Q3 2026 Market View – We Have Liftoff!

Introduction

The first half of the year delivered strong results, though not without its fair share of volatility. As the conflict with Iran begins to enter the rearview mirror, some market headwinds have eased, but sector performance divergence is still expected through year-end. We enter Q3 with continued earnings strength and corporate performance, while remaining attentive to new risks to the broad market. In this edition of Beck Capital Management’s quarterly market view, we will cover:

• Iran – A conclusion or more confusion?
• The New Fed – Warsh’s Regime
• AI Development – A More Nuanced Megatrend
• IPO Mania – We Have Liftoff!
• Earnings Strength – The True Driver of Market Performance

We hope you enjoy this quarterly market outlook.

Iran – A Conclusion or More Confusion?

It seems March has been the month destined for market disruptions in recent years – in 2023, it was the regional bank crisis; in 2025, it was tariff concerns; and this year, it was the Iran war. However, just as the market quickly recovered from its tribulations in ’23 and ’25, we are now emerging from this year’s roadblock. With a Memorandum of Understanding (MOU) now signed between the U.S. and Iran, there is at least an agreement to reach an agreement in place. While negotiations are ongoing and shaky at best, the market is pricing in success.

The Strait of Hormuz and the State of Shipping

Hormuz has always been the key market driver of the Iran conflict. Middle East economics outside the oil supply chain have little influence on U.S. markets, but OPEC and its members have always shaped the global energy landscape, and the recent disruption in the Persian Gulf created the worst energy crisis in decades. With the recent MOU in place, the Strait has essentially reopened, allowing locked-away Gulf oil to flow freely to the world market. After oil prices topped out around $100/bbl for weeks, they have already fallen to the mid-to-low $70 range. 

Ongoing Price Dynamics

Oil prices immediately before the conflict were in the low-$60s to high-$50s range, but a few obstacles stand in the way of a return to those levels. First, if Hormuz remains open for shipping, the new bottleneck will be tanker availability. Tankers are in high demand and short in supply. To fully normalize oil markets, it will take months of round-trip voyages to the Persian Gulf to move pent-up oil stocks. Second, countries around the world have dramatically depleted their petroleum reserves over the past few months. To avoid a true oil drought in the event of a new energy crisis, countries will have to prioritize refilling emergency reserves at current price levels, thereby creating upward pressure on oil prices. Finally, the Iran war destroyed significant oil infrastructure in the Middle East (not to mention the infrastructure that continues to be destroyed in the Ukraine-Russia war). Rebuilding this infrastructure will take time, and in the meantime, other countries will have to ramp up production to pick up the slack. All of these factors support oil prices, so we find it unlikely that new price lows will be seen any time soon. 

Investment Implications

We are taking our time to adjust positioning in the Energy sector. Oil markets are volatile, and the outlook is highly uncertain. We still believe durable long-term trends are in place for natural gas demand – namely LNG shipping and datacenter electricity demand – so we are bullish on companies that are more gas-oriented, particularly in midstream, where we expect higher product volumes to drive revenue growth. There may be a buying opportunity in oil companies if falling oil prices push down stock prices, but we will be patient and wait to execute on that opportunity if it arises. 

The most important result of lower oil prices is the economic impact on the U.S. economy. With higher oil prices, gasoline prices have been elevated, pinching U.S. consumers and suppressing margins for U.S. corporations, particularly those in the industrials, materials, and consumer goods sectors. Less money spent on energy means more available for investment and spending, helping to fuel the broader economy. Additionally, inflation should come down in the coming months without added pressure from fuel prices. Investors have recently been more concerned with inflation, which brings us to the Fed and its reaction function to inflation readings. 

The New Fed – Warsh’s Regime

June marked Kevin Warsh’s first FOMC meeting and press conference as Chairman of the Federal Reserve, after taking over the role from Jerome Powell in late May. While much has remained status quo, Warsh has already implemented more structural and communication shifts in a few weeks than Powell did over his tenure. Some key changes from the latest FOMC meeting:

• The FOMC press statement was significantly shortened, with future-looking guidance entirely omitted.
• Warsh declined to place a dot on the Summary of Economic Projections (SEP, or “Dot Plot”). The dots indicate each Fed member’s expectations for rates at the end of ’26, ’27, ‘28, and in the “longer run.” This is consistent with his longstanding skepticism about its usefulness.
  • Notably, 9 of the 18 dots submitted indicate one or more rate hikes this year, a signal markets quickly priced in. We continue to view no change in rates this year as the most likely scenario.
• The press conference was notably brief. Warsh was focused on reiterating the Fed’s commitment to price stability and previewing a number of task forces he’ll spin up.
  • Warsh was repeatedly adamant that the Fed would achieve price stability, although at one point suggested inflation closer to 2.9% could be considered functionally consistent with a 2% target
• Refocus on the economy, not the Fed – Warsh emphasized the importance of allowing financial markets to use economic signals to shape expectations for future monetary policy, rather than focusing on their interpretations of Fed speakers. 
• Task Forces – Warsh announced five task forces comprised of Fed economists, as well as outside academics and businesspeople, that will reexamine current Fed practices and make suggestions for improvement. This is due to create some consternation among Fed traditionalists, but given the decline in response rates and increased magnitude of post-month revisions to traditional data sources, we think it’s a worthwhile exercise to examine alternatives.

What we’ll be watching

A new dynamic at the Fed is Powell’s decision to remain on the Board of Governors. While most Chairs vacate their seat on the board once they are replaced, this creates a potential “Shadow Fed” dynamic led by Powell. This is largely due to the political nature (perceived or otherwise) of Powell’s replacement, and his desire to ensure the Fed continues to operate in good faith towards its dual mandate of Price Stability and Full Employment.

Warsh has historically been outspoken about his desire to shrink the Fed’s balance sheet. When the Federal Reserve engages in open-market Quantitative Easing, it buys securities (mainly US Treasury securities) to inject more dollars into the market. This is “dovish” and often used in conjunction with rate cuts. 

Given Warsh’s bias toward balance sheet reduction (which would be considered Quantitative Tightening (QT), or “hawkish”), QT could emerge as a substitute for rate hikes—or even be deployed alongside rate cuts. This dynamic supports our base case of no rate hikes this year, with QT offering a more politically and market-palatable path to tighter financial conditions without the signaling impact of a rate hike.

AI Development – A More Nuanced Megatrend

We’ve written, reported, and podcasted extensively about Artificial Intelligence over the past couple of years, so we’ll keep this section relatively brief. The key message is that we have yet to see a slowdown in the AI capex trajectory. Capital expenditure (capex) budgets for U.S. hyperscalers (the companies that fund the majority of AI data center capacity) have increased with each subsequent quarterly report. Amazon, Google, Meta, Microsoft, and Oracle are poised to continue spending billions on infrastructure to power AI systems. As we’ve expressed in prior market views, we have preferred to invest in the “check cashers” of the AI megatrend rather than the “check writers,” a strategy that has proved very fruitful. As shown in the chart below, the semiconductor companies providing hardware to U.S. hyperscalers have outperformed dramatically over the past two months.

The surge in memory producers has been particularly notable as AI continues to drive insatiable demand for memory chips. AI systems generate massive amounts of both short- and long-term data that must be stored. SRAM, DRAM, HBM, and hard drive producers are benefiting from dramatic price increases, fueling exponential earnings growth. Micron (MU), one of our largest portfolio companies, produces DRAM and HBM memory chips. The company has seen its quarterly earnings per share (EPS) rise from $1.91 one year ago to $25.11 as of its most recent report, a 12,000%+ increase! While this rate of growth can’t last forever, memory producers have contracted revenues for the next several years and should continue to benefit from a tight supply chain in the memory space. 

Despite the spotlight on memory, which is the most immediate bottleneck in AI infrastructure, we remain focused on the other picks and shovels of AI as well. Electricity generation, power conversion, fiber-optic cabling, and GPUs remain in high demand and continue to show positive earnings trajectories.

Risks to the AI Trade

AI infrastructure companies have delivered exceptional year-to-date performance, driving much of our portfolio’s outperformance. While we expect continued strong performance from many of these companies, we are constantly evaluating risks in the space. A few notes on risks we’re monitoring that could change our portfolio positioning:

1. Valuations – Lately, we’ve heard analysts increasingly say that AI valuations are “too high.” While some companies have seen multiple expansion, many have seen PE multiples shrink because earnings growth is outpacing stock price growth, meaning the stock is actually a better “value” play despite strong stock performance. As mentioned, some companies have seen their PE ratios grow, and we are trimming those names accordingly if we believe they are reaching overvalued territory.
2. Memory Price Pinch – The increase in memory prices might be good for memory producers, but it puts pressure on the hyperscalers who have to foot the bill. If data center development costs become too cost-prohibitive, it could lead to a slowdown, resulting in slower growth within the AI space. This has yet to materialize, but it’s something we’re closely watching as the hyperscalers justify the return on investment of their AI development. 
3. A Focus on Cash Flow – Over the past year, hyperscalers have almost exclusively focused on AI capabilities and the development of critical infrastructure rather than on the immediate return on investment (ROI) of their models. While most hyperscalers have been able to fund their AI capex with operational cash flow (rather than equity or debt issuance), it’s possible that shareholders may begin to push for capital returns. Hyperscaler stocks have lagged the broader market this year, so if companies can’t demonstrate positive economics for AI development soon, they will have a hard time justifying astronomical spending. A return to a focus on cash flow could present an investment opportunity in the hyperscalers, but it would likely weigh on AI infrastructure stocks. 

IPO Mania – We Have Liftoff!

2026 is shaping up to be a historic year for IPO markets. Already, we’ve seen the largest IPO in history and have line-of-sight to two additional IPOs that will shape the future of AI investing. 

SpaceX made history with the largest IPO ever, on only around 4% of its total share volume. It initially raised $75Bn, and after banks exercised their “greenshoe” overallotment option, total proceeds reached $85.7Bn. This surpassed the previous record of $29.4B raised by Saudi Aramco at its IPO in 2019. For reference, this represented a $1.75 trillion valuation, with SpaceX currently the 6th largest company in the US.

Unique for SpaceX, Nasdaq changed its rules to allow index inclusion on an accelerated basis – after only 15 days of trading. This, along with forced buying from other indices, will drive obligatory buying pressure of around 20 billion dollars. The Nasdaq also waived its standard 10% float requirement. “Float” represents the number of shares available to trade – those not held by insiders and not subject to “lockup”. 

As the company’s float increases, the amount of SpaceX representation in market indices will rise. SpaceX insiders will gradually be allowed to sell shares starting in late July, ramping through the end of the year (while Elon and institutional insiders will be locked up for the first year, until June 2027). 

Looking further into 2026, Anthropic and OpenAI have both confidentially filed to IPO, although one or both may not actually occur until 2027. 

• Anthropic could IPO as soon as October, at an expected valuation of around 1 trillion dollars. This IPO looks likely to occur in 2026.
• OpenAI, similarly, could IPO around the $1 trillion mark as well, although recent reports suggest it may hold off until 2027, potentially due to the massive volume of IPOs and secondary issuance hitting the market, or simply because private market capital has been abundant and delaying an IPO could bring an even higher valuation. 

Despite OpenAI’s apparent doubts about IPO appetite, SpaceX’s IPO was about four times oversubscribed (meaning investors submitted orders for four times as many shares as were available for sale).

Additional Capital Raises

IPO companies aren’t the only ones tapping into investor appetite for AI exposure, as several hyperscalers have issued debt or additional equity to raise cash. At a time when these companies are spending a large portion (or in some cases, all) of their free cash flow on AI infrastructure, this provides a way to fund further investment. 

• Google: ~ $80Bn in equity and ~$85Bn in debt financing this year, almost doubling the cash raise of SpaceX by itself. 
• Amazon: ~$54Bn in bond issuance 
• Oracle: ~$50Bn split between debt and equity
• Meta: ~$25Bn of debt
• Nvidia: $25B of debt

Perhaps the most notable aspect of these deals is the remarkably low rates paid on new-issue debt. As an example, Nvidia’s bonds were issued at a 20- to 65-basis-point (0.2-0.65%) premium to US Treasuries, depending on tenor. This is markedly lower than historical Investment Grade debt issues, which have averaged 1.32% above comparable Treasury rates. 

Most of these companies aren’t necessarily cash-strapped; rather, they are choosing to acquire relatively cheap financing to further invest in AI infrastructure. Nvidia, specifically, continues to generate substantial cash flow and used the debt issuance primarily to establish a liquid credit benchmark.  

All of this new issuance raises the question – can markets absorb it? More than $200Bn in new IPO issuance could hit the markets this year, and that funding has to come from somewhere. While it’s undoubtedly a lot to absorb, recent indications show that investors are hungry for more AI exposure, particularly through Anthropic and OpenAI. There is currently no alternative way to gain direct exposure to leading LLMs in public markets, and these two companies are at the bleeding edge.

Earnings Strength – The True Driver of Market Performance

All too often, analysts focus too narrowly on economic data such as jobs reports, inflation data, consumer sentiment, and purchasing managers’ index (PMI) reports to predict future market returns. While these data points certainly provide value, earnings growth remains the primary fundamental driver of long-term equity returns. It’s corporate earnings strength that underpins our bullish thesis on the stock market, particularly for our portfolio companies. 

Looking at this year so far, Q1 earnings season was exceptional, with the S&P 500 reporting earnings growth of 28.6% – the highest since Q4 2021. Analysts also expect earnings growth above 19% for the remainder of the year. While price performance has been strong year-to-date, with the S&P 500 finishing the first half of the year up 9.5% and the Nasdaq up 12.7%, earnings have outpaced price performance, making company fundamentals more attractive.

This dynamic provides strong fundamental support for equity prices as long as earnings meet expectations. Given the strong economic backdrop, we believe the answer is yes. 

Of course, there are risks to future earnings growth, which we are monitoring, but we feel that, all else equal, the market is well positioned for further gains in the coming months. 

Conclusion

After a successful first half of the year, we look forward to a strong finish to 2026. Price performance has been strong so far, and with an Iran resolution in the works, a Fed likely to play ball with investors, and earnings strength that justifies stock valuations, we believe there is more upside in markets. We continue to monitor market risks, particularly in areas of our investment focus, and will position portfolios strategically to benefit from shifts in market dynamics. We at Beck Capital hope you enjoyed this quarterly market view and wish you the best in the second half of 2026. 

This material represents an assessment of the market and economic environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. Forward-looking statements are subject to certain risks and uncertainties. Actual results, performance, or achievements may differ materially from those expressed or implied. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Past performance does not guarantee future results.

IPO’s can be risky and speculative investments. It is important to review the prospectus before deciding whether to invest. Past performance is no guarantee of future results.  The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. 

Indices are unmanaged and investors cannot invest directly in an index. Unless otherwise noted, performance of indices do not account for any fees, commissions or other expenses that would be incurred.  Returns do not include reinvested dividends.

The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.  It is a market value weighted index with each stock’s weight in the index proportionate to its market value.

Past performance is no guarantee of future results.  The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance quoted.