North American equity markets have continued to post strong gains thanks to robust corporate earnings, resilient consumer spending and continued technology investments. REUTERS/Brendan McDermid/File PhotoBrendan McDermid/Reuters
The first half of 2026 offered no shortage of challenges for financial markets, including the conflict between the United States and Iran, surging oil prices, persistent inflation concerns and ongoing questions about the sustainability of spending on artificial intelligence (AI).
Despite the uncertainty stemming from these factors, North American equity markets have continued to post strong gains thanks to robust corporate earnings, resilient consumer spending and continued investments into technology stocks.
Although financial professionals say the second half of the year could remain challenging and warn that elevated expectations leave little room for disappointment, they also see opportunities for investors who remain selective.
Protecting gains becomes the priority
For Craig Basinger, chief market strategist at Purpose Investments Inc., one of the biggest risks is where the market is at in the economic cycle.
He also points to several hallmarks of a mature bull market, including strong returns, persistent inflation and heavy enthusiasm surrounding a transformative technology.
“We have this technology that’s going to change the world and, again, that’s typically something you get in late-cycle environments,” he says.
Although Mr. Basinger says the economy has remained remarkably resilient, supported by healthy consumers and continued technology spending, he believes investors should shift their focus from chasing returns to preserving them.
“The opportunity in the back half, as boring as it sounds, is making sure you’re going to hold on to what you have and what you’ve already made as opposed to chasing rainbows,” he says.
He also warns that AI-related companies have become so influential that even a modest pullback could ripple through broader markets.
During the dot-com era of the late 1990s and early 2000s, the largest internet companies accounted for around 14 per cent of the S&P 500, he notes.
Today, the market is even more concentrated, with the Magnificent Seven tech stocks accounting for roughly one-third of the large-cap S&P 500.
“Even if it just wobbles, because of the size of these companies and their weightings in the index, it just becomes a math problem,” he says.
Sticky inflation remains a concern
Hadiza Djataou, managing director, head of macro and global fixed income portfolio manager at Mackenzie Investments, says investors may be underestimating inflation as one of the market’s biggest risks.
Markets are currently pricing inflation to return close to central bank targets over the next two years, she says, but underlying price pressures in the U.S. remain more persistent than many investors appreciate.
“The concerning factor about inflation in the U.S. is that it’s broad-based,” Ms. Djataou says. “It’s coming from core services.”
That could complicate the U.S. Federal Reserve Board’s potential path on interest rates and create volatility across several asset classes if inflation proves stickier than expected. It could also force investors to rethink expectations for interest rate cuts over the coming year.
Even so, she sees opportunities in areas that could benefit if inflation remains elevated.
“One is U.S. inflation-linked bonds,” Ms. Djataou says, noting they currently offer some of the most attractive real yields in almost two decades while still providing protection if inflation remains higher for longer.
She also favours long-term Canadian government bonds, arguing Canada’s weaker economic backdrop gives the Bank of Canada more room to remain patient on interest rates.
Beyond fixed income, Ms. Djataou says emerging markets could benefit from continued demand for commodities tied to AI infrastructure and data centres.
Looking beyond the AI winners
Michael Greenberg, head of Americas portfolio management at Franklin Templeton Investment Solutions, says AI remains both the market’s greatest opportunity and its greatest risk.
He adds that investors have rewarded companies expected to benefit most from the technology, leaving valuations high and expectations even higher.
“If that doesn’t come through, then there’s room for stocks to fall,” he says.
Because so much household wealth is now tied to equity markets, particularly large U.S. technology companies, any disappointment could weigh not only on markets but also on consumer spending through a negative wealth effect, he adds.
“We’re fairly early in the capital expenditure cycle for AI,” he says. “Looking for opportunities for those companies that maybe aren’t building AI, but ... use it to improve their own productivity.”