Experiences and live entertainment: We also see opportunities in parts of the consumer economy that may become more valuable as AI-generated content becomes increasingly abundant. As digital content proliferates, scarce real-world experiences—live events, travel, premium hospitality, and cultural attractions—may command a greater share of consumer time and spending. Companies with strong brands, limited supply, and pricing power can benefit from this shift, offering a different way to think about the AI era: not as direct infrastructure beneficiaries, but as businesses whose value may be reinforced by the rising importance of authentic, in-person experiences.
Biotech: Small and mid-sized biotechnology companies are emerging from a four-year bear market, and we think there are a number of appealing candidates in the space. Large pharma companies have effectively used small and medium-sized biotech firms as outsourced research and development (R&D) arms. These smaller biotech firms have created some innovative therapies and diagnostic capabilities, but they are increasingly going after bigger markets; these more attractive opportunity sets may help boost their return on R&D spending.
Attractive Opportunities Outside the United States
The broadening earnings story is not limited to the United States. Outside the U.S., we see improving profit trends and attractive company-level opportunities tied to powerful secular themes. The key distinction is important: We are focused less on targeting individual countries or regions and more on identifying companies—wherever they are located—with durable competitive positioning, strong earnings power, and exposure to long-term growth drivers.
We believe that “companies, not countries” approach is especially relevant today. In Taiwan and Korea, select companies have continued to benefit directly from AI infrastructure demand, particularly through semiconductors and memory. Beyond those markets, the opportunity set is broad. We see regional leaders enabling AI and next-generation computing, building scaled online platforms that serve consumers and a broad range of businesses. Some are direct AI beneficiaries; others are well established platforms, consumer brands, financial inclusion enablers, or industrial leaders shaping tomorrow’s economy in their own markets.
The point is not that the United States is losing ground—we have detailed the inherent strength in U.S. fundamentals and earnings—but that other markets are beginning to catch up after a period in which U.S. mega cap technology companies dominated the global earnings story. Given accelerating earnings growth, fiscal stimulus measures, historically attractive valuations, and secular growth drivers that extend well beyond the United States, we believe investors have plenty of reasons to own both U.S. and non-U.S. equities.
This presents a favorable environment for active managers, in our view. Rather than making broad bets on countries or regions, we think it is more important to find the right companies in each geography. In a market defined by dispersion, selectivity matters—and the opportunity set is increasingly global.
Other Developments to Watch
For the balance of 2026, we will also be looking at technical indicators, especially if the market advance begins to get a bit narrower. Even though earnings breadth has improved, the recent run-up in the markets has been concentrated in a smaller number of stocks.
In terms of sectors, we are keeping an eye on consumer discretionary stocks, which have weakened because of the increase in fuel prices and related concerns over consumer spending. Another oil-related development appears to be the rise in short-term interest rates, which has resulted in a flatter yield curve, which has weighed on financial stocks. Financials may also be vulnerable to concerns about potential weakness in the private credit market.
One final observation: The resilience of the equity market might lead one to ask, given the impact of recent headlines, “where would stock prices be without the overhanging concerns of geopolitics and energy market developments?” Any positive news concerning the war in Iran could potentially provide an additional lift to the markets in the months to come.
Summing Up
Given the generally positive conditions in place—a strong U.S. economy, accommodating financial conditions, accelerating earnings growth, and the powerful influence of the expansion of AI and related spending, we are bullish for the remainder of 2026. But “dispersion” will be the watchword for the remainder of the year, as generating alpha in investment portfolios will require more discipline, based on the widely varying impacts that the trends we have outlined here will have on stocks and sectors. Those are conditions for which active managers may be especially well suited.
