Mark and Elise Levy’s July Economic Update
Thank you all for signing our positive consent letters to use a new compliance company (Private Advisor Group) these last few weeks by email, regular mail, or here in the office. It went very smoothly for us because you, as our clients, were very accommodating, and we appreciate it.
Coming into 2026, LPL Research expected inflation to move closer to the Federal Reserve's (Fed) 2% target, the Fed to cut rates by roughly 75 basis points (bps), and Treasury yields to drift lower. Instead, the first half delivered three stress tests in rapid succession: a leadership change at the Fed, a geopolitical shock that sent oil prices and yields surging, and an AI (Artificial Intelligence) buildout that is having a measurable impact on the corporate bond market — with the Fed leadership transition among LPL's key themes for the balance of the year.
As such, LPL believes the Fed is likely on a prolonged pause, which probably means Treasury yields will remain range-bound in the second half of 2026. They also think the 10-year Treasury bond will settle into a 4.0–4.5% range throughout the rest of the year.
The artificial intelligence (AI) story, long an equity market phenomenon, has migrated to fixed income. The hyperscalers (Amazon, Alphabet, Meta, Microsoft, and Oracle) once funded their ambitions almost entirely from internal cash flow. No longer. Building data centers, securing chips, and powering them requires sums beyond even their formidable cash flows. These companies issued roughly $110 billion of bonds in 2025, more than five times their 2023/2024 issuance trends, and estimates point to some $300 billion of AI-related investment-grade supply in 2026, with record total issuance approaching $2 trillion or more.
The borrowers themselves remain in excellent financial shape: hyperscaler leverage runs at a fraction of the typical investment-grade company, and new deals are routinely oversubscribed. Still, the sheer scale is changing the market's characteristics.
Because data centers last decades, the bonds funding them are long dated, adding interest rate sensitivity to corporate bond indexes. Technology's share of the corporate bond market has climbed to around 10%.
Despite concerns about AI funding, tariffs, geopolitical tensions, and periodic market volatility, the U.S. economy continues to demonstrate impressive resilience. Growth appears poised to remain above trend this year, with real gross domestic product (GDP) expected to expand roughly 2.2%, comfortably above the Federal Reserve's estimate of longer-run potential growth near 1.8%. What's particularly encouraging is that forward-looking indicators are still signaling expansion. Purchasing manager surveys suggest businesses remain optimistic about future activity, and corporate spending plans have held up far better than many expected. Rather than pulling back amid uncertainty, firms continue to invest aggressively in equipment, technology, and productive capacity. This is what is supporting the United States' impressive growth.
Contact us if you have any investment questions.
~Mark & Elise
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. All investing involves risk including loss of principal. No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful. All information is believed to be from reliable sources; however, LPL makes no representation as to its completeness or accuracy. This research material has been prepared by LPL Financial LLC. Tracking #1144742 (Exp. 7/27).