Stocks Surge, BBB, and AI: Top Advisor Questions

July brought summer vacations and fresh all-time highs in the S&P 500 and Nasdaq as new trade agreements were reached between the U.S. and foreign nations, the One Big, Beautiful Bill Act moved through Congress, and economic data remained resilient. Check out the top questions we heard from advisors in July and what they may mean for portfolios.

The stock market at record highs: What's fueling the surge?

Since the pause of the Liberation Day tariffs, U.S. equity markets have been on a quick climb higher, rallying 25% since the April 2025 lows and marking the 5^th best 3-month period in history.¹

• Artificial Intelligence continues to be an unstoppable force. We believe that Q1 earnings showed that top artificial intelligence (AI) growth companies may still have room to meet or beat expectations, with few signs of slowing down. In fact, rather that cut spending on AI development, the largest companies committed to spending even more. More than $300bn in AI related capital expenditures are expected in 2025 as companies race to build and monetize the game-changing technology.²
• Markets have also been pricing in the favorable components of the Big, Beautiful Bill (more on that below). With it’s front loaded spending and back loaded cuts, markets are viewing the OBBBA as a form of fiscal stimulus, which have tended to bode well for risk assets.
• Consensus forecasts now expect (eventual) Fed rate cuts without an accompanying recession. As a result, equities have benefited from easing financial conditions, now at their lowest levels since October 2024.³

Where do we go from here?

We believe that investor positioning remains a tailwind—especially if risk appetite holds.

• Of our clients polled on their risk tolerance at the end of June, 43% describe themselves as slightly or very bullish, with U.S. equities considered as the top opportunity over the next 3-6 months.⁴
• We believe that institutional participants may still have room to add exposure based on historical positioning.⁵

Easy financial conditions and fiscal policies continue to offer a generally supportive environment for equities or at least do not appear to present a significant headwind to near-term performance. While markets have recently reached new all-time highs, historical data since 1989 shows that the S&P 500 has, on average, returned 13.5% in the year following such milestones.⁶

What risks are we watching?

The rally in Q2 was sponsored by the risks priced in Q1. With investors registering little concern over the shifting policy agenda, we don’t expect tariff resolution alone to be the catalyst for the next leg higher.

• We’re closely monitoring S&P 500 earnings, where expectations are calling for a reduction in earnings growth compared to Q1, growing only 2.1% YoY.⁷
• Many investors may be concerned about market concentration, as the Magnificent 7 now represent a near all-time high weight in the S&P 500.⁸ We feel that any negative headlines from the tech sector could trigger volatility.
• International equities are our favorite equity allocations to seek diversification against tech concentration and valuations, with lower weights to the tech sector and lower volatility.

Why is big tech spending so much on AI?

AI capital expenditures are surging and show no signs of slowing. Big tech leaders like Amazon, Google, Microsoft, and Meta are investing tens of billions into AI-specific infrastructure.⁹ They’re joined by rising players such as CoreWeave, OpenAI, Oracle, and xAI, all racing to build next-generation AI datacenters.

But what exactly counts as “AI spend”? It’s not just GPUs. This investment wave includes:¹⁰

• Land acquisition and power access
• High-bandwidth networking hardware
• Entire data center campuses purpose-built for training and deploying large-scale AI models

We see these investments playing out:

• Meta’s AI infrastructure is helping drive ad performance by improving digital advertising¹¹
• Cloud giants like AWS, Azure, and Google Cloud are monetizing their capex by renting AI compute to enterprises and startups¹²

We believe companies with strong cash flow and reinvestment capacity are positioned to lead in AI by building out infrastructure.

We believe this isn’t just an immediate tech trend, but a long-term platform shift with implications on investments. We’re still in the early stages of transitioning from a CPU-centric internet to one powered by GPUs and custom accelerators, meaning there may be further opportunities for AI that have yet to emerge.¹³

While today’s AI infrastructure spending is concentrated in tech, we feel its impact will extend across every industry—reshaping costs, margins, and competitive dynamics. We believe this is the start of a monumental transformation, with today’s investors laying the groundwork for the next era of computing. When it comes to investing in AI, we believe actively managed strategies are among the best positioned to rotate between high-conviction opportunities across the tech stack.

What does the Big Beautiful Bill mean for markets?

The One Big Beautiful Bill Act (OBBBA) is a fiscal jolt — packed with tax cuts, new deductions, and pro-growth incentives. It includes permanent extensions of individual tax cuts, estate tax reforms, and expanded business expensing provisions. The bill also clarifies and extends clean energy tax credits and removes Section 899, easing concerns for foreign investors.

But here’s the tradeoff: the bill is expensive.

• Early estimates suggest it could add over $4 trillion to the deficit over the next decade. That’s a meaningful shift in the fiscal backdrop.
• The U.S. deficit as a share of GDP is already near recession-era levels, and this bill pushes it further.
• We believe that may be problematic for the long end of the curve: more issuance, less demand, and rising concerns about the role of Treasuries as a portfolio hedge. In fact, the correlation between the 10-year Treasury and the S&P 500 has turned positive at times this year — undermining duration’s traditional ballast role.¹⁴

Bottom line: the BBB may support equities and consumption in the short run, but it complicates the case for long bonds.

Contributors: Samuel McClellan, Jon Angel, and Annie Khanna