The second half of the year is upon us and quarter three 2026 is in full swing, join us as we look ahead at what to expect in the market.

One message stands out across major investment firms: the economy has proven more resilient than many expected, but investors should prepare for a market environment that may be both rewarding and unpredictable.

Our outlook reviews the latest Q3 outlooks from three major investment leaders:

• Cetera Investment Management (CIM)
• BlackRock
• J.P. Morgan

The good news? Recession fears have faded, consumers continue to spend, businesses are investing, and corporate earnings remain healthy.

The challenge is that inflation, geopolitical tensions, and lofty expectations, particularly around artificial intelligence (AI), continue to create potential bumps in the road.

The Economy Continues to Show Strength

Despite persistent headlines about inflation and global uncertainty, the U.S. economy has remained remarkably durable. Employment levels are healthy, consumer spending continues to support growth, and many companies are still delivering solid earnings.

While growth may not be as rapid as it was during the post-pandemic recovery, the overall economic backdrop remains constructive. Most economists and market strategists do not view recession as the most likely outcome today.

AI Remains the Market's Headline

If there is one theme driving markets right now, it's artificial intelligence.

Companies are investing aggressively in AI-related technology, infrastructure, data centers, semiconductors, and energy resources needed to support this transformation. Investors have rewarded many of these businesses with strong stock performance.

The opportunity is real, but so are the expectations. Markets have already priced in significant future growth, which means investors will be watching closely to ensure companies can deliver on those promises.

For long-term investors, the AI revolution appears to be more marathon than sprint. The opportunity extends well beyond technology firms and into sectors such as energy, industrials, infrastructure, and communications.

Inflation Isn't Gone

Inflation has moderated from its peak levels, but it remains higher than many investors became accustomed to during the 2010s.

Several factors could keep inflation somewhat elevated in the years ahead:

• Labor shortages in key industries
• Higher demand for energy and infrastructure
• Continued investment in AI and technology
• Geopolitical disruptions that affect global supply chains

The takeaway is simple: investors should not assume we're returning to an era of near-zero interest rates anytime soon.

What About Interest Rates?

The Federal Reserve remains cautious.

While rate cuts may eventually occur, expectations for rapid policy easing have been pushed further into the future. Interest rates are likely to remain higher than many investors expected just a year ago.

That isn't necessarily bad news. Higher rates have made bonds attractive again, providing investors with opportunities to generate income that hasn't been available for much of the past decade.

Why Diversification Matters More Than Ever

One of the strongest areas of agreement among major investment firms is the importance of diversification.

Today's market faces a unique combination of:

• Inflation uncertainty
• Geopolitical risks
• Market concentration in a handful of large technology companies
• Shifting Monetary Policy

A diversified portfolio can help reduce dependence on any single investment theme or sector.

This doesn't mean avoiding opportunities like AI. It means balancing growth opportunities with investments that can potentially provide stability during periods of market volatility.

While the headlines may feel noisy at times, there's no need to make sudden changes based on every market or economic development. The purpose of sharing these insights is simply to keep you informed about the environment we're investing in. Stay focused on the plan, we’ll continue doing the heavy lifting!

A diversified portfolio does not assure a profit or protect against loss in a declining market.

Key Takeaways for Investors

As we enter Q3, several themes appear clear:

• The economy remains on solid footing.
• AI continues to drive growth, investment, and market performance.
• Inflation is improving but may remain above pre-pandemic norms.
• Diversification remains one of the most important tools for managing uncertainty.
• Geopolitical events and market volatility are likely to remain part of the investment landscape.

Final Thoughts

The second half of 2026 presents both promise and pressure. Economic growth remains intact, but markets are increasingly dependent on strong corporate execution, especially among the companies leading the AI boom.

For investors, the goal isn't to predict every headline. It's to remain disciplined, diversified, and focused on long-term objectives.

Markets will undoubtedly experience periods of volatility, but history reminds us that patient investors who stay focused on their plan are often best positioned to benefit from long-term opportunities.

As always, if you have questions about your portfolio or how current market conditions may affect your financial goals, please reach out. We're here to help you navigate the opportunities and risks ahead with confidence.

The views stated in this letter are not necessarily the opinion ofCetera Wealth Services, LLCand should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.