Want to hear Altair’s analysis of the markets, but lack the time to read all of Altair Insight? Watch our video summary of the report and get caught up on our market review in 3 minutes.
EARNINGS CONTINUE TO DRIVE STOCK PERFORMANCE
The AI boom is providing a tailwind for stocks, a big part of that push coming in the form of accelerating revenue and earnings.
For the second quarter, S&P 500 earnings growth is estimated to be nearly 25 percent above the same quarter in 2025. Earnings growth for small-cap stocks is expected to be closer to 50 percent year over year.
So far, the actuals are beating the estimates – of the S&P 500 companies that have already reported their results, more than 80 percent have reported higher-than-expected earnings and-or revenue.
And looking ahead, the earnings growth story does not fade – for the final two quarters of 2026, the growth estimates are 25 percent-plus.
AI HAS TURNED TECHNOLOGY INTO A VALUE STORY
Large-cap value stocks have had a much better year than growth stocks, and somewhat counterintuitively, a lot of the reason is related to AI.
A number of semiconductor, memory and data storage companies in the value index rose 200 percent or more in the first half of the year because of AI data center demand. Some of them rose that much or more in 2025.
This performance created a challenge for disciplined value managers, who seek underpriced stocks. Those who did not own these high-flying companies were certain to underperform.
We expect our recommended managers to stay true to their investment process, which means not adding unacceptable portfolio risk by chasing today’s high performers.
INFLATION IS UP BUT WE SEE NO NEED TO RAISE RATES
Inflation’s peak so far this year is 4.2 percent in May as higher energy prices rippled through the economy.
June’s rate was 3.5 percent as oil dropped, but we expect July to head up again given oil’s rise due to recent Middle East fighting.
The market expects the Federal Reserve to raise interest rates later this year to try to slow inflation down. But we think the Fed will keep rates steady.
We believe the current fighting in Iran will not escalate and that oil will trend back down. This would ease pressure on Fed Chair Warsh and other members of the Fed’s rate-setting committee to impose hikes.
OUR OUTLOOK
We believe both the U.S. and Iran have more economic and political reasons to settle their differences via negotiations than to keep fighting. A peace deal will lead to a more predictable flow of oil and bring down inflation. Earnings growth will continue to drive stock performance, while consumer spending and the AI buildout will support economic growth amidst geopolitical uncertainties.
______________________________________________________________________
The material shown is for informational purposes only and should not be construed as accounting, legal, or tax advice. Although we made efforts to verify the accuracy of the information, Altair Advisers cannot guarantee its accuracy. Please see Altair Advisers’ Form ADV Part 2A and Form CRS at https://altairadvisers.com/disclosures/ for additional information about Altair Advisers’ business practices and conflicts identified.