Investing.com — Wolfe Research remains constructive on U.S. equities for the second half of 2026, arguing that easing oil prices, resilient earnings growth, and sustained artificial intelligence investment should support further market gains despite lingering geopolitical and monetary policy risks.
The firm continues to favor the technology sector—particularly semiconductors—expecting markets to grind higher through the summer as lower energy costs ease pressure on consumers. It believes any market pullbacks are likely to be short-lived as long as strong retail fund inflows persist, though renewed U.S.-Iran tensions or stalled diplomacy remain key downside risks.
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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. Wolfe said AI-related investment remains robust, with semiconductor companies benefiting from strong upward earnings revisions and momentum continuing to outperform other investment factors.
The report noted that technology continues to dominate market leadership, with 33 of the top 50 S&P 500 performers this year coming from the sector. It also highlighted that technology and communication services remain increasingly concentrated within the index, with a handful of large-cap companies accounting for much of the earnings growth.
Wolfe expects technology—and semiconductors in particular—to remain the primary engine of earnings growth in 2026, with companies including Nvidia, Micron, Broadcom, Microsoft, Alphabet, Meta, Amazon and Apple contributing disproportionately to forecast profit expansion.
On monetary policy, the research house acknowledged heightened uncertainty following Kevin Warsh’s arrival as Federal Reserve chair but expects the Fed to ultimately keep rates on hold rather than embark on a sustained tightening cycle. It argued that falling oil prices should help moderate inflation over the remainder of the year despite the Fed’s current hawkish tone.
The firm also believes AI investment remains intact despite signs that corporate spending is becoming more disciplined. While businesses are shifting focus from maximizing AI token usage toward improving returns on investment, Wolfe said hyperscale data center spending continues to accelerate, with 2027 capital expenditure estimates for major cloud providers rising sharply this year.
Among the other themes expected to shape markets in the second half are 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.
While acknowledging risks including higher-for-longer interest rates, renewed geopolitical disruptions and pressure on financial stocks, Wolfe concluded that market fundamentals remain favorable, with valuations outside mega-cap technology appearing broadly reasonable and supportive of further equity gains.
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