My Outlook for the Second Half of 2026

Well, here we are. We've officially reached the halfway point of 2026. And what a year it's been. And by the time you're watching this, it will have been the 4th of July. So, happy 250th birthday to the US. But in terms of the stock market, it's been nothing but fireworks for many of the past few years. But in 2026, things actually started off on shaky footing with the S&P 500 down 5% and the NASDAQ down 7% through the first quarter. However, as I often preach to my investing community, do not overreact. Stick to our strategy. And for investors that have done that and not acted emotionally, the market has rewarded you in a big way. The S&P 500 has completely flipped the script through the first half of 2026. The index is now up nearly 10% and the NASDAQ up about the same. And today, we're not only taking a look at my strategy for the second half, but I'm also going to be giving you some stocks I'm targeting in various sectors for the second half and also a few high growth stocks with a few option plays. And speaking of options, I will be hosting my final options workshop of the summer this coming week on July 9th. And although it will be live, if you're unable to join during the live portion, you will receive the recording. See the pin comment down below. So the first half of 2026 is over. So investors are asking what should we expect in the second half. Investors are not just asking this because the first half is over, but also due in part that last month we saw a bit of a rotation out of the AI heavy trade. The semiconductor SMH ETF is down 7% just in the past month alone, but down 12% off their recent highs. So they are in fact in correction territory. And the NASDAQ index is down 4% over that same month period. So although the second quarter was good, things in the tech sector actually ended on a sour note. Now let's take a look at sector performance for the S&P 500 through the first half of 2026. And as you can see on your screen, only one sector ended the first half in the red, that being consumer discretionary. It was pretty split between five sectors outpacing the index and six underperforming. The top three sectors were industrials up 18%, energy up 17%, and technology up roughly 17%. Technology continues to dominate headlines, but as we just saw a minute ago, we have seen more of a rotation as of the end of June. And here's another look at the 11 S&P 500 sectors, but this time it's based on performance over the course of the past month. Healthcare up 11%, financials up 8%, and industrials up 7%. And down at the bottom, technology, the worst performing sector. But as I look ahead to the second half of the year, I think we're entering a very different phase of this bull market. I believe the first half of 2026 was about AI excitement. The second half will be about AI execution. In other words, investors are going to care much less about who's going to tell the best AI story and much more about who can actually generate revenue, earnings, cash flow to justify these enormous investments. When I step back and I look at what's happening, I don't see a market that's running purely on speculation. I see companies investing aggressively because demand remains incredibly high. And that spending is turning into strong earnings growth for many businesses. That's an important distinction. Yes, valuations have expanded in certain parts of the market. Yes, we've had an impressive rally in certain areas. And yes, I think volatility is likely going to increase in the second half of the year, especially with it being midterm election year. But volatility doesn't necessarily mean the bull market is over. In fact, some of the healthiest bull markets experience regular pullbacks. They shake out excessive optimism, allowing earnings to catch up with valuations and create opportunities for us long-term investors. That's why I'm preparing for more volatility without becoming overly bearish. And right now, we're going through this period where AI is no longer speculation. It is real and we are moving towards execution. Which companies can execute the best in the world of AI? This is where I think the market changes. For the last couple of years, simply mentioning AI was often enough to get investors excited in your stock. But we've been moving beyond that phase. Now, companies have to prove all of this investment actually creates value. Can they grow revenues, expand margins? Can they generate higher earnings? The companies that answer yes will likely continue outperforming. The companies that can't may struggle regardless of how exciting their AI story sounds. I think investors spend less time asking who's talking about AI and more time asking who's actually monetizing AI. That's a very different conversation. And for me and where I'm looking to invest is the next chapter of AI. One of the biggest themes I'm watching is how AI opportunity continues expanding beyond semiconductors. Now, semiconductors are not done. Let me be very clear. But obviously, a lot is priced into many of them. The first wave rewarded companies for building compute chips. Now, the opportunity is broadening. We're seeing increased demand for high bandwidth memory, networking, data centers, cloud, power generation, grid modernization. Every technological revolution eventually runs into physical constraints. something I talked about in a recent video. The internet needed broadband. Electric vehicles need batteries and charging stations. AI needs infrastructure. That's why I believe many of the next generation of winners may come from solving these bottlenecks rather than simply building faster chips. And as expectations rise, execution becomes more important. The companies I want to own are the ones with strong operating cash flow, disciplined management teams, durable competitive advantages, and the ability to convert AI investment into long-term earnings growth. We're already starting to see this happen. Some companies are delivering exceptional financial results that support their valuations. Others are still relying primarily on future expectations. Over the course of the next six months, I believe the distinction becomes much more important because eventually every investment story has to show up in the numbers. So where am I finding opportunities? Some are directly related to AI theme. Some are secondary. I'm continuing to focus on businesses positioned to benefit from long-term structural trends. That includes companies benefiting from AI infrastructure, cloud networking, enterprise software, financial technology, and the growing demand for reliable power. I'm also looking for businesses with proven execution. So, let's begin first with the technology sector. And the first stock I will be adding to in the second half is likely going to be Service Now, stock ticker N. The software sector as a whole got smoked in the first half, but I've seen a bottoming of late in the IGV, which is a software ETF, and winners will emerge. Service Now being one of them, I believe. Take a look here at their most recent earnings showing 19% growth in subscription revenue, 15.5% growth in professional services revenue. Their RPO or remaining performance obligations that grew nearly 25% and the company generated very strong gross profits of 75%. And lastly, free cash flow grew 44% in the first quarter. Those are year-over-year figures. Another few names which are more obvious in the tech sector is still Nvidia and Broadcom. I continue to think both of these names are being underappreciated, if you can believe that. Did you know that Nvidia on a forward earnings basis now trades below the median multiple for stocks in the S&P 500? That is wild to me because the company is providing growth double or triple that of the median stock in the S&P 500. In the case of Broadcom, you have custom chips that continue to grow in popularity and Broadcom is at the center of all of it. I'm also high on the financial sector, which over the past year has actually been the second worst performing sector. I believe inflation is going to remain sticky, but it's coming down as oil prices come back off their highs. Now, I don't think Fed Chair Wars will raise interest rates, which I know I'm in the minority there, but I'm sticking to my knowledge, experience, and strategy. Regardless though, we are going to remain in a higher for longer environment with rates combined with the continued AI buildout, which will all benefit financials. I like S&P Global, which got looped in with all of the software selloff and is intriguing, especially with all of the debt that's going to be coming on with more investments. I own and continue to believe in Bank of America. I think it is the most well-run large cap bank on the market. And I also like Capital One at current valuations. Year-to date. Industrials has been the best performing sector. And Caterpillar has led the charge as that stock's up 70% on the year alone, which is wild for a stock like CAT. Is CAT on my buy list? Not at the current levels. Valuation would have to come much lower. But a name I do like is Eaton. And now that don't get me wrong, that valuation does in fact need to get better before jumping in, but it's much more intriguing at current levels. But I'm not buying right here. But if you think about industrials and these companies that are the picks and shovels of this AI buildout, all the spending is already a tailwind. Now if you add in lower oil prices in the future, that directly adds to margin expansion. Another tailwind for these industrial giants, CAT, Eaton, GE, Vernova. Now, another angle to look at when it comes to industrials is the ISM manufacturing PMI, which is an economic data point that speaks to manufacturing activity in the US. And the magic number you want to know is 50. Above 50 generally tells investors that manufacturing is expanding. Below 50 tells us manufacturing is contracting. And as you can see here, ISM manufacturing has jumped in 2026 and currently sits at 53.3 based on the latest reading from June. Now, you combine that with all of the backlogs that these companies have, you see why I expect a big second half, continuation of what we've seen in the first half for the industrial sector. Now, companies that constantly grow earnings, those are what I want. companies that constantly generate higher free cash flow, higher operating cash flow. That's what I'm looking for. And companies that allocate capital intelligently. Those are the businesses I want to own regardless of what the market does over the course of the next few months. And lastly, now I know this is not a sector and we already mentioned one of them, but I believe we will see a return of the MAG7. Year-to- date, the MAG7 ETF, MAGS, shows that collectively the group has gone nowhere, almost exactly even on the year. However, I believe the earnings growth potential is being underestimated and some of these companies spending a ton. Yeah, they are. Alphabet, Meta, Amazon, you name it. But when it comes to Alphabet and Amazon in particular, I have a ton of trust in those management teams to turn those spending dollars into earnings down the road. Now, Meta, I still like it. The valuation is very intriguing, but I'm not as confident as I am with the other two. Hence why they are my top two positions. And if you want to see my entire portfolio, get my trade alerts, be sure to join my investing community that will also grant you access to my private Discord where market commentary happens on the daily. Again, that's also in the pin comment down below. But getting back to the MAG 7, one way I like to play this is not the MAGS ETF, but rather an ETF known as XLG. And looking here, you can see the trade alerts in my community from this year in which I added to my position in XLG, doing so more recently, but again back on March 31st. And since that March 31st purchase, shares of XLG are up over 10%. Now, XLG not only gives you more exposure to the Mag 7, but the top 50 companies in the S&P 500. So, it adds to the likes of Broadcom and Micron, just to name a few. Now, lastly, I want to give you a couple high growth stocks I'm watching closely and doing options with, which are Celsius, stock ticker CEH, and Sofi Technologies, stock ticker Sofi. And looking here at the latest earnings from Celsius, you can see nearly 140% revenue growth with 18% operating margins that has led to strong earnings growth. Here's a look at a recent option trade I did inside my community that generated 450% returns in a matter of 48 hours on shares of Celsius. And a lot of my members were able to capitalize on those gains, which is always awesome to see. Again, you can check out that pin comment down below. SoFi, though, that's a name that continues to grow its earnings and grow its subscriber base. And I will be looking at both of these names to generate returns in the second half of 2026. SoFi is a name I love to sell cash secured puts on right now around that $16 to $17 range. Now with all of that being said, that doesn't mean there aren't risk. I'm paying close attention to inflation, interest rates, geopolitical developments, elevated valuations in certain areas of the market. These factors could absolutely create periods of increased volatility. But one thing I've learned over the years is that volatility often creates opportunity. Some of the best investments I've made have come during periods in which the market became overly focused on short-term uncertainty. That's why I always want to keep some cash available. Not because I'm trying to time the market, but because I want the flexibility to take advantage of opportunities when they appear. And if I had to summarize my outlook for the second half of 2026 in just one sentence, it would be this. The first half of the year rewarded AI excitement. The second half will reward AI execution. I still believe we're in the early stages of one of the most important technological revolutions of our lifetime. But from this point forward, I think investors will need to be much more selective. The companies that continue delivering earnings growth, expanding cash flow, and solving the next AI bottlenecks, those are the ones I believe have the best chance at outperforming over the long run. That's exactly where my focus will return for the rest of 2026. And if you enjoyed this video, I'd really appreciate it if you hit that like button down below. Subscribe to the channel. And now, I'd love to hear your thoughts. What is your biggest prediction for the second half of 2026? Do you think the market finishes higher or lower from where we're at as of June 30th? Let me know down in the comments. And as always, thank you so much for watching. Again, hit that like button to show your appreciation, and we'll see you in the next one. Take care.