating opportunities beyond a narrow group of mega-cap technology stocks and supporting a wider range of sectors, regions, and companies.
S&P 500 at Historically High Levels of Concentration
2026 Source: Bloomberg, Yahoo Finance, EDGAR filings
Market concentration remains a defining feature of today's equity market, with the 10 largest companies accounting for more than 40% of the S&P 500's market capitalization—surpassing the levels reached during the dot-com era. While this may appear unprecedented, history suggests otherwise. Similar periods of market leadership occurred during the "Nifty Fifty" era of the 1960s and 1970s and the technology-driven boom of the late 1990s, when a relatively small group of companies drove a disproportionate share of market returns. Unlike some past episodes, however, today's market leaders are supported by strong earnings growth, substantial cash flows, and durable competitive advantages rather than purely speculative enthusiasm. Despite these stronger fundamentals, elevated concentration has important implications for both active managers and investors. A small group of mega-cap stocks has driven an outsized share of market returns, reducing dispersion, diminishing the benefits of stock selection, and making it challenging for diversified, valuation-conscious portfolios to keep pace with increasingly concentrated benchmarks. At the same time, investors face greater risk as broad-market indices become more dependent on the continued success of a handful of companies, increasing vulnerability to volatility and potentially sharper drawdowns should growth expectations weaken or market leadership shift.
Earnings Growth Is Broadening Beyond the Magnificent Seven
Data as of 5/31/2026. Source: FactSet and Furey Research. E = estimated. YoY = year-over-year. S&P 500 = S&P 500® Index. Russell 2000 = Russell 2000® Index. MSCI ACWI ex-USA = MSCI All Countries World Index (excluding the United States). The Magnificent 7 (Mag 7) refers to a group of seven mega-cap technology and tech-related companies that have dominated U.S. equity market performance in recent years. The companies include: Apple, Amazon, Microsoft, Alphabet, Meta, NVIDIA, and Tesla.
Market leadership is beginning to broaden as AI-related investment expands beyond software and semiconductors into power generation, infrastructure, industrial services, and capital equipment. This shift is evident in corporate earnings. While the Magnificent Seven continue to deliver strong results, growth has expanded across the broader market. Nearly 85%1 of S&P 500 companies exceeded first-quarter earnings expectations, with overall growth approaching 28%1, well above initial forecasts. The other 493 companies in the index have accelerated, and small-cap companies have returned to double-digit earnings growth after declines in 20241
As earnings leadership widens, small- and mid-cap stocks, developed international equities, and sectors tied to infrastructure, industrial expansion, and rising energy demand are positioned to play a larger role in driving returns. This broader earnings base should create a more balanced market and reinforce the benefits of diversification.
Developed international markets are entering the second half of 2026 on firmer footing as energy prices stabilize and geopolitical tensions ease. The Middle East conflict earlier this year led to higher oil and natural gas prices which weighed heavily on growth, particularly across Europe. With those pressures now receding, activity indicators are beginning to improve, while moderating inflation and supportive fiscal policies are helping restore confidence. The result is a more constructive backdrop for economic growth and corporate earnings than investors faced just a few months ago.
Emerging markets are benefiting from the same decline in energy-related headwinds, but the more important driver remains the global AI investment cycle. Technology hubs such as Taiwan and South Korea continue to see strong demand for semiconductors and memory, while India and Malaysia are attracting investment as companies diversify supply chains. China remains a more mixed story, with ongoing property-market challenges offset by policy support and strength in key technology and industrial sectors. Together, these trends provide emerging markets with a combination of improving macroeconomic conditions and compelling long-term growth opportunities.
Attention has increasingly shifted to the Federal Reserve as inflation progress remains uneven. Fed Chair Kevin Warsh has signaled a more data-driven policy framework focused on restoring price stability and reducing reliance on forward guidance. Persistent inflation pressures from tariffs, energy markets, resilient consumer demand, and AI-related infrastructure investment are likely to keep monetary policy at the center of investor attention. As a result, interest-rate volatility is expected to remain a driver of market leadership, asset valuations, and capital flows through the remainder of 2026.
Diverging central-bank policies may also create a more differentiated investment environment, where regional opportunities, earnings growth trends, and company fundamentals play an increasingly important role in shaping returns. Investors may benefit from maintaining diversified exposure while remaining focused on businesses with durable earnings growth and strong competitive positions.
Nominal Yields Have Risen Since the Pandemic
2026 Source: Bloomberg, Goldman Sachs Global Investment Research
Fixed income enters the second half of 2026 offering attractive income opportunities, although the interest-rate environment remains challenging. Inflation has moderated, but persistent price pressures, large fiscal deficits, resilient economic growth, and ongoing infrastructure investment suggest rates may remain elevated longer than previously expected. This reinforces the importance of thoughtful duration management, particularly among longer-maturity bonds.
Higher rates allow investors to earn competitive income across a broad range of fixed-income sectors—high-quality credit, mortgages, senior loans, preferred securities, municipal bonds, and private credit—making starting yield, income generation, and credit quality key priorities for total return.
Municipal bonds remain particularly compelling relative to both Treasuries and corporate bonds. Supply growth has been modest, tax-equivalent yields remain attractive for many investors, and the municipal yield curve continues to offer favorable opportunities.
Private credit remains attractive, but investors are growing more selective, especially in software lending: higher financing costs and AI-driven disruption have widened the gap between winners and losers, making manager selection and underwriting discipline increasingly important, with investors favoring mission-critical software companies with durable revenues and strong free cash flow. Still, the broader private credit market remains on solid footing.
Institutional real estate remains a story of divergent performance. Data centers and industrial properties continue to lead, driven by AI infrastructure spending and limited modern supply, while multifamily and necessity-based retail are improving on constrained supply and steady demand. Office remains pressured by high vacancies and refinancing challenges, and hospitality growth is moderating as leisure travel normalizes.
Oil prices spiked sharply in early 2026 after the outbreak of the U.S.-Iran conflict, roughly doubling as fears grew over disrupted shipping through the Strait of Hormuz. As a ceasefire took hold, prices retreated nearly back to where they started the year, leaving Brent and West Texas intermediate crude oil prices only slightly elevated by the end of June—though that calm proved short-lived, with renewed fighting in early July, pushing prices higher again.
Precious metals experienced their first major correction since October, 2022. Gold fell nearly 30% from its January peak near $5,58922 per ounce to around $4,0002, while silver declined roughly 45%–55% from its record high above $1212 per ounce. Despite the sharp pullback, both metals remained strong performers for the six months ending June 30, 2026, reflecting the powerful rally that preceded the correction and continued investor demand for hard assets amid geopolitical uncertainty and inflation concerns.
Portfolio positioning remains constructive, with an emphasis on diversification as market leadership broadens beyond the largest technology companies. We continue to favor high-quality equities and areas tied to AI infrastructure, industrial investment, and improving market breadth. Following strong equity gains this year, we anticipate rebalancing portfolios in July to manage risk and maintain long-term targets.
Our increased exposure to developed international and emerging market equities in mid-2025 has supported both diversification and performance, aided by attractive valuations, improving fundamentals, and broader participation in global AI, infrastructure, and industrial investment trends.
We continue to position fixed income as a source of income, stability, and diversification, while recognizing that inflation and Federal Reserve policy remain key sources of rate volatility. High-quality municipal bonds provide tax-efficient income, while core and core-plus strategies offer broad investment-grade exposure and potential upside if rates decline.
We also maintain short-duration and multisector allocations for flexibility in a higher-rate environment. Shorter-duration bonds reduce interest-rate sensitivity, while multisector managers can selectively pursue credit opportunities. This balanced approach seeks to capture today’s higher yields while managing uncertainty around inflation, growth, and Fed policy.
As we look toward the second half of 2026, the outlook remains encouraging. Earnings growth is broadening, market opportunities are expanding beyond a handful of large technology companies, and attractive investment themes continue to emerge across equities, fixed income, and real assets. Risks worth watching include renewed geopolitical tensions in the Middle East that could reignite energy volatility and inflation, an uncertain Fed rate path, and elevated valuations in AI-driven segments that leave little room for earnings disappointments.
While periods of volatility are inevitable, we believe the combination of improving market breadth, resilient economic activity, and long-term structural growth trends creates a favorable backdrop for investors, even as these risks warrant careful monitoring. By remaining disciplined, diversified, and focused on long-term objectives, portfolios are well positioned to benefit from the opportunities ahead while managing downside risk.
1 – “2026 Midyear Investment Outlook: Dispersion Favors the Active Opportunity,” Lord Abbett, June 2026
2 – GoldSilver.com