AI, Fed, and IPOs: July 2026 Top Advisor Questions

Key takeaways

• Markets move into the second half of 2026 supported by resilient growth and strong earnings, but the future path may be choppier.
• AI is still the dominant investment theme, but we have seen a rotation in performance from those writing checks to those receiving them.
• Mega-IPOs are raising new questions around access, valuation and index inclusion.

While summer livin’ is easy, the market backdrop has become more complicated. Performance has been strong, though less straightforward than headline index returns suggest. Yet underneath the surface the factors affecting markets have been expanding – raising questions for advisors. Rate expectations have swung drastically from cuts to hikes, as investors have digested resilient U.S. economic reports and leadership under new FOMC chair Kevin Warsh.

At the same time, portfolio construction has grown more challenging. Potential mega-IPOs have raised questions about market liquidity and future index inclusion. Meanwhile, persistent positive stock-bond correlations this year have complicated the traditional diversification playbook, especially as equity volatility has remained elevated.

Advisors have a lot on their minds. We’re here to break down some of their most-asked questions this summer and provide some insights into what they mean for portfolios.

1. What’s driving the stock market higher in 2026, and is now a good time to sell?

Fundamentals have lifted markets higher in 2026, on both the micro and the macro fronts. Even after a strong first-half rally, the move has been supported by resilient growth, improving earnings expectations, and easing pressure from geopolitical risks. Advisors are asking if it’s a ‘good’ time to sell, but we believe the answer is more a question about portfolio positioning.

First let’s unpack market fundamentals. The first tailwind to markets has been a strong economic backdrop, supported by both resilient economic data and continued AI capex spend. Macro held up better than anticipated in H1 across several key areas of data — labor, retail, and housing all came in ahead of consensus forecasts. AI-related spending has added another layer of support: we estimate that it contributed 1.3% to Q1 2026 YoY GDP growth and believe capex spend will remain a near-term tailwind as GDP returns toward long-term trend levels.¹ Pair that with geopolitical risks unwinding in the past month, as de-escalation between the U.S. and Iran sent oil prices nearly 40% lower off April highs, pulling both growth and inflation scares down in tandem.

The second catalyst pushing markets higher has been remarkable strength at the micro level. Q1 earnings came in well above expectations, with S&P 500 EPS growth clocking 17%, excluding one-time idiosyncratic benefits.² Ahead, that momentum should continue — the consensus forecast is for 22% YoY growth in Q2, with AI infrastructure stocks expected to contribute 60% of index-level growth. Thus, as shown in Figure 1, despite the double-digit rally we have seen in the first half of the year, the S&P’s P/E ratio has actually come down, potentially alleviating some valuation concerns and reinforcing that the rally has been supported by earnings, not just multiple expansion.

Figure 1: Resilient macro backdrop led by earnings strength

The takeaway for investors is this: markets have rallied, but it has not been without reason. A resilient macro backdrop has lifted beta, while fundamentals have grounded the move higher. This support behind performance should make investors cautious about trying to time an exit from equities. Long-term investors should likely stay invested, upgrade portfolio quality, rebalance thoughtfully, and focus on areas where earnings durability, margin resilience, and positive revisions can continue to support returns in the second half of 2026.

2. Is AI still one of the market’s most important investment themes, and how do I invest in it?

Yes, we believe AI remains central to both the composition of the market and market strength, and the question of how to invest in it is nuanced based on how advisors want to access the theme. AI-linked companies now represent 44% of the S&P 500.³ Yet, the more compelling story is in earnings growth, with AI-linked companies expected to deliver 44% YoY earnings growth in Q2 2026 versus 21% for the S&P 500 overall.⁴ While dot-com comparisons are understandable, we believe today’s AI leadership appears more grounded in realized earnings than speculation. Overall, this rally has been fundamentally driven.

But beneath the surface, AI leadership is changing as the AI buildout progresses. Increasingly the AI theme has divided companies into two groups: spenders and receivers. The first phase of AI performance was led largely by the mega spenders or hyperscalers, which had the balance sheets and cash flow to fund the initial buildout. More recently, performance has broadened toward the receivers or beneficiaries of that spending, including semiconductors, infrastructure, power, data centers and cheaper areas of technology tied to the AI supply chain as shown in Figure 2. That dispersion suggests the market is becoming more discerning, rewarding the immediate beneficiaries of AI spending while asking harder questions about the return on capital from the hyperscalers funding the buildout.

Figure 2: Performance has diverged across the tech stack

Yet even as AI has powered equity markets, there are still risks to consider. One is the sheer scale of the buildout. As required investment continues to move higher and further out, with some estimates that hyperscale capex will hit $1 trillion in 2028, questions are being raised about the ability to fund it. In some cases, AI capex is approaching 100% of operating cash flow, putting more focus on balance sheet flexibility and the return on that spending. Another risk is sentiment. One poll found that 46% of voters view AI negatively, versus 26% positively, while another found that 71% of Americans say AI development is moving “too fast.”^{5 6} While in our view we haven’t seen that materially translate to roadblocks to AI development, there is always a risk it begins to translate into tougher regulation.

For advisors, the question remains how to source technology within a portfolio. For investors utilizing exposures tied to the GICS S&P Info Tech sector, this means you are getting exposure to all aspects of the trade, instead of selectively capitalizing on the rotation between spenders and receivers. Meanwhile it may be worthwhile to evaluate legacy tech positions tied to the “magnificent seven” or software names, as AI poses a potential threat to established business models. Advisors wanting to lean into AI spend receivers, moreover, might consider funds focused on tech hardware like the  iShares Semiconductor ETF.

AI remains a key innovation driver of markets and an important support for macro growth. But dispersion across industries and companies, along with these risks may argue for discipline. As the cycle matures, selectivity may matter more than broad AI exposure, pushing advisors to look beyond core exposures toward active strategies or narrower themes tied to the next phase of the buildout.

3. What do mega-IPOs mean for portfolios and index investors? 

It’s still too early to say what mega-initial public offerings (IPOs) mean for investors. After several muted years, IPO activity is expected to rebound in 2026 — likely making it the largest IPO year on record. The SpaceX IPO in June set a record with a $86.2 billion offering.⁷ The average IPO valuation in 2026 is three times last year’s average and nearly 10x the average from 2022.⁸

With deal sizes meaningfully increasing, many advisors have questioned the market’s ability to absorb companies valued in the trillions. The SpaceX IPO may have given us an answer: investor demand exceeded supply by more than 3x, with the company valued at roughly $1.75 trillion.⁹ Investors have shown an appetite for innovation exposure, even when profitability seems distant.

Yet as we could see more ultra-high profile IPOs, it is important to remember that access does not guarantee positive performance. Not all mega-cap IPOs see an initial positive “pop,” and outcomes vary considerably over the long term, as Figure 3 shows. Within its first two weeks, SpaceX shares, for instance, gained as much as 67% over the IPO price but gave much of it back to finish at only a 13% increase.¹⁰

Figure 3: Not every blockbuster IPO becomes a blockbuster stock

For most investors, mega IPO exposure comes through index inclusion rather than direct holdings. Most indices delay IPO inclusion, though certain providers such as Russell and MSCI have made exceptions to fast-track the process. The chart below breaks down the approaches and timelines to mega-IPO inclusion by provider.

Ultimately, IPOs are a defining feature of markets in 2026, but they are not inherently positive or negative for the market. Investors looking to increase exposure to upcoming IPO names may consider ETFs like iShares A.I. Innovation and Tech Active ETF, with small private weightings to names like Anthropic and OpenAI, while those looking to avoid potential volatility and near-term IPO inclusion may prefer core, S&P-linked exposures.

For more on what IPOs mean for markets, read our article AI-mega IPOs are coming: What investors should know in 2026.

4. How could investors position portfolios as interest rate expectations have shifted?

Investors may need to broaden the toolkit they use to bolster portfolios to weather different market environments which could include considering liquid alternatives, commodities, and cash-plus exposures.

The market has rewarded investors who stayed invested, but 2026 has been a reminder that markets can be unpredictable and volatile. The Middle East uncertainty and oil supply disruption that escalated in March reminded investors about the interconnectedness of the economy. And when investors sought ballast to counter the equity drawdown, traditional diversifiers like bonds and gold sold off in tandem.

Nonetheless, the challenge for advisors is how to best manage potential shocks. Higher rate expectations combined with positive stock-bond correlations has put pressure on the traditional 60/40 portfolio. Yet, as Figure 4 shows, strategies like liquid alternatives and equity market neutral have proven effective in delivering ballast during equity drawdowns this year utilizing differentiated sources of returns. To optimize portfolios to help better weather equity downturns, advisors could consider swapping some fixed income exposure for liquid alternative exposures.

Figure 4: Liquid alternatives have provided ballast on down weeks for stocks

Key takeaway for financial advisors: Supportive backdrop for investors, but discipline is required

The market backdrop remains constructive, but the playbook is changing. Investors may want to consider staying invested, being more selective, and look to diversify their diversifiers beyond the traditional 60/40 as AI leadership broadens, mega-IPOs test valuations, and higher-for-longer rates keep volatility in play. Midterm years can add to that uncertainty as markets assess potential shifts in policy priorities, new legislation, and the regulatory outlook, a topic we explore in our Midterms & Markets article. In a market still rich with opportunity but more vulnerable to shocks, resilience may matter as much as return potential.