Portfolio Intelligence podcast | From AI to the Fed: what could shape the rest of 2026?
As markets navigate a complex mix of strong economic growth, surging AI investment, volatile oil prices, and a more hawkish U.S. Federal Reserve (Fed), our Co-Chief Investment Strategists Emily R. Roland, CIMA, and Matthew D. Miskin, CFA, join this episode to review the year so far and how investors can navigate what’s ahead.
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Few trends have influenced markets more this year than the AI buildout, evolving policy expectations, and uncertainty in energy markets. On this timely episode with host John Bryson, Matt and Emily share their latest insights on what's ahead for investors.
They explain why economic growth and corporate earnings have remained resilient, and how equities and bonds are responding to the Fed’s evolving policy stance. The conversation also explores what’s ahead and how investors can position their portfolios. Read a snippet of the discussion below and listen to the full podcast for more insights.
1 What’s driving the momentum in global economic growth?
Matt: The U.S. remained the engine of global growth, and countries selling into the U.S. benefited as well. Asia, particularly the semiconductor sector, saw strong support from this demand. The question is whether it's sustainable. That’s harder to answer because many of these factors were one-time catalysts that boosted growth in the U.S. and, by extension, global growth.
2 How can investors position their portfolios for what's ahead?
Emily: We think about portfolio construction as a bag of golf clubs, and making sure to use all the tools available. Equities are like your driver; they help you deal with inflation. Historically, stocks tend to perform reasonably well when inflation runs between 2% and 4%. We’re also seeing one of the strongest earnings seasons in modern history, which helps preserve purchasing power if inflation begins to reaccelerate, although that's not our base case. Bonds haven't been getting much attention because the economy has performed better than expected. But if growth begins to slow, they could play a much more important role.
Matt: Investors shouldn't become too attached to any single outcome. The key is building a portfolio that can navigate multiple scenarios. In fixed income, we continue to favor corporate credit. Corporate bonds should perform reasonably well if growth remains solid. We’re positioned slightly below benchmark duration while maintaining exposure to areas such as high yield.
Important disclosures
Important disclosures
This podcast is being brought to you by John Hancock Investment Management Distributors LLC, member FINRA, SIPC. The views and opinions expressed in this podcast are those of the speakers, are subject to change as market and other conditions warrant, and do not constitute investment advice or a recommendation regarding any specific product or security. There is no guarantee that any investment strategy discussed will be successful or achieve any particular level of results. Any economic or market performance information is historical and is not indicative of future results, and no forecasts are guaranteed. Investing involves risks, including the potential loss of principal.
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Transcript
Transcript
John Bryson
Hello, and welcome to the Portfolio Intelligence Podcast. I'm your host, John Bryson, Head of Investment Consulting and Education Savings at Manulife John Hancock Investments. Today is July 27, 2026, and it's been another busy stretch. For instance, global economic data is showing signs of improvement, and earnings season is delivering some surprisingly strong results. Yet, at the same time, markets seem far less enthusiastic than the headlines would suggest.
Rising prices and this week's U.S. Federal Reserve (Fed) meeting have investors debating whether the Fed's next move will be another rate hike or an extended pause. To help us make sense of it all, I've invited back Matt Miskin and Emily Roland, Co-Chief Investment Strategists here at Manulife Investment Management, to discuss what's going on around the world and in global markets. Matt, Emily, welcome.
Emily Roland
Thanks for having us.
Matt Miskin
Yeah, thanks for having us, John.
John Bryson
You got it. How's the summer going so far?
Emily Roland
I mean, it's been awesome. The weather up here in our little slice of heaven in New England has been great. My goal is always, John, not to leave. I know that sounds weird because most people go away on vacation in the summer, but us New Englanders just suffered through one of the longest and harshest winters I can remember. So, not going more than a mile outside my radius is my goal for the summer.
John Bryson
I get it. It's the best time of year to be here, these two months of summer. How about you, Matt?
Matt Miskin
Pretty good. Yeah, I've gotten out on the golf course and managed to actually do okay, so I'll take it as a win.
John Bryson
All right, very good. Good for you. I'm glad you're doing a little more than just watching the Fed 24/7. Maybe it's 23/7.
John Bryson
Nice. Hey, Matt, let's start with you. Are we seeing some real global growth momentum? What's going on right now? Is this real, or just a temporary boost?
Matt Miskin
Well, let's start with the United States. In the U.S., the One Big Beautiful Bill that was signed last year really came into effect in the first quarter. We saw capital expenditures, or CapEx, really accelerate. CapEx is basically business investment spending. One of the provisions of the bill allowed companies to accelerate depreciation. I know that sounds exciting, right?
What that means is businesses can write off spending more quickly, which made business investment improve significantly. We saw manufacturing do better. We also saw larger tax refunds, which helped support consumer spending as we came out of the winter slowdown.
The tariffs that were put in place last year were reversed, and corporations received refunds. We also had greater defense spending and a significant release from the Strategic Petroleum Reserve. In simple terms, that's oil purchased previously now being released into the market, helping mitigate supply shocks.
So there was a big fiscal push, and then the cherry on top was the World Cup. Globally, it generated a great deal of economic activity. Whether you went to a restaurant or almost anywhere else, it was on, and people were spending. The benefits weren't just in the U.S.; they were felt around the world.
The U.S. remained the engine of global growth, and countries selling into the United States benefited as well. Asia, particularly the semiconductor sector, saw strong support from this demand.
The question is whether it's sustainable. That's harder to answer because many of these factors were one-time catalysts that boosted growth in the U.S. and, by extension, global growth. When we look around the world, GDP growth is still relatively modest. The U.S. is around 2%, Europe remains closer to 0% to 0.5%, and Asia has some bright spots, such as Japan, but China is still growing slowly.
It was encouraging to see a little growth return after a difficult end to last year. But whether it can continue at the same pace is uncertain. We aren't calling for a major slowdown, but growth may not be as strong as what we saw in the first half of the year.
John Bryson
Gotcha. Don't get too caught up in all the headlines. Hey, Emily, Matt mentioned the volatility in prices. How concerned should investors be about the recent spike?
Emily Roland
Yeah, John, it is a concern. We've seen a really sharp rebound in oil prices since the lows back in July, and most of that has been driven by developments in the Middle East. That said, volatility there is extremely high, so we're not in the business of making day-to-day calls on oil prices.
The way we think about it is through the lens of the Fed. If we see a sustained and significant rise in oil prices, it creates an inflation problem. Now, I will say that Fed rate hikes don't actually solve an oil supply shock. There's very little the Fed can do to control the supply of oil.
What higher oil prices do, however, is raise the risk of inflation to the point where the Fed may need to hike more than markets currently expect. Remember the old adage: economic cycles don't die of old age; they're killed by the Fed.
That's really what we're focused on right now, what this means for Fed policy. The bond market is currently pricing in around two rate hikes for the remainder of 2026. Oil will be a key factor in determining whether that view holds.
We have two major forces that seem set to collide in the back half of the year. On one hand, we have a Fed that is more hawkish than many investors expected under Warsh. On the other hand, we have massive capital spending, particularly around AI-related investment, which requires significant liquidity. If the Fed raises the cost of capital at the same time that demand for capital is growing, those two forces could become one of the dominant market themes in the second half of 2026.
John Bryson
Gotcha. And that would certainly have an impact on earnings. Matt, I want to pivot to earnings. Why have we seen such strong earnings this season on paper, yet a somewhat mixed market reaction?
Matt Miskin
Yeah, it's almost like a Facebook relationship status: it's complicated.
There are so many factors at play when companies report earnings. It used to be relatively simple. A company would report the money it made, maybe announce some share buybacks, and that would support the stock price.
Now we're dealing with the so-called hyperscalers, essentially the Magnificent Seven-type companies. They're enormous in terms of market value and profitability. But what we're seeing is that they're spending more money than they're generating in cash flow.
Traditional finance would tell you that you want to spend less than you make and keep the difference as profit. But right now, many of these companies are showing negative free cash flow because they're investing enormous amounts in data centers, semiconductors, and AI infrastructure.
Cash flow is often the proof point behind earnings. As the saying goes, earnings are an opinion; cash flow is a fact.
Because of depreciation accounting, companies only recognize a portion of those spending costs each quarter, which allows reported profits to remain strong. In addition, many of these companies have investments in private technology firms, and gains on those investments are boosting reported earnings.
There are a lot of moving pieces. At the end of the day, earnings growth for the S&P 500 is on track to be up 37% year over year. That's almost unheard of outside of a recession recovery.
This isn't primarily because of tax cuts, a weaker dollar, or lower interest rates. Instead, it's largely being driven by a massive AI investment cycle across corporate America. That spending is also benefiting other industries, as money flows through the economy.
One of the interesting developments is that mid-cap and small-cap stocks are outperforming large growth stocks for the first time in years. That's positive because it means diversification is working again within equities.
So the earnings engine remains strong. The challenge is that many of these companies are spending extraordinary amounts of money. Investors are looking beneath the headline earnings numbers and evaluating how sustainable that spending really is. That's why some stocks have sold off despite reporting strong earnings.
Overall, though, the market has held up fairly well. The companies receiving the spending are increasingly taking on leadership roles within the equity market.
John Bryson
Okay, let's talk about that leadership. Emily, Matt mentioned that, for the first time in a long time, mid-caps and small-caps are outperforming large growth stocks. We're seeing it this year. Does that mean we're experiencing a changing of the guard away from the Magnificent Seven?
Emily Roland
Yeah, John, we're certainly seeing that so far this year.
If you look at the Russell 1000 Growth Index, where many of the Magnificent Seven names reside, it's actually modestly down for the year. As Matt mentioned, we're seeing outperformance across the value segment of the market, and we're seeing it lower down the market-cap spectrum, particularly in mid-caps.
One key reason is spending fatigue. Investors are increasingly following cash flows and focusing on where that spending is going. It's not necessarily about owning the big spenders right now, even though those companies have outstanding balance sheets and remain very high-quality businesses.
Instead, it's been about owning the technologies and businesses that benefit from all that spending. Industrials are one example we've talked about frequently. They've benefited from the One Big Beautiful Bill and can perform reasonably well during periods of higher inflation.
Mid-cap stocks also tend to have greater exposure to industrials. We've also discussed utilities as an inflation hedge because they provide income and can be more defensive. Infrastructure is another area where we've seen investors rotate.
Overall, this broadening out of market leadership is healthy. Concentration risk has been one of the biggest concerns we've highlighted. Roughly 40% of the S&P 500 is concentrated in just ten companies.
Seeing market leadership become more diversified is certainly not a bad thing. Among these opportunities, mid-caps remain our preferred area over small-caps. Mid-cap companies have delivered stronger earnings results this quarter, offer greater diversification, tend to be higher quality, generate better returns on equity, and carry lower debt levels. That's why they've been a sweet spot for us in this broader market rotation.
John Bryson
Very good. I want to pivot and talk about this week's Fed meeting. Matt, Emily mentioned that a lot of people are surprised by how hawkish Warsh has been. What does a hawkish hold mean for the Fed, and where do you think we're headed?
Matt Miskin
Yeah. Warsh came into his first press conference and made it very clear that inflation remains the number one priority. He also indicated that the labor market isn't in particularly bad shape. The unemployment rate is still relatively low at about 4.4%.
As the past couple of months have unfolded, oil prices initially fell significantly, dropping from more than $100 a barrel to around $67. Today, they're back up in the mid-$80 range. Higher oil prices can create an inflationary impulse.
At the same time, June CPI data came in very soft. Inflation was flat month over month, and shelter inflation has continued to slow. We've already been seeing that trend in real-world data, although it's taken longer to appear in official government statistics.
Our expectation is that Warsh will use the July meeting to prepare markets for a possible September rate hike. Essentially, he'll say, "Be ready. We may need to raise rates."
What's interesting as a bond investor is the variety of interpretations people have about Fed policy. Some argue that if the Fed turns dovish and suggests rates may not need to rise, long-term Treasury yields could actually increase because investors would worry that inflation is not being adequately addressed.
Conversely, if the Fed raises rates, we could see longer-term yields fall as investors move into safer assets and risk appetite declines. Equity markets, especially riskier segments, have performed remarkably well this year.
If the Fed tightens policy, risk assets could sell off and high-quality bonds could benefit, leading to a flatter yield curve.
It's a difficult environment to forecast. The Fed is constantly trying to communicate its intentions, and markets are constantly reacting. At the end of the day, much of policymaking involves trial and error.
We don't think the Fed is going to move too far, too fast. If they hike, it will likely be a 25-basis-point move, after which they'll evaluate the impact. If markets handle it well, perhaps they'll consider one more hike.
Beyond that, we actually think rate cuts could be possible next year. Much of the recent economic strength came from fiscal stimulus, and if that boost fades while rates are being increased, growth could weaken enough to require future easing.
Investors shouldn't become too attached to any single outcome. The key is building a portfolio that can navigate multiple scenarios.
In fixed income, we continue to favor corporate credit. Corporate bonds should perform reasonably well if growth remains solid. We are positioned slightly below benchmark duration while maintaining exposure to areas such as high yield.
At the end of the day, bonds are yielding roughly 5% to 6%, depending on credit quality. That's the primary reason to own them. Stocks are up anywhere from 5% to 20%, depending on the market. Bonds are down a bit, but that's part of diversification. The good news is that yields have become more attractive, and we believe they're appealing for long-term investors regardless of how the Fed ultimately proceeds.
John Bryson
So, Emily, broaden that out for me. Matt likes bonds and likes the current yield environment. What are you thinking about for the portfolio as a whole going forward?
Emily Roland
Yeah, John, Matt said it really well. I was thinking about using a golf analogy here, although I'm not especially good at sports analogies. I'm usually better with shopping analogies.
We've been thinking about portfolio construction as your bag of golf clubs and making sure you're using all the tools available to you.
When we think about a balanced portfolio today, investors are actually in a pretty good position. Stocks are doing well, and for the fourth year in a row, bonds are offering elevated income. The backup in bond yields that Matt mentioned creates a more attractive entry point.
Equities are like your driver. They help you deal with inflation. Historically, stocks tend to perform reasonably well when inflation runs between 2% and 4%. We're also seeing one of the strongest earnings seasons in modern history, which helps preserve purchasing power if inflation begins to reaccelerate, even though that's not our base case.
And don't forget about bonds. They're the club in the bag you use when conditions change.
Right now, bonds haven't been getting much attention because the economy has performed better than expected. But if growth begins to slow, they could play a much more important role.
We're not forecasting a dramatic slowdown, but there are signs worth watching. Job growth was just 57,000 last month. The tailwind from the World Cup is fading. The housing market remains soft. The NAHB Homebuilder Sentiment Index is at its lowest level since 2020. Wage growth is moderating as well.
All of those factors should contribute to slower inflation and slower economic growth, assuming we don't see a major spike in prices. In that type of environment, fixed income could become an important driver of returns.
So we wouldn't forget about bonds. We'd keep that club in the bag and ready to use. That's how we're thinking about balancing portfolios as we move into a second half of the year that could bring more volatility because of the competing forces we've discussed.
John Bryson
Got it. Well, you certainly nailed the investment side of things, and I think you did a pretty good job with the golf analogy too. It reminds me, since Matt mentioned golf earlier, that I have one final question for you, Matt. Emily is being modest. Of the three people on this podcast, who do you think has the most long-drive championship awards?
Matt Miskin
I'll go with you on that one, I guess.
John Bryson
No, it's not me. It's Emily. I've golfed with her a number of times, and she's a regular winner of long-drive contests. So you might want to pay attention to what she's saying, both about investing and on the golf course.
There you go. Hey, folks, thanks, as always, for listening to the show. If you'd like to subscribe to Portfolio Intelligence, please do so wherever you get your favorite podcasts.
John Bryson
If you want to hear more, please follow Matt and Emily on LinkedIn or visit our website for viewpoints on all things investing, great business-building ideas, and much, much more. Thanks for listening to the show.
John Bryson
This podcast is brought to you by John Hancock Investment Management Distributors, LLC, member FINRA/SIPC. The views and opinions expressed in this podcast are those of the speakers, are subject to change as market and other conditions warrant, and do not constitute investment advice or a recommendation regarding any specific product or security. There is no guarantee that any investment strategy discussed will be successful or achieve any particular level of results.
Any economic or market performance information is historical and is not indicative of future results, and no forecasts are guaranteed. Investing involves risks, including the potential loss of principal.
The Russell 1000 Growth Index tracks the performance of publicly traded large-cap companies in the United States with higher price-to-book ratios and higher forecasted growth values. The S&P 500 Index tracks the performance of 500 of the largest publicly traded companies in the United States. It is not possible to invest directly in an index.