U.S. economic growth in the second half of 2026 may be challenged by AI, “rising consumer strain,” and high inflation and interest rates, according to a mid-year market forecast released by iCapital on Tuesday.
U.S. economic momentum should continue into the third quarter this year, but those “three potential speed traps could begin to slow down growth,” says iCapital’s 2026 Mid-Year Outlook.
The potential AI challenges come as the technology moves from “scale to scrutiny,” according to iCapital.
When it comes to AI, the outlook says, “Hyperscaler capital investment has more than tripled since 2023, compressing free cash flow as competition intensifies. The focus is shifting from how much is being spent to how quickly it can be monetized.”
Consumer spending, meanwhile, is being “propped up by a shrinking savings cushion, rising leverage, and a narrowing base of high-income households,” according to iCapital.
Inflation has “remained above target for over five years, with structural forces anchoring a higher floor,” the outlook goes on to say.
“2026 has been resilient despite a complex macro environment, buoyed by strong earnings momentum,” according to Sonali Basak, Managing Director and Chief Investment Strategist at iCapital.
“Yet one major consideration remains for the remainder of the year: Will AI capex vigilantes emerge?” she told Wealth Solutions Report by email. “With record spending and wide-open capital markets, it’s clear that the need to finance AI buildouts will require continued equity, debt, and private market fundraisers.”
She added, “We believe investors will be intensely assessing the returns on every dollar, particularly as AI productivity has not yet truly proven itself.”
Basak went on to tell WSR, “Elevated stock-bond correlations have also spurred clients to continuously seek diversification, uncorrelated returns, and downside protection. Thus, despite the flurry of headlines around private credit redemptions, we have seen continued interest in private equity, hedge funds, and infrastructure, which tend to perform well in periods of moderate to high inflation.”
The outlook also labeled the “re-escalation” between the U.S. and Iran “underpriced,” explaining: “Markets have largely priced out the conflict, but the truce is fragile and a mid-term election year complicates the path to a durable resolution.”
iCapital also predicted that the Fed will not raise interest rates this year, noting that the market has priced in 1.5% hikes, but stating that the risks point toward cuts.
A Look Back At December’s Forecast
In December, Basak pointed out in iCapital’s 2026 outlook, “There have been few times in the past decade when investors have been so divided about the future.”
“Some of the same voices that predicted the 2008 crisis are now bullish heading into 2026,” she said at the time. “Others, after three years of double-digit S&P 500 gains, fear an AI bubble is about to burst. The same investors who are enjoying the prosperity that’s been forming from the AI revolution are also warning that calamity might be coming for companies that are not set to benefit from the rapid pace of technological change.”
Jeff Berman, Contributing Editor and Reporter at Wealth Solutions Report, can be reached at jeff.berman@wealthsolutionsreport.com.
