By LPL Research
In our 2026 Outlook: The Policy Engine, we spent considerable time talking about how policy is increasingly a driver of capital markets. The Iran conflict, and the resulting market disjoint, certainly served as another example of how policy, geopolitical or otherwise, should be top of mind when investors consider portfolio construction and risk management.
So, what now? The simple answer is we expect more of the same. Policy again will be front and center as we turn our attention to U.S. midterm elections, and the uncertainty surrounding Kevin Warsh as the new chair of the Federal Reserve (Fed). Mr. Warsh’s ability to influence his colleagues, and questions around congressional balance of power in midterm elections, should be key items that help shape the second half of 2026.
This doesn’t mean we have lost focus on artificial intelligence (AI) and the definitive upside trend we have seen in corporate earnings. That is indeed part of our calculus as well. As a matter of fact, strength in earnings is a key reason we have added to our 2026 return expectations for equities. While some frothiness around AI expectations and market concentration do leave us a bit concerned, the wave of earnings growth we have seen could persist, adding degrees of comfort to our forecast.
Internationally, we are less sanguine, as European economies have again fallen behind, and emerging markets may continue to be hit-ormiss in aggregate. Simply stated, while our bias for U.S. equity exposure remains, the variance between the U.S. and the rest of the world may not be as pronounced as in years past. All these items should be major variables of focus for the balance of the year. But the key question is: How should investors position themselves to optimize investment opportunities? The answer is grounded in the expectation that we believe equity markets should indeed be constructive in the second half, yet historical precedent also tells us that midterm election years make for a bumpy investment ride. Keep the latter point in mind.
To that end, bonds should remain a steadfast allocation, while market conditions persistently point to increased needs for alternative exposure, in our view. Being well-balanced is key, but it is perhaps most important when policy shifts can cause the market to turn on a dime.
Finally, we invite you to sit back and take in this latest version of our Midyear Outlook. We have highlighted key themes we believe will drive markets in the short and intermediate term, and we hope the piece is informative and thought-provoking. As always, we also invite you to lean on us at LPL Research for your capital market guidance. We indeed take your trust in us seriously and endeavor to direct our tools, resources, and experience in a manner tha
To explore these themes and how they may impact portfolios, read the full 2026 Midyear Outlook.
Link for distilled, jargon-free insights: go.lpl.com/investormidyearoutlook
Link for full report, including deep analysis: go.lpl.com/midyearoutlook
IMPORTANT DISCLOSURES
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. The economic forecasts may not develop as predicted. Please read the full 2026 Midyear Outlook: Policy, Buildouts, & Bottlenecks for additional description and disclosure. This research material has been prepared by LPL Financial LLC.
Tracking #1122742 / LPLE #1122743 (Exp. 07/27)