Can the "US Market Highlight" Extend Into the Second Half of the Year?

 

Despite weathering multiple headwinds during the first half of the year, US equities ultimately delivered an outstanding performance, logging several fresh milestone peaks.

 

As the market crosses into the second half, the paramount question for investors is clear: under the dual threat of intensifying geopolitical friction and potential Federal Reserve rate hikes, can US equities remain resilient through year-end?

 

Research firm Wolfe Research remains constructive on the outlook for US equities through the second half of 2026.

 

The firm notes that while geopolitical and monetary policy risks persist, a retreat in global crude prices, robust corporate earnings growth, and expanding artificial intelligence capital expenditures should anchor further market advances.

 

In its latest note, the research outfit maintains an overweight stance on the technology sector, with a specific preference for semiconductors.

 

Wolfe expects equity markets to grind slowly higher over the summer months as deflating energy costs alleviate pressure on consumers.

 

The firm believes any tactical market pullbacks will remain short-lived as long as retail capital inflows remain robust. Conversely, a renewed escalation in US-Iran tensions or a prolonged diplomatic impasse stands as the primary downside risk.

 

The technology sector has reclaimed its title as the top-performing S&P 500 cohort for 2026, outpacing the energy sector following a pullback in crude prices triggered by the reopening of the Strait of Hormuz.

 

Wolfe Research states that AI-related capital allocation remains exceptionally strong.

 

Semiconductor operators continue to benefit from aggressive, positive revisions to forward earnings estimates, allowing their growth momentum to systematically outperform alternative investment factors.

 

The report further details that the technology complex continues to dominate overall market architecture, accounting for 33 of the top 50 performing companies within the S&P 500 this year.

 

The note also highlights that index concentration within technology and communication services continues to step higher, with a tight cluster of mega-cap leaders generating the vast majority of aggregate earnings expansion.

 

Wolfe Research projects that technology—specifically semiconductors—will remain the primary locomotive for earnings growth through the remainder of 2026.

 

Heavyweights including Nvidia, Micron, Broadcom, Microsoft, Alphabet, Meta, Amazon, and Apple are expected to contribute a disproportionate share of forecasted profit expansion.

 

On monetary policy, the research firm acknowledges that market uncertainty has risen following Kevin Warsh's transition to Federal Reserve Chair.

 

However, Wolfe expects the Fed to ultimately hold interest rates steady rather than embark on a sustained tightening cycle.

 

The firm notes that despite the central bank's current hawkish posture, falling crude prices should help anchor inflation expectations through the remainder of the year.

 

Wolfe Research also points out that AI capital expenditure remains insulated, despite emerging signs of heightened corporate spending caution elsewhere.

 

The firm observes that while corporate focus is shifting from maximizing raw AI token consumption toward optimizing return on investment (ROI), hyperscale data center budgets continue to accelerate. Major cloud service providers are projected to visibly ramp up their 2027 capex allocations this year.

 

Wolfe Research highlighted several secondary themes poised to influence market dynamics through the second half of the year:

• Continuous passive ETF inflows providing a structural floor for market leaders;

• Ongoing upward earnings revisions across AI-aligned enterprises;

• A broader cyclical recovery in manufacturing activity;

• Stabilizing credit market conditions;

• A robust pipeline of initial public offerings (IPOs);

• Potential tail-risks stemming from the unwinding of the yen carry trade.

While Wolfe Research acknowledges key risk vectors—including higher-for-longer interest rates, renewed geopolitical turbulence, and balance-sheet pressure across financials—the firm concludes that underlying market fundamentals remain supportive.

 

Excluding mega-cap tech, broader equity valuations remain reasonable, creating a constructive setup for further equity price appreciation.