Fragasso’s recent 2026 Portfolio Management webinar brought together members of our investment team to discuss a range of timely topics, including the market’s strong year-to-date performance, the continued impact of artificial intelligence on the economy, and the likely effects of higher inflation, energy prices, and global conflicts. The panel also considered how portfolios can be positioned to best withstand these cross currents.
Watch the full panel event or jump directly to our discussion of the following topics at the time stamps linked below.
Drivers of market performance (7:15)
At the time of our panel discussion, the S&P 500 was up over 10% for the year, supported by strong earnings growth. More importantly, the bull market has broadened in recent months. International stocks, “old economy” sectors like energy, industrials, and materials, and smaller companies have actually outperformed the megacap tech companies that have dominated returns for most of the last decade.
AI Impact (12:30)
Artificial intelligence is already a major contributor to business investment and GDP growth, and the buildout of technology and power infrastructure has been a boon for multiple sectors. However, uncertainties around the rate of continued technological progress, availability of financing, and the ultimate profitability levels of AI providers have produced big swings in market sentiment. Concerns about the dangers posed by AI are also likely to lead to regulation of the sector at some point.
Market Outlook (19:53)
To date, the economy has largely shrugged off the impact of the Iran war, higher oil prices, and rising interest rates. The AI boom, growth in domestic energy production, and healthy levels of employment have helped offset these market headwinds. While rising interest rates may eventually slow the economy and reduce the appeal of stocks, government and corporate bond yields in the mid-single digits make fixed income allocations more compelling than in years past.
Fiscal Responsibility and Inflation (42:20)
Government debt and budget deficits have been a growing problem for decades, with no easy solution. Thankfully, the U.S. dollar still has few rivals as the world’s reserve currency, but both cutting spending and increasing taxation are politically unpalatable to large portions of the population, and a compromise between them seems extremely unlikely in the current political environment. Inflation risk seems here to stay, making diversification of currency, credit, and interest rate risks increasingly important in bond portfolios.
Audience Questions and Answers
We also received a number of questions from audience members during and after the presentation.
What impact will the upcoming midterms have on market performance?
Election years are often marked by volatility, and the final quarter of the year often sees swings in sentiment as investors begin to look ahead to an uncertain future. Over the long run, though, neither party has consistently generated positive (or negative) market returns. Although certain policies can influence company and sector performance in the short run, valuations, competitive positioning, and long-term secular trends like the growth of AI often overwhelm political factors. Furthermore, the economy itself is highly complex, and the individual decisions that drive growth, like a consumer’s choice to visit a restaurant or purchase a new car, are influenced by a myriad of factors beyond the political party in power.
To what extent is “circular financing” contributing to the growth of AI?
Financing is a major risk factor related to the AI buildout. Chip vendors are increasingly financing purchases of their products by fast-growing customers. The cash needs for the AI infrastructure buildout are staggering—roughly $1.5 trillion in 2026 alone.1 Even the largest companies have migrated from financing expenditures with available cash, to borrowing against assets, to issuing equity to fund their AI aspirations. Technology is progressing rapidly, and competition is intense, making returns on these investments uncertain—some losses are almost inevitable.
However, AI demand and revenue are still growing exponentially. The speed of adoption has been unusual even by tech industry standards. Financing that sort of customer growth is not necessarily irrational, and AI’s economic impact still seems to be in the early stages. From a portfolio management perspective, opportunities may exist in the growth of AI spending but be cautious managing the risks of concentration in the space in the event the expensive aspirations of today’s market leaders do not pan out.
How is income inequality affecting the economy?
Much has been made in recent years of the “K-shaped” economy. Stock market and home price gains have boosted the fortunes of wealthier households, while lower-income consumers have struggled to keep pace with inflation. Looking forward, income inequality could continue to grow as returns from technological advances accrue to the owners of capital rather than to labor. To date, spending by the affluent has kept the economy running smoothly, but that could change if inflation is eventually accompanied by rising unemployment, particularly in the white-collar industries that may be the first to be disrupted by AI.
Inequality is also driving wider political divides around the world, with both sides proposing increasingly extreme solutions to the problems created by the growing concentration of wealth and power. Diversifying portfolios into companies less affected by potential regulation and government interference, and shielding income and wealth from taxes to the extent possible are two priorities in such an environment.
Investment implications
Our outlook remains constructive, but the drivers of strong results—earnings growth, continued AI investment, and low unemployment—are increasingly balanced by the risks of higher interest rates, geopolitical uncertainty, and elevated valuations. The importance of diversification across market capitalization (size), geography, and industry was demonstrated over the past year as the market rally broadened and foreign currencies rose against the dollar. We believe fixed income diversification is of equal importance. Exposure to various categories of credit, interest rate, and liquidity risk can help portfolios perform in changing market conditions. Finally, tax-aware investment management is mandatory given the upcoming election and potential changes in fiscal policy.
Conclusion
While market conditions will continue to evolve, our commitment to thoughtful, disciplined investment management remains unchanged. By focusing on diversification, managing risk, and identifying opportunities across changing economic environments, we aim to keep client portfolios aligned with their long-term financial objectives. We appreciate everyone who joined us for this discussion and submitted thoughtful questions. As always, our team remains committed to keeping you informed and helping you navigate the opportunities and challenges ahead. We encourage you to reach out to your Fragasso wealth advisor with any questions about the topics discussed or how they may relate to your personal financial goals.
Source:
1. https://www.gartner.com/en/newsroom/press-releases/2026-09-16-gartner-forecasts-worldwide-ai-spending-to-grow-49-point-5-percent-in-2026
