Overview
Wolfe Research stays bullish on U.S. equities for the second half of 2026, arguing that a combination of easing oil prices, resilient earnings growth and sustained artificial‑intelligence (AI) investment should support further market gains despite lingering geopolitical and monetary‑policy risks.
Sector Outlook
The research house highlights that technology has reclaimed its position as the best‑performing sector in 2026, overtaking energy after the reopening of the Strait of Hormuz drove oil prices lower. Technology accounts for 33 of the top 50 S&P 500 performers this year, and both technology and communication services remain increasingly concentrated within the index, with a handful of large‑cap names driving most of the earnings growth.
Earnings Engine
Wolfe expects technology—particularly semiconductors—to remain the primary engine of earnings growth throughout 2026. Companies singled out as major contributors include Nvidia, Micron, Broadcom, Microsoft, Alphabet, Meta, Amazon and Apple, which are expected to disproportionately expand forecast profits.
Monetary Policy & Inflation
The report notes heightened uncertainty following Kevin Warsh’s appointment as Federal Reserve chair but projects that the Fed will ultimately keep policy rates on hold rather than embark on a sustained tightening cycle. Falling oil prices are expected to help moderate inflation over the remainder of the year, even as the Fed maintains a hawkish tone.
AI and Capital Expenditure
Wolfe observes that AI‑related investment remains robust despite signs of more disciplined corporate spending. While firms shift focus from maximizing AI token usage toward improving returns on investment, hyperscale data‑center spending continues to accelerate, with 2027 capital‑expenditure estimates for major cloud providers rising sharply this year.
Additional Market Themes
Other themes anticipated to shape markets in the second half include continued passive ETF inflows supporting narrow market leadership, resilient earnings revisions led by AI‑related companies, a revival in manufacturing activity, stable credit markets, strong IPO issuance, and the potential risk of a Japanese yen carry‑trade unwind.
Risks
Key downside risks identified are higher‑for‑longer interest rates, renewed U.S.–Iran geopolitical tensions, and pressure on financial‑sector stocks. Wolfe concludes that, despite these risks, market fundamentals remain favorable and valuations outside mega‑cap technology appear broadly reasonable, supporting further equity gains.