A mid-year reality check on earnings, the Fed, hyperscaler fatigue, and where the real opportunities lie for the back half of 2026
Earnings: The Peak Is Visible
The first half of 2026 produced a strong earnings season on paper. Beats on both revenue and earnings have been common. But Lesley Marks, Chief Investment Officer of Equities at Mackenzie Investments, flags something telling in the market's reaction: stocks are not responding.1 "That tells me, or that's a sign, that there is some concern about the outlook for earnings into the future," she says.
That concern is well-founded. Both U.S. and Canadian earnings estimates for 2026 have been revised up sharply, sitting around 30% growth, roughly double what Mackenzie had projected at the start of the year. But the composition matters. The growth is heavily back-end loaded, and it rests on a fragile base. In the U.S., AI-linked companies and volatile gains on equity investments are carrying much of the weight. In Canada, it is commodities doing the heavy lifting, with energy at 17% of the TSX and materials at 15%, both benefiting from higher commodity prices that have already begun to roll off their peaks.
Marks is direct about what this means for the second half. The setup "will make things a little more challenging in the back half of this year to sustain the growth expectations." For 2027, consensus calls for 15% growth, but that estimate is being built on top of an exceptionally strong 2026 base. The expectation compression Marks anticipates is not yet priced in.
Growth Versus Value: The Trade Is Tiring
The 2026 value trade has been striking. The Russell 1000 Value is up 21% year to date. The Russell 1000 Growth is down 1.3%. The MSCI World is up 14%, while MSCI World Growth has returned only 5%. But Marks resists making a blunt directional call from here.
The drivers of value's outperformance, including commodity producers and financial sector earnings boosted by strong capital markets activity, are starting to face headwinds. If equity markets soften, the wealth management and capital markets tailwinds that have powered bank earnings will fade. If commodity prices remain below peak, resource sector earnings momentum slows. "There are a couple of pretty significant headwinds for value to outperform to the extent that it has," Marks says, concluding that "a little bit more of a balanced picture between value and growth" is the more likely setup for the months ahead.
Hyperscalers: Still Waiting for a Better Entry
The hyperscaler trade is maturing in ways that are increasingly hard to ignore. CapEx commitments from the large AI infrastructure platforms have risen 30 to 40% versus expectations from just six months ago. The free cash flow profiles of companies that once defined cash generation have deteriorated sharply, in some cases turning negative. Marks frames the core concern plainly: "investors do not, whether they're equity investors or bond investors, they don't like the depletion of free cash flow from CapEx."
Demand in the AI-linked credit market is confirming the shift. A recent Meta data center bond issue, handled by BlackRock, drew notably weak demand. CDS spreads on hyperscaler names have moved higher. The credit market's earlier euphoria has passed, and wider spreads relative to government bonds will likely be necessary to attract fresh capital to new issuance.
Marks acknowledges valuations have improved, but holds her position: "I think we have a little bit of time on the hyperscalers and a better opportunity may present itself yet."
The Fed: Comfortable Being Uncomfortable
Mackenzie's bullish equity thesis entering 2026 was built partly on an expected dovish pivot from the Federal Reserve. That pivot has not arrived. With inflationary pressures reinforced by geopolitical developments, including the Iran conflict's impact on oil, and a new Fed Chair in Kevin Warsh providing less forward guidance, the uncertainty premium on markets has risen. "People have gotten very comfortable with knowing what to expect each Fed meeting," Marks observes. "I think we're having to get comfortable with being uncomfortable a little bit here."
Dustin Reid, Mackenzie's Chief Fixed Income Strategist, puts the policy implication plainly: at 3.50 to 3.75%, the Fed funds rate is 50 to 100 basis points below where it probably needs to be. The expectation is for a more hawkish Fed through the back half of the year. That divergence from the Bank of Canada, which faces limited ability to hike against a weak domestic economy, will continue to weigh on the Canadian dollar. Paradoxically, that currency softness is a modest tailwind for TSX earnings.
Where Marks Is Looking
Rather than chasing regional indices, Marks emphasizes sector selectivity. She points to defensives, including consumer staples and utilities, as worth revisiting after a period of underperformance. Defense spending is structurally supported by geopolitical pressures across multiple economies. Commodities remain relevant as a portfolio diversifier in an environment of elevated and unpredictable geopolitical risk.
Perhaps most distinctively, Marks identifies what she calls the perceived AI losers as a category worth examining. "The dust could settle and these things have been very much oversold, on the expectation that fundamentals are declining at a much faster rate than they probably will in the real world." In a rotation environment, stocks sold indiscriminately alongside a thematic trade may represent the more durable opportunity.
Her closing message is a discipline reminder rather than a specific bet: maintain international diversification, do not be U.S.-centric given that market's technology concentration, and engage Canada selectively. "There could be a soft patch here, but there's a lot of attractive opportunity still here in Canada in certain sectors."
Views expressed are those of Lesley Marks, CIO of Equities, and Dustin Reid, Chief Fixed Income Strategist, Mackenzie Investments, as of August 20, 2026.
5 Key Takeaways for Advisors and Investors
1. Earnings beats are not the signal. Markets are not rewarding strong Q2 results, which means the forward earnings picture is what investors are pricing. With growth expectations still high and back-end loaded, the risk of downward revisions in H2 and into 2027 is real and material.
2. The value trade has likely peaked for now. The conditions that drove value's substantial outperformance in H1, including commodity prices and capital markets-driven bank earnings, are facing headwinds. A more balanced growth and value posture is appropriate for the second half.
3. Hyperscaler patience is warranted. Valuations have come in, but free cash flow deterioration and softening credit market appetite signal that a better entry point in AI infrastructure names is likely ahead. Do not rush to buy the dip.
4. The Fed has changed the calculus. The expected dovish tailwind for equities did not materialize. With a less predictable Fed and a more hawkish likely trajectory, volatility in rate-sensitive equities and across asset classes should be expected to remain elevated. Advisors should revisit duration and valuation assumptions in client portfolios.
5. Diversification is the active call, not the default. Marks is not recommending broad index exposure. The opportunity in H2 is in sectors sold indiscriminately during the growth and AI momentum trade, including defensives, commodities, and perceived AI losers with fundamentals more durable than the market currently prices. Selectivity within regions, not just regional allocation, is where the return potential sits.
Footnote:
1 "Mid-Year Market Outlook with Lesley Marks: Rates, Earnings, and AI." Apple Podcasts, 19 Aug. 2026, podcasts.apple.com/us/podcast/mid-year-market-outlook-with-lesley-marks-rates/id1473998177?i=1000779896825.
2 "Podcasts." Home, 19 Aug. 2026, www.mackenzieinvestments.com/en/institute/insights/mackenzie-investments-podcasts.
