The views expressed are those of Anchor Capital Advisors, LLC (“Anchor”) and are subject to change at any time. They are based on our proprietary research and general knowledge of said topic. The below content and applicable data are in support of our views on said topic. Please see additional disclosures at the end of this publication.
Post-Quarter Update — July 16, 2026
The commentary below reflects market conditions and our views as of June 30, 2026, the quarter-end it covers. Since then, hostilities between the United States and Iran have resumed. Public reporting indicates renewed U.S. strikes, a reimposed naval blockade, and fresh disruption to shipping through the Strait of Hormuz. This is a material change from the easing of Middle East energy risk described below, which was the most important macro development of the second quarter.
We identified this scenario directly. The Outlook named a renewed energy shock as the primary risk that would argue for a more defensive view, and the commentary cautioned that market pricing may have moved faster than the underlying normalization of energy supply. The developments of early July are that risk beginning to materialize.
The near-term implications run opposite to the quarter’s trend. Higher and more volatile oil prices would add to headline inflation and weigh most on energy-importing regions, a point we made about Europe in particular, and would give central banks less room to ease. The weaker-dollar view is the most affected, since it rested partly on fading oil risk and reduced safe-haven demand, both of which have reversed in the near term. Consistent with our standing practice, this update does not revise the commentary below; we will address these developments more fully in our next scheduled update. As always, the right response depends on your individual circumstances, and we encourage you to speak with your advisor about your specific portfolio.
Overview – Global Capital Markets
Despite geopolitical stress in the Middle East and a more unsettled policy backdrop, the global economy remained resilient during the second quarter. Growth remains positive, corporate earnings are holding up, and the capital spending cycle provides a meaningful source of demand across regions.[1] This supports a constructive view of risk assets, but it also argues for more selectivity. Returns are likely to depend less on broad multiple expansion and more on earnings growth, cash flow durability, financing costs, and valuation discipline.
The most important macro shift during the quarter was the easing of Middle East energy risk. The U.S.-Iran memorandum and gradual reopening of the Strait of Hormuz reduced the probability of a sustained oil-driven global inflation shock and helped improve risk sentiment.[2] Lower oil prices should help headline inflation and real incomes, but market pricing has likely moved faster than the normalization of shipping, inventories, and production.[3] Lower spot oil prices do not immediately remove the earlier supply shock from reported inflation or corporate cost structures.
The dominant investment theme remained artificial intelligence. While the Middle East de-escalation reduced near-term macro tail risks, AI continued to shape earnings, capital spending, power demand, supply chains, and financing needs across regions. The market debate has moved beyond model development and semiconductor leadership. The AI buildout is now a global physical infrastructure cycle requiring substantial investment in power grid capacity, cooling, labor, and financing. The issue is whether the buildout can keep pace with real-world constraints around power, sites, labor, permitting, and financing.[4]
This broadens the opportunity set across regions and sectors, including Asian supply chains, power infrastructure, industrial equipment, and commodities. AI should therefore be viewed as both a tailwind and a risk. It supports growth through business investment and earnings, but it also increases demand for scarce inputs and raises financing needs across public and private credit markets. For investors, the issue is not simply whether AI spending continues. The questions are whether capital is being deployed efficiently, whether financing is available at reasonable terms, and whether valuations already reflect too much of the expected benefit.
Global growth paths have also become less synchronized. Regions are responding differently to energy prices, currency moves, policy decisions, and the AI investment cycle. Taken together, the global setting is constructive, but less forgiving than it was earlier in the cycle. Strong earnings and AI-related capital spending can support risk assets across markets, but elevated valuations, long-term interest rates, tighter financing conditions, and concentrated leadership leave less room for disappointment.[5] These risks are global, not only U.S.-specific. Europe still faces structural growth constraints, Japan has to balance reform momentum against currency and policy normalization risks, and emerging markets increasingly combine attractive opportunities with greater exposure to AI and commodity cycles. Markets appear to be pricing a path in which growth holds, inflation moderates gradually, AI investment remains productive, and financing conditions stay stable.[6] That outcome is possible, but it is not risk-free. The practical implication is that diversification, cash flow quality, valuation discipline, and active selection matter more as the cycle matures.
TABLE 1 – ASSET CLASS PERFORMANCE (As of June 30, 2026)
Source: FactSet financial data and analytics
U.S. Equities – Performance, Earnings, & Market Structure
We view the U.S. as having the strongest equity case because earnings are holding up, AI leadership is more concentrated in the U.S., and the market has more direct exposure to the capital spending cycle. However, this is no longer an environment where higher valuations can do most of the work. The next phase of returns should depend more on earnings delivery and cash flow durability than on broad macro relief or multiple expansion.[7] That should favor companies with visible earnings, free cash flow, balance-sheet flexibility, and direct exposure to capital spending. It should be less forgiving for stocks where the valuation case depends mainly on lower real rates or AI enthusiasm without clear earnings conversion.
Earnings have been the main support for U.S. equity returns. First-quarter S&P 500 earnings growth was 28.8% year-over-year.[8] This was the highest earnings growth rate for the index since the fourth quarter of 2021.[9] Technology remained the largest contributor, accounting for 54.8% of year-over-year EPS growth.[10] Strong earnings have helped offset valuation pressure from higher rates.
The earnings story is still technology-led, but breadth has improved beneath the index. The median stock in the broad Russell 3000 index is seeing its strongest EPS growth in four years. The improvement is also showing up in more cyclical areas, with better revisions and stronger indicators across capital goods, transportation, and industrial demand.[11] If this broadening continues, U.S. equity returns can become less dependent on the largest AI leaders even if valuation expansion is more limited.
The U.S. consumer supports the expansion, though the aggregate data hide a more uneven picture. Real consumer spending slowed year-to-date, with real consumption tracking a 1.2% annualized pace in the first half versus 2.1% last year.[12] Services spending has slowed, while the categories that accelerated were concentrated in durable goods and skewed toward higher-income consumers. The top 20% income cohort accounts for roughly 40% of total spending and an even larger share of durable goods purchases, which helps explain why consumption can hold up while lower- and middle-income households face more pressure.[13] This is a K-shaped consumer profile, not a uniformly strong one.
Within equities, AI exposure has started to separate between companies valued primarily on the AI narrative and companies tied to the physical buildout. Software and chip-design businesses can still benefit, but they are more exposed to valuation pressure and questions around return on investment. The physical layer of the AI buildout is tied to multi-year deployment requirements.[14] AI exposure should not be defined only by the largest software and semiconductor beneficiaries. The buildout also creates demand for the infrastructure, power, and industrial capacity required to support it. This is why utilities, energy, electrical equipment, and select capital goods businesses deserve more attention. These areas offer a different expression of the AI theme than owning only the largest direct beneficiaries, and they may help broaden participation if capital spending remains strong.
Valuation is the main risk in U.S. equities. Semiconductor valuations are near post-tech-bubble highs on some measures.[15] The broader market does not appear to be in a classic late-1990s-style bubble because earnings support is much stronger, but speculative excess exists in parts of AI and momentum-driven leadership.[16] The implication is discipline rather than retreat.
The U.S. equity conclusion is constructive, but selective. We favor earnings durability, free cash flow visibility, pricing power, balance-sheet strength, infrastructure beneficiaries, and select cyclicals. We would be more cautious on stocks where the valuation case depends heavily on lower rates or AI enthusiasm without clear earnings conversion.
TABLE 2 – S&P 500 SECTOR RETURNS (As of June 30, 2026)
Source: FactSet financial data and analytics
International Equities – Developed Markets & Emerging Markets
International equities can be attractive, but they should not be treated as one broad trade. Regional dispersion is high, and performance should depend more on country fundamentals, policy paths, currency movements, and sector composition than broad non-U.S. market exposure.[17]
Developed Markets
Europe gets the clearest near-term benefit from lower oil prices because energy costs feed more directly into inflation, margins, and household purchasing power.[18] This is an improvement from earlier in the year, when energy-import dependence left the region more exposed to the Middle East shock.[19] However, Europe still faces weaker structural growth, manufacturing softness, political fragmentation, and ECB policy constraints.[20] That argues for a selective approach in Europe. Equity breadth has improved only gradually, and global investors have not meaningfully added to European equity exposure despite the improvement in energy risk.[21] Select areas can work, including semiconductors, mining, banks, and companies that benefit from fiscal or defense spending. The broader market still lacks the same earnings resilience and AI-linked capital spending exposure as the U.S.[22]
Japan is one of the more attractive developed-market opportunities. Corporate reform, wage growth, a more normal inflation regime, better shareholder returns, and domestic institutional reallocation support the market.[23] Lower energy costs should be helpful for households and companies, while the broader wage and inflation backdrop still supports the Japan thesis.[24] The main Japan risks are yen weakness, faster Bank of Japan normalization, and fiscal sustainability.[25]
Emerging Markets
China is an important macro variable, but it is not the centerpiece of our emerging markets view. China benefits from export strength, technology self-sufficiency efforts, and state-led investment.[26] Lower oil prices help through lower input costs and reduced disruption risk, but the U.S.-Iran memorandum is not a major relative catalyst because other energy-importing regions and emerging markets may benefit more.[27] Property weakness, soft domestic demand, demographic pressure, and deflation risk are also still constraints.[28]
The broader EM case is more diversified than a simple China recovery or weak-dollar thesis. EM equities are supported by earnings revisions, attractive relative valuations, AI supply-chain exposure, commodity demand, and potential U.S. dollar weakness. Taiwan and South Korea are central to the AI supply chain, while Brazil and other commodity producers benefit from demand for power, copper, lithium, energy, and raw materials.[29] Capital-intensive EM businesses are also becoming more relevant, particularly in utilities, energy, transportation, materials, hardware, semiconductors, and capital goods.[30]
That said, EM exposure is not automatically true diversification. Technology now represents 37% of the MSCI EM Index, and Taiwan and South Korea are highly concentrated in a few semiconductor companies.[31] EM can broaden geographic exposure while still leaving investors exposed to the same AI and semiconductor factor driving developed-market leadership. We are constructive, but country, sector, currency, and index concentration all matter.
Interest Rates & Central Banks
Central banks entered the year with inflation moving in the right direction, but the path today has become less straightforward. Lower oil prices reduce near-term pressure, but they do not eliminate the underlying inflation problem. Tariffs, fiscal spending, housing lags, labor constraints, and AI-related demand for power, equipment, and skilled labor all argue against a quick return to the prior decade’s inflation regime. Inflation also has a behavioral component. Companies and workers that have lived through repeated price increases may respond more quickly to new cost pressure.[32] We expect inflation to stay above target for longer than markets would prefer, which gives central banks less room to ease.
In the U.S., the June FOMC held the fed funds range at 3.50% to 3.75%. The meeting had a hawkish tone because the Fed emphasized solid growth, productivity, capital investment, and price stability.[33] We believe the Fed’s tolerance for inflation misses appears lower than under the prior regime, even if the dual mandate remains intact.
The rate decision was less important than the communication shift. New Fed Chair Warsh delivered a materially shorter statement, removed much of the prior forward guidance, and announced task forces on Fed communication, the balance sheet, data reliance, productivity and jobs, and inflation frameworks.[34] The shift away from forward guidance cuts both ways. It may improve market discipline by forcing investors to focus more on incoming data. It may also increase volatility because markets will have fewer Fed signals to anchor assumptions about future policy.[35] We would describe this as a less market-friendly communication regime, even if policy itself does not become materially tighter.
For investors, the practical issue is long-term interest rates. Fiscal deficits, Treasury issuance, AI-related corporate borrowing, and persistent inflation can all keep upward pressure on long-term yields. Higher rates are manageable when they reflect stronger growth and earnings, but they become more problematic when they reflect inflation or fiscal pressure.[36] This argues against building an investment view around rapid rate cuts or a large duration rally.
Outside the U.S., policy divergence still matters. Lower oil prices reduce the need for more aggressive ECB tightening, but the ECB still has to monitor inflation.[37] Europe and the U.K. have more room for lower rates than the U.S. because growth is weaker, but that does not remove the inflation constraint. Japan is on a normalization path, meaning the Bank of Japan is gradually moving away from ultra-easy policy as wages and inflation firm. Yen weakness matters because it raises import costs and can add pressure on the Bank of Japan to move faster. Fiscal policy matters because higher government borrowing can affect the supply of Japanese government bonds and the level of long-term yields.
Currency
We are less constructive on the U.S. dollar. The dollar can hold up during periods of rate volatility or geopolitical stress, but a sustained rally looks less compelling. Fiscal deficits, gradual diversification by global reserve managers, reduced policy divergence, and valuation concerns around U.S. assets all limit upside. The dollar’s reserve-currency role is intact, but that does not prevent cyclical weakness.
A modest cyclical dollar decline is reasonable if oil risk continues to fade, global risk appetite improves, and the Fed does not move into a sustained hiking cycle.[38] The Middle East de-escalation also weakens one source of safe-haven dollar demand and could support risk-sensitive currencies if global risk appetite continues to improve.
U.S. equity outperformance does not automatically require a stronger dollar. The swing factor is rate differentials, or the gap between U.S. interest rates and interest rates overseas. When U.S. rates are rising relative to the rest of the world, global capital has more incentive to move into dollar assets. If the Fed stays closer to hold than hike while other regions stabilize, the dollar can weaken even if U.S. equities continue to lead.[39] The main risk to the weaker-dollar view is a more hawkish Fed.
Fixed Income and Real Assets
Fixed income offers income, but we would not rely on falling rates as the main return driver. For bond investors, returns can come from the yield earned over time or from price gains when interest rates fall. We think the yield component is more dependable than assuming a large rate decline. Credit fundamentals are reasonable because earnings are still strong and demand for income is healthy. Spreads are tight, issuance is heavy, and dispersion is increasing, which argues for careful credit selection rather than broad risk-taking.[40]
The AI buildout is increasingly a credit-market issue as well as an equity-market theme. Data-center and infrastructure spending require substantial financing across investment-grade bonds, loans, private credit, and other funding channels. This supports growth, but it also brings more borrowing and underwriting complexity because lenders must evaluate construction risk, tenant quality, power access, lease terms, and whether projected cash flows justify the capital structure.[41]
Private credit belongs in the same discussion because it is one of the funding channels likely to finance parts of the data-center and infrastructure buildout. The concern is that private credit has grown quickly, and much of that lending now sits with weaker borrowers and harder to sell loans. The evidence does not suggest a systemwide problem, but these risks still matter. Defaults are expected to be more concentrated in software-heavy direct lending and weaker leveraged structures.[42] The risk appears more concentrated for now, but weaker borrowers make underwriting quality more important.
Real assets deserve a role in this environment too. Inflation variability, fiscal pressure, geopolitical risk, and infrastructure demand support exposure beyond stocks and bonds. This is especially relevant in a higher-inflation environment where assets tied to nominal growth, infrastructure, commodities, and physical capacity can provide useful diversification. AI strengthens this case because the buildout requires capacity and financing, not just software and chips.
Gold also has a useful diversifying function, but for different reasons than equities or income-producing real assets. Central bank demand, reserve diversification, fiscal pressure, and potential dollar weakness support the case. Gold does not generate income, so it becomes less attractive when investors can earn higher real yields on cash or bonds. That means it can be volatile when the Fed is hawkish or real rates move higher. We still view it as a strategic diversifier because it can help when confidence in currencies, fiscal policy, or traditional hedges weakens.
Outlook & Portfolio Positioning
Our view remains constructive, but not complacent. Global growth is still positive, earnings are holding up, and AI-related capital spending remains an important source of demand across regions and asset classes. However, returns are likely to depend less on broad valuation expansion and more on earnings growth and valuation discipline. That argues for staying invested, but with greater attention to where investors are being paid to take risk.
Within equities, we continue to see the strongest case for the U.S. because of earnings resilience, AI leadership, stronger margins, and balance-sheet quality. We also see opportunities outside the U.S., particularly in Japan and select emerging markets, but regional exposure should be built carefully. Japan is supported by corporate reform, wage growth, and a more normal inflation regime. Emerging markets offer exposure to AI supply chains, commodity demand, improved terms of trade, and potential U.S. dollar weakness, but cap-weighted EM indices also carry meaningful semiconductor concentration. Europe can benefit from lower energy prices, but weaker structural growth and policy constraints argue for a more selective approach.
In fixed income and credit, income remains attractive, but we would not rely on a large decline in rates as the main return driver. Long-term yields could stay under pressure from fiscal deficits, Treasury issuance, AI-related corporate borrowing, and inflation that remains above the prior decade’s norm. Credit fundamentals are still reasonable, but spreads are tight, issuance is heavy, and dispersion is increasing.[43]
Real assets and gold should continue to play a useful diversifying role. Infrastructure, utilities, power, electrical equipment, select real estate, commodities, and gold all have a place in a regime where inflation variability is higher and the AI buildout requires more physical capacity. Gold does not produce income and can be volatile when real yields rise, but central bank demand, reserve diversification, fiscal pressure, and potential dollar weakness support its role as a strategic diversifier.
The main risks are inflation persistence, a less predictable Fed communication regime, long-term rate volatility, AI capex execution, private credit stress, consumer weakness, and market structure fragility. These risks do not require a defensive stance, but they do require more discipline around valuation, cash flow quality, balance-sheet strength, diversification, and careful credit selection. A renewed energy shock, a disorderly move higher in long-term rates, a material deterioration in credit conditions, or clear evidence that AI capex returns are falling short would argue for a more defensive view. Until then, the better approach is to stay invested, stay diversified, and be selective about where investors are being paid to take risk.