Centerline Market Update 2026Q3

The title reflects where returns actually came from in the first half. AI wasn’t just a market story, it was an economy story, and it remains the dominant force heading into the back half even as leadership broadens underneath it.

Key Themes We Explore

AI Drove Both the Market and the Economy: The GS AI Basket returned +34.6% YTD versus +9.6% for the S&P 500, and AI-related capex accounted for roughly 8 percentage points of real GDP growth since the end of 2024.
The Spend Is Real, and So Is the Revenue: Hyperscaler capex is climbing into the hundreds of billions and increasingly debt-funded. On the other side of the ledger, Anthropic and OpenAI are adding ARR faster than any software company in history.
Leadership Broadened, but AI Still Carries the Index: Semiconductors led H1 with earnings, not multiples, doing the work. Still, strip the AI names out of the S&P 500 and the rest of the index was negative for the year.
Semis and Memory Went Parabolic: The market found the AI supply chain’s tightest link in high-bandwidth memory. DRAM was up +166% in Q2, with Micron up over +240%.
Small Caps Had Their Best First Half in 25 Years: The Russell 2000 returned +21.4% in H1, outpacing the S&P 500 by the widest first-half margin since 2001, as the market priced in a broader set of AI beneficiaries.
The IPO Market Reopened in Force: Over $115B of new paper priced in under two weeks in June, led by SpaceX’s $75B IPO, the largest in history. Expected 2026 issuance still sits modestly at under 2% of Russell 3000 market cap.
Two Warning Signs Under the Surface: Hiring has decoupled from GDP growth, and lower-income consumers are leaning harder on Buy Now, Pay Later and running higher delinquencies. We’re flagging these, not calling a downturn.
Real Rates Are a Headwind, but Conditions Remain Loose: Credit spreads are tight, and liquidity is ample, which is part of why the second half can still see upside even without a full steam-ahead rally.

Our View for the 2nd Half of 2026

We remain constructive on the AI trade and believe the value continues to migrate down the stack toward the builders, compute, and infrastructure. Earnings are backing the market, with the S&P 493 finally beginning to contribute alongside the leaders. Dispersion remains historically high, so security selection matters more than beta this year. On the risk side, we’re watching a Fed under new, less transparent leadership, rising political attention on the AI buildout heading into the midterms, and a consumer that looks resilient at the top but strained underneath.

In private markets, alternative managers remain under pressure following accelerated Q2 redemptions, and the wealth channel’s shift toward registered evergreen structures adds a layer of liquidity risk worth watching. Manager selection and a focus on operational value creation, rather than multiple expansion, will matter more than ever from here.