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AllianceBernstein Investment Management released its "2026 Second-Half Global Capital Markets Outlook" report Friday, forecasting that corporate earnings meeting elevated market expectations will be the defining variable for global equity markets in the second half of the year.
The firm outlined three principles for second-half equity investment strategy: selective investment focused on high-quality companies, identifying diverse growth drivers including AI, and proactive volatility management.
The report projected that earnings per share for S&P 500 companies will sustain double-digit growth both this year and next year, as expectations for expanding AI infrastructure investment and profitability become priced into markets. In the second half, actual corporate earnings — rather than AI investment expectations — will determine share prices. Companies that miss earnings estimates or face unexpected headwinds could see heightened share price volatility.
By sector, the report highlighted semiconductors as a primary beneficiary of growing AI investment. On hyperscalers continuing large-scale AI capital expenditure, it cautioned that "a more careful approach is warranted, as free cash flow is expected to turn negative starting next year."
Alphabet, in fact, posted negative free cash flow of $5.9 billion in the second quarter of this year. Concerns about investment sustainability are also growing, as capital expenditure growth among the five major hyperscalers next year is expected to outpace growth in operating cash flow.
The report said selecting companies with sustainable profit-generating capacity matters more than the scale of AI investment.
It also advised that, given the emergence of diverse growth themes centered on AI, investors would be better served by diversifying across styles and regions rather than concentrating on any single theme. Investors should also consider companies and portfolios with relatively low volatility as part of active risk management, the firm added.
On the macroeconomic environment, the report forecast that the US economy will continue on a path of moderate growth without a recession. With both inflation and labor market overheating risks remaining limited, the Federal Reserve is expected to hold its benchmark interest rate steady without further rate hikes.
"In the second half, actual profit-generating capacity will matter more than expectations around AI in determining corporate value," said Lee Jae-wook, a senior portfolio manager at AB Investment Management. "Balancing investment across AI and diverse growth industries with a focus on high-quality companies, while broadening the investment scope across regions and sectors to manage volatility, will be the key to stable investment performance," he added.
moon@heraldcorp.com
