The second half of 2026 began with investors facing no shortage of uncertainty, from the Iran conflict and
higher oil prices to ongoing questions surrounding potential payoffs from massive artificial intelligence (AI)
investment. Despite these challenges, the S&P 500 entered August near all-time highs, and prospects for
further gains remain favorable based on a resilient economy and solid corporate fundamentals.
The AI investment cycle remains the dominant theme. As major technology companies reported second
quarter earnings, it became clear that markets have shifted from rewarding the promise of AI spending to
execution on that investment. Can the big hyperscalers such as Microsoft, Amazon, Alphabet, and Meta
generate attractive returns on the enormous capital being deployed into data centers, chips, cloud
infrastructure, and AI platforms? Second quarter results offered a mixed response. Companies
demonstrating strong revenue growth, cash flow generation, and evidence of AI monetization were
rewarded, while those showing rising spending with less visible returns faced increased scrutiny.
Importantly, we believe the AI story remains fundamentally intact. Business investment tied to AI continues
to support economic growth, productivity gains, and corporate profitability across a growing number of
industries. While investors should expect periods of volatility as markets assess returns on these
investments, AI remains a powerful earnings tailwind for technology leaders and business adopters.
Supported by AI investment, corporate earnings continue to provide a strong foundation for stocks. S&P 500
companies in aggregate are growing profits nearly 30% year over year in the second quarter, excluding
markups of private holdings in Anthropic, OpenAI, and SpaceX. Strength has extended beyond technology,
with earnings growth excluding the so-called Magnificent Seven tracking toward 20%. Encouragingly, stock
market gains have been driven more by earnings growth than valuation expansion, a healthier backdrop, in
our view.
The inflation picture remains muddled but poised to improve. The ongoing Iran conflict and solid economic
growth have put upward pressure on long-term interest rates, leaving the Federal Reserve in a tricky spot.
Renewed hopes for productive talks to open the Strait of Hormuz and weaker Chinese demand for oil have
helped offset oil supply concerns, keeping WTI crude oil prices near a tolerable $80 per barrel.
Overall, we believe resilient economic growth, improving prospects for restored shipping traffic in the
Persian Gulf, compelling earnings, and AI-driven innovation support a positive outlook for equities even
after the recent advance. With volatility tied to geopolitics and uncertainty around returns on AI investment
likely to persist, diversification remains at a premium.
As always, please reach out to us with any questions or comments you may have.
Ryan Olson is a Registered Principal with and securities and advisory services offered through LPL Financial, a registered investment advisor. Member FINRA/SIPC CA Insurance Lic. #0E54474.
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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 or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.
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All data is provided as of August, 2026.