INSIGHTS

On August 24, 2026

AAM Viewpoints — A More Uncertain Road Ahead

Markets absorbed one of the most severe energy shocks since the 1970s, then delivered one of the strongest quarterly rallies since 2020 led by memory and chip stocks. The Philadelphia Semiconductor Index (SOXX) appreciated 83.1% through 8/14/2026 — mainly driven by the 95.3% jump during the second quarter, its best quarterly performance since the index was created in 1994. July featured a steep decline, with the SOXX down 21.3% in the month, though it has bounced back over 9% through the first two weeks of August. With one exception, the Magnificent Seven stocks have trailed the S&P 500 Index year-to-date return.

Monetary Policy

Introducing a profound wildcard into this repeating cycle is Kevin Warsh, who became the 17^th Chairman of the Federal Reserve (Fed) in May 2026. Warsh’s arrival marks a stark regime change from the highly transparent, heavily choreographed communication style of Jerome Powell. Instead, Warsh’s philosophy harkens back to the Alan Greenspan Fed, an era defined by strategic ambiguity and "Fed speak." Warsh has openly criticized the modern Fed's reliance on extensive forward guidance and the "dot plots," arguing that broadcasting every policy inclination in advance robs the central bank of flexibility and creates an unhealthy market dependency on a central bank safety net. He prefers less predictability, a smaller regulatory footprint, and a return to market discipline, wanting investors to analyze economic data themselves rather than parsing Fed speeches for promises.

This shift in style fundamentally alters how the Fed might navigate the current inflation threat. Under Powell, the markets were coddled with constant warnings of policy shifts. Under Warsh, the Fed is far less communicative and much more comfortable leveraging the element of surprise. While Warsh has firmly signaled his commitment to price stability, indicating he will fight inflation aggressively and resist political pressure for easy rate cuts. However, his Greenspan-like lack of transparency means the market will no longer have a clear roadmap. By intentional design, a less predictable Fed will likely introduce higher volatility, as Wall Street can no longer rely on pre-announced policy cushions to help navigate macro shocks. At their end of July meeting, the FOMC (Federal Open Market Committee) voted to keep rates steady.

Economy & Market Outlook

For the second quarter of 2026, the estimated year-over-year earnings growth rate for the S&P 500 is 23.1%. If estimates hold, that will represent the second straight quarter of earnings growth above 20% for the index. The 5-year average earnings growth rate is 15.4%. Earnings appear to be driven by technology companies, contributing over 60% of overall earnings. The forward 12-month forward P/E (price/earnings ratio) of the S&P 500 is 20.1x, cheaper now than in January 2026 as earnings growth estimates have accelerated. This is above the 5-year average of 19.9x and above the 10-year average of 19.0x. Last year, S&P 500 Index dividends grew by 5.5%. In 2026, dividends are expected to grow to 6.5% outpacing global dividend growth of 2.7% driven by robust corporate profits.

Year to date through 8/14/26, the S&P 500 Index returned 14.5%. This marks the third time in the past four years that the index has gained 10% or more in the first six months of the year. Historically, strong first half results were followed by additional gains in the second half. Along those lines, since 1980, there have been 19 years in which the index rose 10% for the first six months of those years when the index finished higher 89% of the time and averaged over 8%.

CONCLUSION

We expect investors will likely need to navigate continued uncertainty and volatility through the remainder of the year and into 2027. We therefore favor dividend payers across the yield spectrum that can play both offense and defense. We believe diversification is particularly important with opportunities across a broad range of sectors, particularly those companies poised to benefit from the AI (artificial intelligence) value chain, nuclear/baseload power, GLP-1s and the infrastructure build-out. We remain cautious with consumer-facing businesses as inflation continues to squeeze household budgets.

CRN: 2026-0803-13666 R

The opinions and views of this commentary are those of Brentview Investment Management as of August 14, 2026 and are not necessarily that of Advisors Asset Management.