July 2026 · Highlights from LPL Research's Midyear Outlook
The following is a summary of LPL Research's Midyear Outlook 2026, prepared for our clients. The full report is available from our team on request.
LPL Research's central message for the second half of 2026: policy — geopolitical and domestic — remains the primary driver of capital markets. U.S. midterm elections and the transition to Kevin Warsh as the new Federal Reserve chair are the key variables to watch, while strength in corporate earnings has led LPL to raise its 2026 return expectations for equities. Some froth around AI expectations and market concentration warrants caution, but the earnings wave could persist.
1. Midterm elections. LPL's base case is a split Congress — fewer large legislative changes, more volatility around government funding and the debt ceiling, and policy momentum shifting toward the executive branch. Historical precedent says midterm years make for a bumpy ride, but investors should be ready to lean into dip-buying opportunities once election uncertainty clears.
2. Resource nationalism. Geopolitics is steering capital toward commodities and real assets and reshaping supply chains — a structural tailwind worth watching in portfolios.
3. AI matures. The story is shifting from spending boom to return on investment. Focus moves from the buildout itself to the beneficiaries — and staying diversified between the AI theme and potential rotation beneficiaries could be critical.
4. A new Fed chair. With inflation still elevated and geopolitics tense, the incoming chair has little margin for error, adding uncertainty to the monetary policy path.
Economy. Growth moderates but stays positive, anchored by AI-driven business investment offsetting weakness in housing and rate-sensitive sectors. Inflation is expected to move toward 2.9% by year-end; unemployment may edge up to about 4.6%, with consumer demand supported by elevated household net worth.
Stocks. Modest gains expected in the second half. LPL maintains a moderate equity overweight, supported by AI-driven earnings strength — with pullback risk tied to the Middle East and the pace of AI monetization.
Bonds & cash. Sticky inflation likely keeps the Fed on an extended pause, with the 10-year Treasury yield expected to finish the year between 4.00% and 4.50%. Returns should be driven primarily by income; LPL favors core bond sectors over lower-quality sectors and suggests extending cash maturities slightly to capture still-elevated yields.
Portfolios. A modest preference for equities over fixed income, balance across global stock markets, and allocations to alternatives to enhance portfolio resilience — positioning that can adapt when policy shifts turn markets quickly.
For our clients, the theme is familiar: a well-built plan doesn't depend on getting elections or Fed transitions right. We're keeping portfolios balanced between the AI leadership trade and its potential rotation beneficiaries, holding core bonds for income, and treating any election-season volatility as an opportunity rather than a threat. If you'd like to discuss how this outlook applies to your plan, schedule a time with us.
Source: LPL Research, Midyear Outlook 2026. This material is for general information only and is not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. Investing involves risk including loss of principal. No strategy assures success or protects against loss. [Insert LPL tracking number per compliance review.]