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2026 Mid-Year Outlook

Tailwinds in the Rearview

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We see the second half of 2026 defined by a shift from broad tailwinds to a more selective environment, where outcomes will increasingly depend on how key pressures and opportunities evolve.

Three shifts defining the second half of 2026:

1. Fading tailwinds

Growth remains resilient, but the underlying drivers—liquidity, fiscal support, and broad-based consumer strength—are becoming less durable. Spending is increasingly supported by savings drawdown, credit, and higher-income households, suggesting a more fragile foundation heading into the second half.

2. Rising scrutiny

AI continues to be the primary growth engine, but the focus is shifting from scale to monetization, pricing power, and capital discipline. As companies move from investment to execution, outcomes are diverging more meaningfully across the ecosystem.

3. Greater selectivity

Markets are transitioning from broad-based momentum to a more dispersion-driven phase, with modest upside and more pronounced downside risks. Investment outcomes will increasingly depend on positioning, diversification, and manager selection.

3.0
U.S. personal savings rate in May 2026 — well below the pre-pandemic norm, reflecting increased reliance on savings to sustain consumption1
46
OpenAI’s share of the AI assistant market in May 2026 — down from prior levels and under 50% for the first time, signaling rising competition and pricing pressure2
4.0% — 4.8%
10-year Treasury yield range for the remainder of 2026 — reflecting a higher-for-longer rate environment as growth moderates and inflation remains above target

Investment Implications

Markets: Modest upside, greater dispersion

Equities remain supported by earnings, but outcomes are becoming more uneven. We see the S&P 500 in a target range of 7,500–7,900 (2–7% upside), with performance increasingly driven by fundamentals and positioning.

Rates: Range-bound with downside risks

We expect the 10-year Treasury yield to remain within 4.0%–4.8%, with moderating growth and inflation pushing yields toward the lower end. Policy remains constrained, reinforcing a higher-for-longer backdrop.

Private Markets: Shift toward operational alpha and income

Higher rates and tighter financing are reducing the role of leverage and multiple expansion, increasing reliance on operational value creation in private equity. Infrastructure and income-oriented strategies continue to benefit from durable demand and inflation-linked cash flows.

Portfolio Positioning: Selectivity and diversification matter more

As tailwinds fade and markets become more dispersion-driven, outcomes will increasingly depend on disciplined positioning, diversification, and manager selection.

For Our Top Investment Ideas of Mid-2026
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Read Mid-2026 Market Outlook Report

Video Commentary

  • The Bridge Ep. 10: AI Broke the Rule of 40. Meet the Rule of 70.

  • The Bridge Ep. 9: Software’s on Sale. Is the Correction Over?

  • The Bridge Ep. 7: Private Credit Isn’t What You Think Anymore

  • The Bridge Ep. 5: The Economy is Booming. Nobody Knows if it Will Last

  • The Bridge Ep. 4: How Infrastructure Really Fits Into a Modern Portfolio

  • The Bridge Ep. 3: When Markets Over-Rotate—and Innovation Doesn’t

  • The Bridge Ep. 2: A Cambrian Explosion of Innovation

  • The Bridge Ep. 1: You Have to Structure the Deal Right—On the Buy

Authors

Sonali Basak
Managing Director,
Chief Investment Strategist

Dan Suzuki
Senior Vice President,
Research & Education

Aaron Schwartz, CFA
Vice President,
Research & Education

Nirali Patel
Vice President,
Research & Education

Sid Balaji
Assistant Vice President,
Research & Education

John Rockwell
Associate,
Research & Education

END NOTES

1. Bureau of Economic Analysis, Personal Income and Outlays, May 2026, as of June 25, 2026.
2. Sensor Tower, State of AI 2026 Report

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