AI's Trillion-Dollar Bet Fuels Market Rally Amid Midterm Election Jitters

MINNEAPOLIS, MN – June 15, 2026 – In a market defined by a persistent “wall of worry,” the U.S. economy and its equity markets have demonstrated remarkable resilience through the first half of 2026. Despite a challenging landscape of geopolitical friction, multi-year highs in Treasury yields, and the approaching shadow of midterm elections, the bull market is charging into its fourth year. A new mid-year outlook from RBC Wealth Management credits this staying power to one primary driver: explosive corporate earnings, supercharged by an unprecedented wave of investment in Artificial Intelligence.

While investors are being rewarded for their discipline, the report cautions that significant hurdles remain. The historical volatility associated with election cycles and the challenging environment for fixed income demand a strategic, not speculative, approach to portfolio management.

The Earnings Engine and Its AI Fuel

The great stabilizer for the market this year has been a corporate profit cycle that has defied pessimistic forecasts. "Corporate earnings have been the great stabilizer this year, and the profit outlook for 2026 and 2027 has brightened notably since January," said Kelly Bogdanova, Vice President and Portfolio Analyst at RBC Wealth Management–U.S. This brightening is not just a flicker; it's a floodlight.

Data from market analysts at FactSet confirms this trend, showing a blended S&P 500 earnings growth rate of 27.1% for the first quarter of 2026. An astonishing 84% of companies that have reported have surpassed earnings-per-share estimates, a figure significantly above the five- and ten-year averages. This robust performance provides the fundamental support necessary for the bull market's continuation.

At the heart of this earnings surge is the Information Technology sector. While RBC's report notes a staggering 49% year-over-year profit growth for the sector in Q1, other analyses from firms like J.P. Morgan Asset Management place the figure similarly high at 45%, driven by a near-95% growth rate in the semiconductor sub-sector alone. This boom is being fueled by a historic capital expenditure cycle centered on AI.

The scale of this investment is difficult to overstate. While RBC projects AI-related capital spending will hit US$668 billion in 2026, a 75% surge, broader industry forecasts suggest this may be a conservative estimate. Research from Gartner, for example, projects total worldwide AI spending could reach $2.52 trillion this year. The five largest U.S. cloud and AI infrastructure providers—Microsoft, Alphabet, Amazon, Meta, and Oracle—are collectively on track to spend between $700 billion and $900 billion on capital expenditures in 2026, with the vast majority earmarked for AI compute and data centers. According to Morgan Stanley research, this AI infrastructure buildout is expected to contribute approximately a quarter of all U.S. GDP growth this year.

This capital flood is translating directly into revenue for tech giants. Google Cloud, Microsoft's Azure, and Meta all reported massive year-over-year revenue growth in Q1, directly attributing the gains to AI demand. However, some analysts caution that a “revenue gap” is emerging, where AI capital expenditure is currently outpacing the direct revenue being generated. For now, the spending itself is a powerful economic stimulus, boosting earnings across the tech supply chain and solidifying the market's foundation.

Navigating the Gauntlet: Midterms and Yields

Even with a strong earnings tailwind, the path forward is not without obstacles. RBC's outlook rightfully flags the upcoming November 3 midterm elections as a significant source of potential volatility. History provides a sobering lesson: since 1934, the S&P 500 has weathered an average correction of 21% in and around midterm election years. "We are watching the midterm election dynamic closely, and history tells us it is an obstacle worth respecting," Bogdanova warned.

This political uncertainty is compounded by a challenging fixed-income environment. Global bond markets are under pressure as yields climb, pushing total returns into negative territory for the year. Thirty-year government bond yields in major economies are hovering near twenty-year highs. RBC’s base case sees the Federal Reserve holding rates steady for the remainder of 2026 but maintaining a clear bias toward future hikes. This leaves room for the benchmark 10-year Treasury yield to re-test its recent cycle highs of 4.8% and potentially the 5.0% level seen in 2023.

For investors, this landscape requires a dual strategy. On the equity side, RBC recommends maintaining a Market Weight position in U.S. stocks, acknowledging their resilience while advising scrutiny of high-flying Technology holdings that could be susceptible to sharp pullbacks. In the fixed-income space, with bond price appreciation unlikely, the focus shifts squarely to income generation. While corporate credit spreads are tight, the report suggests that in the absence of a recession, corporate bonds and alternatives like bank-issued hybrid preferred bonds offer reasonable performance and attractive income streams.

The Five Forces Reshaping the Next Decade

Beyond the immediate market crosscurrents, RBC’s analysis identifies five powerful, long-term trends set to fundamentally reshape investment portfolios for decades to come. These “unstoppable forces” transcend typical economic cycles and represent the deep structural shifts defining the future enterprise.

First and foremost is Artificial Intelligence, whose capital spending boom is already propping up the current market. The second force is Aging Demographics, with the global population of those aged 65 and older projected to approach 1.6 billion by 2050, creating sustained demand in healthcare, wealth management, and leisure.

Closely related is the third trend, Medical Advances, where AI is acting as a dramatic accelerant for breakthroughs in biology and genomics, promising a new era of personalized medicine and therapies. The fourth force is the Renewable Energy transition, with solar power on a trajectory to become the world’s primary source of electricity by 2032, driving massive infrastructure investment. Finally, intensifying geopolitical friction and a shift to a multipolar world order are fueling the fifth trend: a structural increase in global Defense Spending.

These five forces are not just abstract future concepts; they are active drivers of capital allocation and corporate strategy today. Understanding their trajectory is essential for investors looking to build resilient portfolios that can weather short-term volatility while capturing long-term, secular growth. The current market's ability to climb its wall of worry is a testament to the powerful earnings growth fueled by the first of these trends, even as the others gather momentum to define the economic landscape of tomorrow.