Defying Headwinds: The Bull Market Nobody Saw Coming

We are pleased to present this five-minute podcast featuring Ian Venzon, Assistant Vice President at Pence Capital Management (PCM), highlighting how markets have continued to perform strongly despite economic and geopolitical headwinds.

KEY TAKEAWAYS:

• Despite a challenging backdrop, the S&P 500 Index reached record highs in the first half of 2026, with broad-based gains across global markets.
• Through June, the S&P 500 gained more than 8% as earnings expectations rose over 20%, supported in part by nearly $750 billion in additional AI-related capital investment.
• As we enter Q3, strong earnings, lower oil prices, a stabilizing labor market, and supportive tax policy provide a favorable backdrop for investors heading into the midterms.

Transcript

SPEAKER_00 0:00

Welcome to the Next Instant Alpha Public Series from Advisors and Instant Management, where we provide exclusive market insights and timely commentary from our portfolio managers and strategic partners. AAM has been committed to delivering innovative, research-driven solutions that help investors navigate complex markets and build more resilient portfolios. We invite you to hear these insights now.

SPEAKER_01 0:26

Hi, this is Ian Benson, Assistant Vice President with Pence Capital Management. I'm pleased to join you on the AAM Access to Alpha Podcast today, July 9th. At the halfway mark in 2026, markets have displayed remarkable resilience in the face of significant geopolitical uncertainty. Despite the sharpest jump in oil prices in decades, a resurgence of global inflation, and a near total repricing of the direction of travel for monetary policy, the SP 500 set 24 all-time highs in the first half of 2026 with generally strong gains seen in most global markets. This stands in stark contrast to worries amidst the start of the US-Iran war and subsequent closure of the Strait of Hormuz, the most important global waterway for the energy market. A surplus of global oil production prior to the closure, historically high levels of global oil inventories, and a materially less oil-sensitive US economy has allowed both the US and the globe to defy the most negative prognostications made at the outbreak of the conflict. The key driver of that resilience has been both meaningful and consistent upgrades to corporate earnings expectations. Over the last 12 months, virtually all of the SP 500's 21% return has come from earnings, not multiple expansion. In 2026 alone, the SP 500 returned just over 8% through June. While earnings estimates 24 months out rose more than 20%, meaning markets today are actually cheaper on a price-to-earnings basis than they were at the start of the year. AI-related capital investment has been a huge part of that story. The largest spenders signaled massive boosts to capital expenditure guidance in April, totaling nearly $750 billion in 2026, as broader AI compute markets remain meaningfully capacity constrained. That's a major positive for companies throughout the AI supply chain, but it's also created a real need for capital, which is shifting equity supply in global markets in a way we think investors heavily allocated to the Magnificent 7 should watch closely. For the broader economy, the labor market has largely stabilized and consumers have continued to spend, helped by larger tax refunds, the ongoing World Cup, and historically low levels of layoffs. The Federal Reserve has taken a more hawkish tilt of late, but we believe that the recent drop in energy prices, which has officially taken the price of oil below pre-war levels, will give the new Fed chair the luxury of patience. The big noble theme of the first half of 2026 was one of resilience in the face of a number of headwinds. Moving into the third quarter, we believe strong corporate profits, an oil insensitive U.S.

SPEAKER_00 3:48

economy, lower oil prices, a stabilizing labor market, and tailwinds from tax policy will remain a strong combination for investors as we approach November's midterms.com.