[Intro screen for Two Minutes on the Markets]

Hi everyone, I’m Liz Ann Sonders and this is your Two Minutes on the Markets with takeaways from our mid-year outlook.

[Bull icon with a rising line displayed]

The bull market remains in place, supported by strong earnings and a resilient economy, though there are still underlying vulnerabilities beneath the surface.

[Bar chart and dollar sign representing rising inflation displayed]
Second-quarter GDP appears to be tracking around 3%, and that’s been helped by consumer spending and business investment, but that strength may be a bit fragile as we close out the quarter given the risks posed by higher energy prices and some growing financial strain on consumers.

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The labor market continues to show remarkable resilience, yet that contrasts with some signs of pressure on households, including negative real wage growth and low savings rates, particularly among lower-income consumers.

[Bar chart with rising arrow and dollar sign icons displayed]
Inflation also remains elevated and becoming a more complicated story. Energy prices have moved higher obviously because of geopolitical tensions, core services inflation is still running above the Federal Reserve’s target, and AI-related costs are adding another layer of pressure and complexity.

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In that sense, AI is affecting both inflation and sentiment, as rising software and computing costs are contributing to economic anxiety while also complicating the broader inflation picture.

[Stock market bars and bond certificate icons are displayed, with motion where the two icons swap places]

Bond yields have recently become inversely correlated to equity prices, that’s another way to highlight the impact that inflation is having on equities. Further bond market volatility could lead to more equity market volatility in the second half of the year.

[High/low chart for "2026 earnings estimates have surged" for S&P 500 y/y earnings growth for 1Q26E, 2Q26E, 3Q26E, 4Q26E and 2026E is displayed.]

Earnings growth for the S&P 500 remains very strong and represents the most powerful underlying fundamental support for the bull market. There is a caveat in that much of it is concentrated in a relatively small group of technology and communication services companies tied closely to AI infrastructure spending. That concentration does raise valuation and sustainability questions.

Now the AI enthusiasm has also resulted in a very narrow market in terms of breadth and concentration in terms of leadership. The bull market has also resulted in a record high exposure to equities by households, suggesting a very elevated risk appetite. Now a heightened risk appetite coupled with, at times, casino-like behavior by the stock market do establish some downside vulnerability—albeit likely needing some sort of negative catalyst. Absent the negative catalyst, the stock market should continue to climb this so-called wall of worry.

[Displayed text: The Bottom Line.
•    Avoid all or nothing investment decisions
•    Rely on risk management disciplines
o    Diversification- both within and across asset classes
o    Periodic rebalancing]

Our bottom line is that this is not a time to make all-or-nothing investment decisions, but to rely on risk management disciplines like diversification—both across and within asset classes—and periodic rebalancing … essentially heeding the old adage that no one ever went broke taking profits.

Thanks for listening.
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