More Moving Parts Than Usual: A Mid-2026 Market Perspective

by Stuart Strasner of Defiant Capital Group, 6/26/26

Halfway through 2026, this market perspective is harder to write with confidence than most. That’s not a phrase I use lightly. Over four decades of markets, there have been plenty of uncertain moments, but the number of significant, unresolved issues I’m watching right now is unusually high.

Near-Term Factors

The Fed’s Quiet Shift

The Federal Reserve has moved into what I’d call stealth tightening mode, or more precisely, quantitative tightening without the headline-grabbing rate hikes. Rather than raising rates outright, it’s tapering its securities purchases, a quieter but still meaningful withdrawal of liquidity from both equity and bond markets.

Adding to the complexity, I expect the Fed’s newly formed task forces to eventually introduce updated inflation metrics that (surprise, surprise) are likely to show lower inflation than current measures. Whether that reflects reality or convenience remains to be seen.

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Cracks in the AI Investment Story

The AI trade that has driven so much of the market’s optimism is showing early signs of strain. Broadcom, one of the largest semiconductor manufacturers, recently noted that major hyperscalers like Amazon, Microsoft, and Meta are “pacing deployments and evaluating ROI.” Translated: companies are concerned that margins may be compressing, and as a result, usage is being capped.

The underlying issue is structural. US firms have built AI models that are large, expensive, and designed for enterprise-scale applications, but most real-world demand appears to favor smaller, cheaper solutions. Chinese AI models are increasingly filling that gap (although within US infrastructure their use remains restricted). This doesn’t mean the AI opportunity is gone, but it does mean the runway to profitability is longer and bumpier than the market has been pricing in.

The Longer-Term Headwinds

Stepping back, the structural outlook raises harder questions. Economic growth is fundamentally driven by three inputs: labor force growth, capital deployment, and the productivity of that capital. On the first, immigration policy changes over the past year are meaningfully shrinking the US workforce, which is a genuine long-term headwind. On the third, if AI fails to deliver the productivity gains many are counting on, it will be difficult for the economy to grow fast enough to service the ever-expanding interest burden on Treasury debt.