Trending
Advisors and clients alike are apt to concur that the first half of 2026 was more eventful than they were bargaining for at the start of the year.
A quick, admittedly far from comprehensive rundown of what market participants are contending with this year: A sluggish job market, rotation out of the artificial intelligence trade, conflict in the Middle East, sticky inflation – due in large part to the war in Iran – and a Federal Reserve that can’t cut rates and may be forced to raise them due to that inflation.
Yet even with those headwinds, the largest S&P 500 ETF is up nearly 10% year-to-date while the largest aggregate bond ETF is sporting a modest gain. Most clients and retail investors would be happy with those percentages and be looking forward to what’s in store in the back half of this year. However, the aforementioned headwinds haven’t dissipated.
If anything, the specter of the war and AI-related market issues loom as large as ever. With that in mind, let’s examine the issues the pros are eyeballing in the second half and how advisors can keep clients on an even keel during tumultuous times.
AI in the Spotlight
A new survey of Natixis Investment Managers economists, market strategists, portfolio managers and research analysts indicates 91% believe AI “will be the key factor driving market performance in second half of 2026” with 88% seeing the AI trade accelerating while just 12% see the AI investment theme as a bubble on the cusp of bursting.
“However, despite optimism, Natixis strategists are still cautious on AI given the disruptive nature of the technology, as 79% believe volatility driven by AI fears is here to stay and could potentially spread across multiple industries,” according to the study. “Concentration risk is also a worry, as 85% rank it as a medium or high risk in the second half of the year, due to only six or seven AI companies driving a disproportionate level of market returns.”
The issue of concentration risk is a legitimate concern. The S&P 500 allocates nearly 37% of its weight to tech stocks and another 10% to communication services – a sector with some prominent AI-related names. All of the index’s top 10 holdings have some AI exposure in some form or fashion.
Fortunately, there is evidence of resurgence among non-tech sectors, including those with little vulnerability to AI disruption. For example, major financial services and healthcare ETFs are currently flirting with 52-week highs and interest in defense stocks remains high.
“The defense sector has benefited from recent geopolitical uncertainties, as a result, seven in ten strategists (70%) believe the sector is poised for sustained tailwinds stemming from the U.S.-Iran conflict,” adds Natixis. “Overall, 52% think defense stocks will benefit from increased spending globally, only slightly down from the same question last year which saw 59% having the same view on the sector.”
Inflation, War Still Top of Mind
As the June reading of the Consumer Price Index (CPI) confirms, the war in Iran and inflation are joined at the hip. Clients understand that and that explains why the conflict remains a preeminent issue for them and for professional investors.
“Nearly eight in ten strategists (79%) warn of a renewed energy crisis in the second half of the year, given the potential threat of the shipping lane closing again. Looking further ahead, the consequences may not all be negative,” says Natixis. “Over two-thirds (67%) believe the war will ultimately serve as a catalyst for increased investment in renewable energy and they do not expect energy prices to revisit the extremes seen earlier in the year. More than eight in ten (82%) believe oil prices have already peaked, and none expect prices to return to the lows seen at the start of the year.”
Bottom line: War in Iran wasn’t on clients’ 2026 bingo cards so clear and final resolution to it would go a long way toward calming second half jitters. Getting there is a different ballgame.
Related: The $1.2 Million Retirement Wake-Up Call: What Every Financial Advisor Should Know