Over the first half of 2026, markets faced some expected — and unexpected — tailwinds and headwinds, ranging from geopolitical developments, blockbuster corporate earnings, increasing artificial intelligence (AI) scrutiny, resilient economic data, and a new Federal Reserve (Fed) Chair. In the recently released Midyear Outlook 2026: Policy, Buildouts, & Bottlenecks, we discuss what’s shaping the economic and market landscape and what investors may expect over the balance of the year.
Here are some of the key takeaways from the just-released report.
Economy
We believe economic growth will moderate but remain positive over the second half as strong business investment should offset weakness in housing and rate-sensitive sectors. If geopolitical tensions ease meaningfully, upward pressure on inflation should lose one of its main near-term accelerants while domestic demand and labor-market conditions become less inflationary. We expect unemployment to edge higher but remain historically low as hiring remains subdued.
Stocks
An improving but still challenging macro backdrop and AI-driven earnings strength will continue to be the key pillars of support that will help the broader equity advance continue through year-end. Risks remain, however, as developments in the Middle East and AI monetization progress will determine the magnitude and frequency of potential pullbacks. We expect modest equity market gains in the second half, and maintain a moderate equity overweight to take advantage — but staying diversified between the AI theme and potential rotation beneficiaries could be critical.
Bonds
Sticky inflation and resilient growth are likely to keep the Fed on an extended pause, leaving Treasury yields range-bound, with the expected to finish the year between 4.00% and 4.50%. In this environment, bond market returns may remain primarily driven by income, and we favor owning core bond sectors over lower-quality riskier sectors. Longer-term-oriented investors should continue to benefit from extending cash maturities slightly to capture still elevated bond yields, as we believe the Fed will eventually continue its rate-cutting campaign.
Alternative Investments
Markets are increasingly being shaped by dispersion, structural change, and rising complexity, which reinforces the important role of alternatives in enhancing portfolio flexibility, diversification, and return potential. Elevated single-stock volatility in the second half should continue to benefit long/short equity strategies, while diverging monetary policies and ongoing geopolitical uncertainty will create a constructive backdrop for global macro.
Commodities and Currencies
volatility should remain elevated as inventories stay tight and supply recovers gradually. In metals, ’s long-term fundamentals remain favorable despite weaker technicals, while industrial metals are benefiting from infrastructure and AI-driven demand amid constrained supply. Plus, the trend towards resource nationalism will broadly support key commodities. On the dollar, the greenback remains range-bound but supported by U.S. economic resilience, AI-led equity gains, favorable interest rate differentials, and a still-intact secular uptrend.
Four Key Themes to Watch
We see four themes shaping markets in the second half. First, U.S. midterms could shift congressional control and policy direction. Second, rising resource nationalism is steering capital toward commodities and real assets and shifting the geopolitical landscape. Third, AI is maturing, and focus is likely to move from buildout to beneficiaries and return on investment. Finally, a leadership change at the Fed adds uncertainty: with inflation elevated and geopolitics tense, the new chair will have little margin for error.
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Important Disclosures
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. To determine which investment(s) may be appropriate for you, please consult your financial professional prior to investing.
Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk.
