There are times when it pays to run with the herd—and times when it pays to fade the crowd. As we enter the second half of 2026, we think the consensus has it wrong and it’s time to be contrarian on some key calls.
Equities and the Economy: Risky Business
Recently we’ve seen some major banks raise their year-end S&P 500 targets. To our mind, this bullishness fails to appreciate looming risks to the market and the economy.
For starters, inflation is re-emerging as a big problem with headline Consumer Price Index (CPI) running at 4%—and it’s a problem that is likely to only get worse in the next six months. The on again, off again Strait of Hormuz crisis is very much on again with the collapse of the ceasefire. Already we’re seeing crude oil rise and that trend could well continue. What helped save the oil market from extreme tightness when Iran first closed the Strait was China’s decision to drastically slash crude imports—a move that required drawing on domestic stockpiles. That may not be feasible this time around.
Meanwhile, the labor market is weak. We’ve seen downward revisions to payrolls in the last few months, which does not suggest an economy bursting with momentum. The combination of high and rising inflation plus a softening labor market is less than ideal for the economy—and it’s not great for the market, either.
What’s more, corporate capex in the form of AI spending is now responsible for most of GDP growth —the sort of concentration that can pose risks to the downside. Add in the FOMC’s effective elimination of forward guidance plus the upcoming midterms and we would suggest volatility is set to rise. Higher for longer rates plus rising volatility should be beneficial for Kurv Enhanced Short Maturity ETF (LQID) and Kurv High Income ETF (KYLD).
For equity investors, we believe sticking with the sectors that continue to enjoy earnings growth is the best course of action. Both the Kurv Technology Titans Select ETF (KQQQ) and the Kurv Memory Select ETF (KMEM) may benefit from AI spending and extreme demand/supply imbalance. By contrast, we would avoid rate-sensitive stocks such as consumer discretionary and consumer cyclical names. Many of these companies will be unable to pass along the full extent of supply side inflation, impacting their earnings.
Looking at individual names, we see sparkles of opportunity in MSFT and NFLX, which have both become cheap. NVDA, for its part, has sold off to the point where it’s back to its Price-to-Earnings (P/E) ratio of 2023-2024.
All About Those Rates (Staying Flat)
With regards to rates, the market is pricing in 1-2 hikes by the Fed this year. We’re contrarian here, too: A case of mild stagflation is a recipe for a Fed with its hands tied; unlikely to cut rates for fear of throwing fuel on elevated inflation and similarly unwilling to raise rates because that could tip the U.S. into recession.
Curve Appeal
While we don’t see short-term rates moving, we do think long-term yields will continue their ascent, resulting in a steeper yield curve. The federal government just won’t stop spending at nosebleed levels, and this necessitates massive Treasury issuance.
Currencies: Land of the Falling Yen
On the currency front, it’s clear that Japan is trying to support the Yen, and equally clear to us that this will ultimately fail given the dreadful fiscal backdrop facing the country. The Pound and Euro are not in nearly the same dire shape, but both should depreciate vs. the U.S. dollar given the lower real interest rates in the Eurozone and the fact the Bank of England is on hold. Of all the crosses, we think Emerging Market currencies are best positioned against the Greenback. Many EM countries are (ironically) in better fiscal shape than developed markets, and they’ve been able to diversify trade away from the U.S. and its tariffs.
Commodities: Red Metal in the Black?
Looking at commodities, we think copper could yet make a move given AI spending and the trend toward electrification. Keeping with metals, gold is a real rates story. Today’s level of real rates is high, but they could come down if the Fed pins nominal rates while inflation rises—benefitting Kurv Gold Enhanced Income ETF (KGLD).
Avoid Credit Where its Not Due
In our 2026 outlook, we made the case that investment grade credit spreads were too tight. While they have widened, we still think the risk-reward argues against investors rushing to own them.
Glossary:
The Consumer Price Index (CPI) is an economic metric that measures the average change over time in the prices paid by urban consumers for a market basket of everyday goods and services.
The VIX (CBOE Volatility Index) is a real-time market index that measures the stock market's expectation of volatility over the coming 30 days.
The P/E (Price-to-Earnings) ratio is a key valuation metric that compares a company's current share price to its earnings per share (EPS).
