Midyear Outlook
MIDYEAR OUTLOOK · 2026
Policy, Buildouts, & Bottlenecks: What the Second Half May Bring
Based on LPL Research's Midyear Outlook 2026, published July 7, 2026 · Prepared for Sterling Financial Management clients
We're at the midpoint of 2026, and it's been an eventful six months — a new Federal Reserve Chair, an escalation and partial resolution of the Iran conflict, and an AI investment boom that shows no signs of slowing. LPL Research's newly released Midyear Outlook takes stock of it all and lays out what their team expects for the second half. Below, we've pulled out the pieces most relevant to your portfolio, along with a few visuals to help make sense of where things stand.
The Economy: Growth Holds, But Slows
LPL Research's base case calls for the economy to keep growing through the second half of 2026, though at a pace below 2%. The main support is business investment tied to the AI buildout — data centers, chips, and related infrastructure — which is expected to help offset a housing market still weighed down by higher borrowing costs. If tensions in the Middle East continue to ease, the research team believes inflation could drift down toward 2.9% by year-end, even as unemployment ticks up modestly to around 4.6%. That's a higher number than we've seen in a couple of years, but still low by historical standards.
Source: LPL Research, Midyear Outlook 2026. Illustrative scale, not to precise measure. Forecasts may not develop as predicted.
Stocks: A Higher Bar, But Room to Climb
Earnings, not rising valuations, have driven this year's stock market gains — and LPL Research expects that to continue. The team's year-end fair value target for the S&P 500 is 7,650–7,750, built on projected earnings of $350 per share in 2027. They maintain a moderate overweight to equities, with AI-driven earnings growth and an improving economic backdrop as the key supports. The flip side: developments in the Middle East and growing scrutiny of AI spending and its payoff could still drive periodic pullbacks along the way.
Source: LPL Research, Midyear Outlook 2026, based on a 22x P/E and $350 in 2027 EPS. Estimates may not materialize as predicted and are subject to change.
Bonds: Higher for Longer
The handoff from Jerome Powell to new Fed Chair Kevin Warsh marked a real shift in tone, and LPL Research believes Warsh will have little room for error given still-sticky inflation and geopolitical noise in energy markets. Their base case is an extended Fed pause, with at most one rate cut this year, likely in December. That points to Treasury yields staying range-bound, with the 10-year finishing the year between 4.00% and 4.50%. With limited room for prices to rally further, the team believes returns will mostly come from income rather than appreciation — favoring core bond sectors and TIPS over nominal Treasuries.
Sector Positioning
Within equities, LPL Research recommends a somewhat more selective stance given how far AI-related names have already run. Energy and Industrials are favored — energy as a hedge against continued oil supply disruptions, industrials as a less-crowded way to participate in the AI buildout. Consumer Discretionary remains a high-conviction underweight as sticky inflation and elevated oil prices pressure household budgets. Technology, despite continued strong earnings, was downgraded from overweight to neutral in June as investor positioning became crowded.
Source: LPL Research STAAC, Midyear Outlook 2026 (as of 7/1/26). Sector views are subject to change without notice.
Commodities & the Dollar
Commodity markets spent the first half of 2026 absorbing a real supply shock: the Iran conflict and closure of the Strait of Hormuz removed a meaningful share of global oil supply and briefly sent crude above $120 a barrel. LPL Research expects oil volatility to stay elevated as inventories remain tight and supply recovers only gradually. Gold's near-term technicals have weakened, but the team still views its longer-term fundamentals favorably given central bank demand and ongoing dollar-reserve diversification. Industrial metals look better positioned, benefiting from infrastructure spending and AI related demand. The dollar remains range-bound for now, but LPL Research believes its longer-term uptrend is still intact.
Four Themes We're Watching for the Second Half
