2026 Market Outlook: 4 Themes Shaping the Second Half
How energy, AI, earnings, and global diversification are reshaping market leadership led by the broadening theme.
Four themes continue to shape our outlook for the second half of 2026: easing energy pressures, accelerating AI investment, resilient corporate earnings, and growing opportunities beyond the United States. Together, these forces are helping support a constructive outlook for Wall Street despite ongoing uncertainty around inflation, interest rates, and geopolitics.
For our midyear outlook, we’ll explore why the AI revolution may be as transformative as the internet, why higher interest rates don’t necessarily derail bull markets, and why diversification beyond mega-cap technology could create new opportunities in the second half of the year.
Today’s decision by Fed Chair Kevin Warsh to keep rates unchanged is another reminder that investors cannot control monetary policy, geopolitical events, or market headlines. What they can control is remaining calm, diversified, and focused on the long term.
When Markets Look Past the Headlines
The U.S. and Iran have announced a framework aimed at ending the four-month conflict that rattled markets and sent oil prices sharply higher. Investors responded quickly. Stocks rallied, crude retreated, and Treasury yields eased almost immediately.
Before celebrating, remember this is a framework, not a finalized peace agreement. Major issues remain unresolved, including Iran’s nuclear program, sanctions, and the final reopening of the Strait of Hormuz.
One of investing’s great paradoxes is that markets often bottom when the news is darkest and recover long before the headlines improve. Wall Street trades on future expectations, not yesterday’s news. Headlines may move markets for days. Earnings, innovation, productivity, and economic growth drive them for years.
The market has seen this movie before. Since World War II, investors have navigated wars, terrorist attacks, oil embargoes, recessions, pandemics, and geopolitical crises. While these events often trigger short-term market corrections, long-term market returns have been driven far more by corporate earnings and economic expansion than by battlefield developments.
When markets pulled back in March as missiles flew, we stayed calm, disciplined, and continued deploying capital rather than retreating to cash. The reason is simple. The stock market is not the economy. It is a forward-looking discounting mechanism that often begins pricing tomorrow’s recovery months before it appears in the economic data. By the time the evening news declares the coast is clear, markets have often already moved on.
2026 Market Outlook : Second Half
As we move into the second half of the year, there are encouraging signs that the worst of the recent energy shock may be behind us. The reopening of the Strait of Hormuz should help restore stability to global energy markets, although the adjustment process is unlikely to happen overnight.
If tensions continue to cool and oil prices remain contained, inflation pressures should gradually ease and provide a healthier backdrop for both stocks and bonds, even if the Fed keeps rates higher for longer under new Federal Reserve Chair Kevin Warsh.
As the chart below illustrates, nearly $8 trillion remains parked in money market funds despite short-term rates falling from roughly 5.5% to 3.7%. While those yields may still appear attractive, investors should remember that after taxes and inflation, the real return on cash can be far less impressive. Cash serves an important role for liquidity and short-term needs, but over longer periods it can become a silent wealth destroyer when purchasing power fails to keep pace with rising prices.
Jon here. While no one has a crystal ball, we generally share Wall Street’s constructive outlook heading into the second half. Firms including Goldman Sachs, Morgan Stanley, Deutsche Bank, and Wells Fargo forecast the S&P 500 could approach 8,000 by year-end. That would imply roughly 6% to 7% additional upside from current levels and a full-year return approaching 17%, similar to last year. Whether or not those targets are reached, earnings growth remains the key driver, supported by a resilient economy and continued investment in AI and infrastructure.
Broadening Theme: Diversifying Beyond Big Tech
The AI story is evolving. The first phase rewarded software and semiconductor companies. The next phase may increasingly benefit the physical economy. Massive data centers require electricity, transmission lines, cooling systems, construction materials, and financing. In many respects, the AI race is becoming an energy and infrastructure race with sources from electric utilities, natural gas, oil, wind and solar to nuclear energy.
Within our clients’ strategic balanced portfolios, we are selectively adding more to technology while continuing to embrace the broadening-out theme as part of our thesis into other sectors sometimes referenced as the “S&P 493.” This includes industrials, financials, consumer discretionary, materials, energy, infrastructure, and consumer staples across both large and small-cap companies as well.
That shift helps explain our continued conviction in heavy asset sectors. As mega-cap tech companies invest hundreds of billions of dollars into AI infrastructure and Musk plans to build data centers in outer-space, the beneficiaries may extend well beyond Silicon Valley, literally.
Financials are once again one of our highest-conviction investment theses. Just as banks financed the growth of railroads, highways, and the internet, they are likely to play a critical role in financing the next phase of the AI buildout. Banks, brokers, and private capital providers stand to benefit as they help fund infrastructure projects, support private credit markets, underwrite IPOs, and finance the next wave of business investment
We’re also finding opportunities internationally, particularly in Europe, where valuations remain more attractive than in the United States. While much of Wall Street remains focused on AI, Europe offers greater exposure to financials, industrials, healthcare, defense, and infrastructure, with far less concentration in technology.
International markets have quietly outperformed in several regions over the past two years as one of the best sector bets for our portfolios, reminding investors that leadership often rotates when few expect it. International exposure can also provide added diversification should the U.S. dollar weaken from historically elevated levels.
America remains the global leader in innovation and technology. However, with U.S. valuations near historic highs and enthusiasm surrounding AI running strong, international diversification may offer an attractive balance of opportunity, income, and risk management.
Inflation May Stick Around
Forget the CPI report for a moment. Inflation becomes real when your quick Chipotle lunch somehow costs $20.
Headline CPI rose 4.2% year over year in May, while core inflation, which excludes food and energy, remained a more moderate 2.9%. The gap suggests much of the recent pressure has been driven by energy rather than broad-based price increases. (Source: U.S. Bureau of Labor Statistics)
Even if oil prices continue to cool, inflation may not disappear overnight. A resilient labor market, healthy consumer spending, and another year of massive AI-related capital spending could keep underlying price pressures firmer than many expect.
Investors should also keep higher interest rates in perspective. Even if Fed Chair Kevin Warsh leaves rates unchanged and the 10-year Treasury settles in the 4% to 5% range, history suggests that alone is not enough to derail a bull market. During much of the 1990s and into the mid-2000s, the 10-year Treasury frequently yielded around 6%, yet the economy expanded and stocks delivered strong long-term returns.
Bull markets don’t die simply because interest rates remain elevated. They usually end when earnings collapse or recession takes hold. At the moment, neither appears to be the base case.
Sector Leadership Continues to Broaden
As we discussed above, one of the healthiest developments this year has been the broadening of market leadership. While AI and mega-cap technology continue to dominate headlines, the chart below tells a different story. Energy, industrials, materials, real estate, and consumer staples have all contributed meaningfully to returns.
That’s an important reminder because many investors continue to view the market through the lens of the Magnificent Seven. While tech remains one of our highest-conviction long-term themes, market leadership rarely stays concentrated forever. As economic conditions evolve, different sectors often take turns leading.
Trying to predict next quarter’s winning sector is usually a losing game. Diversification allows investors to participate when leadership rotates rather than forcing them to guess where it will emerge next.
History rhymes and sometimes repeats. In 2022, many of the market’s biggest winners lost 40% to 60% before staging an extraordinary recovery. Investors who panicked locked in losses. Those who remained disciplined and diversified were ultimately rewarded.
The takeaway is not to avoid technology. Quite the opposite. We continue to believe AI, automation, energy infrastructure, and innovation represent some of the most compelling long-term investment themes of our generation. But concentration risk is real. Great companies do not automatically become risk-free investments.
As Howard Marks often reminds investors, success is less about predicting the future and more about preparing for multiple outcomes. The best portfolios combine exposure to transformative growth with diversification across sectors, asset classes, and geographies, helping investors stay invested when markets inevitably become turbulent.
Investors should maintain a long view on geopolitics and economic cycles
History is remarkably consistent on this point. Wars, terrorist attacks, oil shocks, and geopolitical crises can rattle markets for days or months. Yet over decades, they rarely determine long-term investment returns. Economic growth, corporate earnings, innovation, and productivity have been far more powerful drivers of wealth creation.
That’s why the latest peace framework should be viewed as encouraging news, not a reason to overhaul your portfolio. If lower oil prices persist, they could ease inflation, reduce costs for businesses and consumers, and improve the backdrop for both the economy and financial markets. Those are meaningful positives, but they reinforce the case for staying invested rather than reacting to headlines.
Warren Buffett famously said the stock market is a mechanism for transferring wealth from the impatient to the patient. History suggests geopolitical crises often create the same opportunity.
The preliminary U.S.-Iran agreement is encouraging, but investors rarely profit by waiting for perfect clarity. Markets often climb despite uncertainty, not after it disappears. By the time the risks feel comfortable, the recovery is often well underway.
The bottom line? The 2026 Market Outlook for stocks and bonds appears increasingly constructive as we move into the second half of 2026. That doesn’t mean the road will be smooth, nor should investors expect technology stocks to deliver the same outsized gains of the past few years. Inflation, interest rates, and geopolitical tensions will likely continue to create periods of volatility along the way.
Wall Street has seen this movie before. The headlines change. The fears change. The uncertainty changes. Yet over time, corporate earnings, innovation, productivity, and economic growth have mattered far more than any single geopolitical event.
One of Wall Street’s oldest lessons is that the biggest risk is often not the crisis itself, but how investors react to it. History shows that disciplined investors who stay focused on long-term fundamentals tend to fare far better than those chasing headlines or making emotional portfolio decisions based on incomplete information.
For more information on our firm or to request a complimentary investment and retirement check-up, call (561) 210-7887 or email jon.ulin@ulinwealth.com.
Author: Jon Ulin, CFP® is the founder and Managing Principal of Ulin & Co. Wealth Management, an independent advisory firm based in South Florida for over 20 years. As a fiduciary wealth advisor, Jon helps successful individuals, families, and business owners nationwide with multi-generational planning, investment management, and retirement strategies. Learn more about Jon and our team at About/CV. or call (561) 210-7887.
Note: Diversification does not ensure a profit or guarantee against loss. You cannot invest directly in an index. Information provided on tax and estate planning is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.
You cannot invest directly in an index. Past performance is no guarantee of future returns. Diversification does not ensure a profit or guarantee against loss. All examples and charts shown are hypothetical used for illustrative purposes only and do not represent any actual investment. The information given herein is taken from sources that are believed to be reliable, but it is not guaranteed by us as to accuracy or completeness. This is for informational purposes only and in no event should be construed as an offer to sell or solicitation of an offer to buy any securities or products. Please consult your tax and/or legal advisor before implementing any tax and/or legal related strategies mentioned in this publication as NewEdge Advisors, LLC does not provide tax and/or legal advice. Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situation, or needs of individual investors.
