Equity markets remain supported by strong earnings growth, with expectations for continued momentum into 2026 and 2027. The passage of the “Big Beautiful Bill” is set to provide a meaningful boost to economic activity through tax incentives for individuals and increased corporate capital spending. The Federal Reserve has begun cutting rates without triggering a recession, and markets anticipate a move down toward a 3.0% federal funds rate from the current 4.25%. Lower rates are expected to drive some of the $7 trillion parked in money market funds back into risk assets, though tightening liquidity in the banking system could pose challenges. Meanwhile, AI infrastructure spending has surged to roughly $360 billion in 2025, up 80% year-over-year, adding a significant tailwind to GDP but likely facing slower growth in 2026 as the base effect sets in.

Technology continues to dominate the market, accounting for nearly half of the S&P 500, but concentration risk is a concern, particularly with companies like Nvidia carrying outsized weight. While seasonality has not pressured markets in August or September, volatility could rise in October as some tech firms report mixed quarters. Looking forward, the bull case projects the S&P 500 reaching 7,200 in 2026—an 8% gain—assuming lower rates and broader market participation. Risks include retail-driven trading that may overlook valuations, potential pressures on mega-cap tech margins, and thinning liquidity in credit markets. Defensive positioning through tactical allocation, hedging strategies, and selective exposure to income-oriented or value securities is advised to help mitigate potential downside.

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