AB Asset Management: "Actual Profit Generation More Important Than Vague AI Expectations"

2026 Second-Half Global Capital Market Outlook Released
"Selective Investment in Blue-Chip Companies That Meet Earnings Expectations Is Essential"

As optimism about artificial intelligence (AI) investment has already been largely reflected in asset prices, an analysis suggests that the key factor for the global stock market in the second half of 2026 will be whether corporate earnings meet these heightened market expectations. If companies deliver results in line with forecasts, the upward trend may continue. However, for those whose earnings fall short or encounter even small, unexpected negative factors, increased volatility is expected.

AllianceBernstein (AB Asset Management) released its report on the outlook for the global capital market in the second half of 2026 on July 31, presenting this analysis. Notably, AB Asset Management emphasized that while there is still potential for further gains following the rally sustained through the first half of the year, what is most needed now is a "perfect landing."

AB Asset Management predicted that, despite oil price fluctuations caused by the Iran war, U.S. inflation is expected to continue a gradual slowdown as food, goods, and service prices remain generally stable. The labor market has also entered a mature stage, with both hiring and layoffs at low levels. However, a slowdown in real wage growth and declining savings were cited as factors that could constrain future growth. As a result, since both the risk of a renewed uptrend in inflation and the risk of an overheated labor market are seen as limited, AB Asset Management forecast that the U.S. Federal Reserve is likely to keep the benchmark interest rate unchanged without further hikes.

The report identified AI as the primary driver of the global stock market in the first half of the year. With expectations around AI infrastructure development and improved profitability factored into the market, earnings per share (EPS) for the S&P 500 are expected to achieve double-digit growth both this year and next year.

AB Asset Management named "semiconductors" as one of the sectors with the most potential to benefit from the recent expansion in AI infrastructure investment. On the other hand, hyperscalers that have continued major AI facility investments are expected to see their free cash flow (FCF) turn negative starting next year, requiring a more cautious approach. Considering high valuations, uncertainty regarding the sustainability of hyperscaler spending, and policy-related risks, the report stressed the importance of selecting companies capable of generating sustainable profits rather than simply looking at the scale of AI investments going forward.

Accordingly, AB Asset Management proposed three key principles for equity investment strategies in the second half: 1) selective investment focused on blue-chip companies, 2) identifying growth momentum in diverse fields including AI, and 3) proactive volatility management. Regarding AI, the report indicated that various growth driver themes will emerge, making it preferable to diversify across styles and regions rather than concentrating on specific themes. The report also advised paying attention to companies or portfolios characterized by relatively low volatility and proactive risk management capabilities.

Jaeouk Lee, Senior Portfolio Manager at AB Asset Management, said, “In the second half of the year, the actual profit-generating ability of companies, rather than merely AI-related expectations, will determine corporate value. For stable investment outcomes, it is crucial to invest in a balanced manner across blue-chip companies in AI and various growth industries while also diversifying by region and sector to respond to volatility.”

Bonds: Actively Utilizing High Interest Rates

Regarding the bond market, the report explained that the currently high all-in yield levels can be viewed as providing attractive investment conditions for investors. As the market has already incorporated much of the Federal Reserve's more hawkish-than-expected monetary policy stance, the yield on the U.S. 10-year Treasury note has risen to around 4.5%. This high rate environment, in turn, could present a compelling opportunity for long-term investors.

The report further analyzed that as investment opportunities expand not only in the U.S. but also across the global bond market, a selective duration strategy via diversified investment across countries and asset classes is effective. Additionally, the report noted that the investment appeal of Treasury Inflation-Protected Securities (TIPS) is rising due to a decline in the breakeven inflation rate.

For credit assets in particular, the report maintained a positive outlook, supported by solid corporate fundamentals. While corporate bond spreads have narrowed back to levels seen at the beginning of the year, the all-in yield remains above the median since the global financial crisis, maintaining their appeal. Furthermore, a notable qualitative improvement has occurred in the high-yield market, with the share of secured bonds rising from around 10% during the global financial crisis to about 35% today, which is seen as another positive factor.

Jaewoong Yoo, Senior Portfolio Manager at AB Asset Management, said, “Current high all-in yield levels provide not only attractive carry returns but also entry opportunities for bond investors. A global diversified investment strategy—including selective duration management, active utilization of high-quality credit assets such as investment-grade corporate bonds, and expanding targets to include high-yield bonds and some emerging market local currency bonds—is expected to remain valid for the rest of the year.”

This content was produced with the assistance of AI translation services.