Constructive on Stocks in the Second Half as AI Debate Continues

As we wrote in our Midyear Outlook 2026: Policy, Buildouts, & Bottlenecks, our expectations for positive second half returns partly hinged on improvement in the macro backdrop. Well, shortly after the LPL Research team published that view, disruptions to the Strait of Hormuz intensified and the Houthis opened a new front in the battle to restore tanker flows in the Persian Gulf by attacking Saudi tankers in the Red Sea. So, after oil dipped below $70 in early July, the relief provided was short-lived as the U.S. conducted strikes on Iran over the past two weeks and oil prices shot back up over $90 a barrel. Oil has since settled in the $80s after a series of pauses, additional attacks, more threats, and reports of scheduled mediated talks.

At a high level, these developments do not change our stock market outlook for the second half. Our forecasts are slightly below consensus in part because of geopolitical uncertainty — on top of the doubts surrounding the monetization of massive AI investments. As we’ve seen before, the Trump administration will likely find an offramp from the conflict soon, because $100 oil and $5 gasoline are sure-fire ways to lose votes in the upcoming midterm elections, now just over three months away.