Market Outlook: 10 investing questions for the rest of 2026…in 10 minutes
In a Nutshell
The AI opportunity remains strong, but volatility and crowded positioning mean investors should size semiconductor exposure carefully while seeking diversification through quality, dividend, and non-AI stocks. With both equities and corporate credit now driven by the same AI theme, traditional stock-bond diversification is weakening, so portfolios need genuinely different return sources such as securitized credit, alternatives, or short-term Treasuries. Selectivity and disciplined risk-taking matter more than reacting to headlines.
These notes were generated by AI and may contain inaccuracies.
There's a lot for investors to process right now. AI volatility, rates, politics, international markets, changing bond markets, and even what diversification means in an AI-driven economy. So, let's simplify it. Here are 10 of the biggest questions we're hearing from investors right now.
This was a bit of an extraordinary summer. In June and July, semiconductor stocks had a daily move greater than 5% up or down on roughly one-third of trading days. Over the prior 10 years, that happened on only about 3% of trading days. But the important distinction is volatility versus fundamentals. Earnings expectations across AI and semiconductors continue to improve even as leverage, crowded positioning, and profit taking amplified market moves.
The takeaway, the long-term AI opportunity can coexist with a bumpy ride, which makes sizing and diversification increasingly important for investors looking for targeted semiconductor exposure. SOCKS offers access to US-listed semiconductor companies through one ETF. And for access to the hyperscalers, IQQ offers broad exposure to some of the largest and most innovative companies across the AI ecosystem.
Our view is that the Fed has more reason to remain patient than to rush toward additional tightening. Inflation pressures have eased from earlier this year. While the labor market looks stable, if not particularly strong, but that doesn't necessarily mean the entire yield curve moves together. Longer-term rates could remain under pressure from resilient economic growth, heavy treasury issuance, and increasing competition for capital.
For portfolios, that makes where you take risk increasingly important. We currently prefer the front and intermediate portions of the Treasury curve. For investors looking for short-term Treasury exposures, ESV provides access to US Treasury bonds with remaining maturities of 3 months or less.
Political and geopolitical headlines can move markets quickly, but they don't always change the longer-term investment story. Election uncertainty, conflict in the Middle East, and disruptions to major energy corridors can all create bouts of volatility. But historically, as uncertainty around major events has cleared, markets have often refocused on fundamentals.
For portfolios, the key is separating a headline from a change in the underlying investment thesis. Reacting to every political development can make it harder to stay disciplined through normal market volatility. Headlines change quickly, but a long-term investment plan shouldn't have to. For investors looking to maintain broad US equity exposure, Quall focuses on US companies with quality characteristics such as strong profitability, lower leverage, and more consistent earnings.
AI remains our highest conviction theme within US equities and the AI opportunity may be getting broader. In the second quarter, earnings growth among AI infrastructure companies accelerated to 54% year-over-year versus 14% for the rest of the S&P 500, excluding AI infrastructure. This is because AI moved beyond model development and toward real world usage, which likely means continued demand for compute, networking, cloud capacity, and the infrastructure underneath it all.
For portfolios, we currently favor growth and strategies that can adapt as market leadership changes. For investors seeking active exposure across the AI technology stack, BAI invest across companies enabling, developing, and deploying AI from infrastructure through applications and services.
AI related stocks now represent nearly half of the US equity market. That means investors may have more exposure to one underlying theme than they realize. During the semiconductor selloff this summer, other parts of the market behaved very differently. Dividend paying and quality companies, for example, help provide a counterweight for portfolios. Diversification today may require looking not at what stocks you own, but at whether those companies actually have different earnings drivers, balance sheets, and sensitivities.
One way investors can explore that is Dgrow, which seeks to track US companies with a history of growing dividends and that have provided balance during AI sell-offs.
International markets may give investors more to consider. We continue to prefer emerging markets over developed international markets with some of the strongest opportunities in Asia. But importantly, international isn't one investment story. In South Korea and Taiwan, there's a semiconductor story. In China, there's advanced manufacturing and automation. India has a more domestically driven growth story. And in Japan, there's corporate reform and improving shareholder focus.
So for positioning, looking internationally can introduce different economic sector and earnings drivers that investors may get from a US-only allocation. And for investors seeking broad emerging markets exposure, IMG provides access to large, mid, and small cap companies across emerging economies in one ETF.
Fixed income looks very different today than it did during the ultra low rate era. But we think selectivity matters. Credit spreads remain tight. So rather than simply taking more credit risk, we favor an up in quality approach and parts of the bond market with different sources of income and risk. Securitized assets are one example. These markets include bonds backed by pools of assets such as mortgages and other contractual cash flows.
For portfolios, active management can be useful when different segments of the bond market offer very different combinations of risk and opportunity. One fund built specifically around that opportunity which seeks enhanced income is bank, which actively invests across a diversified portfolio of higher yielding bonds.
The AI boom has moved from being just a stock market story to a stock market and bond market story. Amazon, Microsoft, Alphabet, Meta, and Oracle issued approximately $200 billion of investment grade debt in the first half of 2026, almost double what they issued in all of 2025. Technology has also grown as a share of the investment grade bond market. While the correlation between technology stocks and investment grade bonds has risen sharply for portfolios. That means owning stocks and bonds may not automatically provide the same diversification investors expect if both increasingly share the same underlying driver.
That's one reason to look at differentiated sources of return. IELT combines equity, credit, and macro strategies designed to provide return drivers beyond the traditional stock and bond exposure.
The old answer was often simple. Own stocks for growth and bonds for stability. But today, AI is becoming a larger driver across both equities and corporate credit. And at the same time, volatility across traditional markets has increased. So diversification may need another dimension that could include quality and dividend stocks within equities, differentiated areas of credit, commodities, or alternative strategies whose return drivers are less dependent on the direction of the broad market.
For portfolios, the question is increasingly not just how many investments do I own, but how many truly different sources of risk and return do I own? Again, IELTS is one example designed around that idea, combining systematic alternative strategies across equity, credit, and macro markets in an ETF.
Markets have been strong and BlackRock polling shows advisor sentiment has become more bullish, but fund flows have remained heavily tilted toward bonds and cashlike exposures. At the same time, investors have added to more tactical areas of the equity market when volatility hits.
For portfolios, that suggests investors aren't simply risk on or risk off. They're looking for growth while also being more deliberate about spreading their investments across different areas and keeping some assets easy to access or sell. That focus on liquidity can also bring short-term treasuries into the conversation. For investors considering that type of exposure, ESG provides exposure to US Treasury bonds with 3 months or less remaining to maturity.
So, if there's one theme connecting all 10 questions, it's this. The market is changing quickly, but that doesn't mean portfolios need to react to every headline. Being deliberate about where you take risk, where you diversify, and what role each investment plays can matter even more when the environment gets noisy. Visit.com for the full outlook. And bring us your own investing questions on Reddit. Visit www.ishshares.com eyeshares.com to view a prospectus which includes investment objectives, risk, fees, expenses, and other information that you should read and consider carefully before investing.
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