During this time of year, we like to take stock of what happened in the first half of the year and compare it with the expectations we had at the beginning of the year when we published our full-year outlooks.
There were a few things none of us saw coming: the Iran war, the effective closing of the Strait of Hormuz, and the impact those things have had on energy prices.
But there were other things that we did see coming, like the ongoing expansion of capital spending (capex) in artificial intelligence (AI) and the buildout of related infrastructure, which drove stocks on both the domestic and global fronts.
Read more: Washington: What to Watch Now
Then there are things making up a more complicated picture for the markets and economy—concentrated earnings growth, record household equity exposure, consumer sentiment at historic lows, a bond market that's increasingly competitive with equities on a risk-adjusted basis, and a new Federal Reserve chair.
Take a deeper dive into insights and highlights from our mid-year outlooks:
Fixed income: Opportunities emerge, risks remain
- Going into the second half of 2026, inflation remains sticky and the Fed appears likely to stay patient. Along with fiscal concerns, rising global bond yields, elevated term premiums, and oil prices, those factors could keep upward pressure on long-term Treasury yields. Income still matters for bond investors in the second half of the year, but investors should be selective. We currently suggest investors favor below-benchmark average duration in their bond holdings, although that view could change if growth weakens materially or long-term yields rise enough to improve entry points.
- The three areas of the fixed income market where we currently see opportunities are investment grade corporate bonds, high-yield bonds, and preferred securities, though each comes with risks.
- The risks in the three areas of opportunities are that corporate bond spreads are low relative to Treasuries, high-yield bonds are more sensitive to changes in economic outlook and investor sentiment, and preferreds are more volatile than corporate bonds.
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Fixed income securities are subject to increased loss of principal during periods of rising interest rates. Fixed income investments are subject to various other risks including changes in credit quality, market valuations, liquidity, prepayments, early redemption, corporate events, tax ramifications, and other factors. Lower rated securities are subject to greater credit risk, default risk, and liquidity risk.
Preferred securities are a type of hybrid investment that share characteristics of both stock and bonds. They are often callable, meaning the issuing company may redeem the security at a certain price after a certain date. Such call features, and the timing of a call, may affect the security's yield. Preferred securities generally have lower credit ratings and a lower claim to assets than the issuer's individual bonds. Like bonds, prices of preferred securities tend to move inversely with interest rates, so their prices may fall during periods of rising interest rates. Investment value will fluctuate, and preferred securities, when sold before maturity, may be worth more or less than original cost. Preferred securities are subject to various other risks including changes in interest rates and credit quality, default risks, market valuations, liquidity, prepayments, early redemption, deferral risk, corporate events, tax ramifications, and other factors.
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