Market Outlook 2026: AI Stocks, Fed & Energy

Let's get to the big story breakdown.

Wall Street set to soar out the open after a turbulent week.

Last week we saw the S&P 500 notching a second straight weekly decline and the max 7 shedding nearly 6%.

Now investors are grappling with extreme index concentration and reevaluating whether a return on investment can justify current evaluations, but beneath the headline volatility, the market is running.

We here to share his strategic playbook for the second half is Ryan Kelly, chief investment officer.

At Legato Financial.

Great to have you here.

Thank you so much for joining me.

Thank you for having me.

Well, here we are on this Monday morning and we are looking at stock futures set to soar ahead of the open, but this does come after the volatility last week and the red across the board we saw at the end of last week.

So where do we stand right now when it comes to mega C tech?

Well, we've got a lot of unknowns, I think, right now.

So we're really looking to see this week on how these reports come out.

Are we getting some monetization?

Are we getting too much CapE?

Obviously we saw Google last week with more Capex than their cash flow, which the market certainly didn't like, but we've also got this overarching situation in Iran and it just kind of keeps swinging back and forth, and we really can't get footing for more than a couple of weeks at a time.

Yes, absolutely, because all asset classes have been seeing plenty of volatility in 2026, and as you mentioned, the geopolitical situation in the Middle East is something that we are keeping our eyes on.

And right now we know that there has been a pause in terms of the conflict, but there's plenty of uncertainty.

So when it comes to what we're seeing with the AI trade, where are you focused on and where are the opportunities in the second half?

Yeah, so we're still looking at valuations.

Obviously there's there's kind of a rabid enthusiasm in some sectors, in some areas, but there are some securities that I think are still from a traditional valuation standpoint, pretty cheap.

Micron is a great example of that.

We've been continuing to invest in that.

SK Heinix, we're definitely focused on the memory space.

SK is tougher because you do have the premium on the US shares, which makes it more difficult to trade.

But I think memory is probably our biggest focus.

Yeah, and I think when we're talking about a concentrated market, it's important to look at funds as well as concentrations.

So when you're looking at the AI trade, where are you seeing opportunities and where do we have to be careful, especially as we head into earnings season and on the heels of Alphabet's report.

Yeah, so I think we've seen so many little pieces of the AI space go on these tremendous runs and then kind of pull back.

Obviously software is the one that really hasn't recovered.

I'd be very interested to see if some of these others, I mean we're we're looking at really all the memory names down 20, 30+%.

So I think that there are good opportunities there.

I'm a little bit worried about Intel and AMD.

They've had a lot more demand, but they've really run up just so much.

And when we look at an index such as the Philly semiconductor index or the SOx, we know year to date they are seeing gains above 60% year to date.

But when we look at the individual.

Names within the sector we know that we need to keep an eye on what's moving them and the fundamentals as well as valuation.

So how are you looking at this space and what should investors keep in mind?

So we're really looking for execution.

Are we actually turning in the right numbers?

We're looking for projections.

Have we increased sales?

Have we increased profit margins?

Have companies What is their PE expected to be over the next couple of years, so we're still closely following fundamentals.

I think you can get a little bit lost in the hype sometimes, but if you go back to the fundamentals, then I think that you can still survive this market pretty well.

And another area we're paying attention to is energy in particular.

Energy demand when it comes to artificial intelligence.

So when we look at an index such as the S&P 500, we know that energy is leading the way higher, at least for now, and we'll have to monitor that space for the rest of 2026.

But what areas are you paying attention to when it comes to energy within AI?

So, energy I expect to continue to be volatile.

I don't know that the situation in Iran doesn't sound like it's solved yet.

It's just another pause.

So I'm expecting more kind of whiplashes back and forth.

We're definitely overweight, energy in general.

One place that we've invested in is Total Energy in any.

Big energy companies that are really kind of focused on getting some oil from Africa, some different areas of the world that are kind of outside the conflict zones, I suppose, and still looking at tremendous demand really around the world.

So I think there's other opportunities besides just Exxon and Chevron.

Yes, and this week we will be hearing from some key names within the energy space when it comes to earnings.

So that is something we'll pay attention to as well as those earnings calls to hear what management has to say.

But finally, before I let you go, I do want to mention the fact that it is the Fed meeting this week and we will be listening to hear what the Fed.

Officials have to say, but when it comes to your perspective in terms of the rate outlook, what would you say to American consumers right now who are concerned about inflation and the trajectory moving forward?

Well, I really think most of inflation is centered around Iran and oil in general, and I think that that's filtered through the rest of the economy.

Unfortunately, and this is probably very.

For investors, but I don't think there's a whole lot the Fed can do about countering higher oil prices.

I know that they can raise rates, slow down the economy, maybe help with some general inflation, but I really think that that's kind of an independent situation that the Fed can't do that much about.

And finally, before I let you go for your market outlook for the rest of 2026, what is your base case?

I think it really depends again on what happens in Iran.

I do think quite a few of these AI names are going to recover and go back up, whether they end the year much higher, I'm not sure, but I do think over the long term we're going to have a pretty positive market.

Well, it was a pleasure having you on the show this morning.

Thank you so much for joining us, Ryan.

I appreciate your time and all of your insights.

All right, thank you.

Thank you.