Mid-Year Scorecard: Assessing Our Solving For 2026 Calls

Anu Rajakumar: When Neuberger’s investment leaders published their market outlook, Solving for 2026, last November, they laid out five themes to guide investors through the year. Halfway through, a new regional war in the Middle East and a global oil shock have reshaped the macro landscape. While much of the original thesis has held up, the AI buildout continues to be the dominant force. So, what did we get right? What caught us off guard? How should investors position for the second half of the year?

I’m Anu Rajakumar, and joining me today are Shannon Saccocia, Chief Investment Officer, Wealth, and Jeff Blazek, Co-Chief Investment Officer, Multi-Asset, to help keep score on Solving for 2026. Shannon, Jeff, welcome back to the show.

Shannon Saccocia: Thanks for having me.

Jeff Blazek: Great to be back.

Anu Rajakumar: Jeff, let’s start with the macro. Coming into the year, we called for divergence in monetary and fiscal approaches, and that’s a theme that seems to have played out. How would you grade that call, and what, if anything, has surprised you?

Jeff Blazek: Grading the call makes me think of report card day. I get a little nervous, but when I look at this one, I feel pretty good about how we did. When we look at divergences and the idea is that central banks were going to have a more complicated year, that was not at all where the market was when it started. The market generally thought, “Oh, more easing is on the table.” The divergences have certainly played out. We did not, obviously, call the catalyst that’s made this year more complicated, the Iran war, as you pointed out in the intro.

That has introduced a lot of energy supply disruptions. It’s really caused certain countries to be dealing with dislocation, depending on their reliance on the Middle East as a provider of goods and services that flow through there. By and large, these divergences have only exploded wider. We have a number of central banks around the world that are in the midst of a hiking campaign yet again. We’ve seen the shape of the curves across many countries invert or change altogether.

We’ll talk about Japan and the UK as examples in that instance. We’ve also seen the mandate of what central banks need to achieve. Really, their differences get isolated and put under the microscope. The Fed, for example, and at the beginning of the year, we did think they were going to be dovish. After this situation happened and it’s put inflation at a higher headline and core rate than they would prefer, now the expectation is the Fed, at best, will be pausing the rest of this year.

That really is a dramatic difference. When we have other central banks that are raising rates the way they are, the divergences are loud and clear. The other drivers, too, is we still have some of the tariffs working their way through the system. Granted, we had a reversal of the tariffs to some extent, but that’s going to continue to create noise.

We have a new Fed chair, so Kevin Warsh, who’s going to be more data-dependent, perhaps less transparent about the way that they show their work in between meetings. He’s going to have a lot of different priorities around looking at productivity from AI as well as how they communicate in the marketplace. All of those things are going to be really important to watch. Divergences, though, if that’s the theme and we identified it, I’d say A-plus for us on getting that one right.

Anu Rajakumar: We didn’t ask for all of the specific details. We’ll give you a good grade on that one, I think. Shannon, the second theme was that AI would be in the driver’s seat. Six months on, tell everyone where has it lived up to expectations and what do you think is more promised than reality?

Shannon Saccocia: If we had been hard pressed, we probably could have come up with five AI themes coming into this year. We have two. This is the first one. I think one of the things is that perhaps we’ve seen this materialize a bit faster than perhaps we were anticipating coming into this year. We have hyperscaler CapEx running north of actually $800 billion now. We’re looking at the potential for there to be meaningful continued investment across not only the tech sector, hyperscalers, and in chips, but also in all of the components that go into the data layer and the rest of the stack that we see from an AI perspective.

We also have seen countries outside the United States get pretty darn involved this year. If we look at the buildout in China, Korea, Taiwan, the enthusiasm around AI, we’re anticipating that there could be this global industrial inflection that goes well beyond what we’ve seen from a front edge of the AI enablement. Now we’re looking at inference. We’re looking at implementation. There are going to be a number of players, not only geographically, but amongst different sectors and industries, that are going to be able to participate in this.

There also is this overarching sense of scarcity. 12 or 18 months ago, we were talking about, is there an oversupply? Are we going to get the return on invested capital? Now what we’re seeing is that some of the geopolitical tensions that Jeff just mentioned and you mentioned, Anu, have exacerbated concerns about the availability of resources, the build-out, and where there could potentially be constraints so that we perhaps cannot monetize or take advantage of what we’ve seen materialize in terms of demand this year.

The last thing that I would say is that, as we look across the next six to nine months, the idea of this shifting geopolitical landscape, the availability, and the unequal access to whether it’s technology and chips or everything else that’s going to build this AI revolution, I think from a macro perspective is going to be particularly important, but it’s also going to be important from a political perspective. I feel like we were, if we had to grade ourselves, spot on in terms of the importance, but I think the pace has actually been more interesting, and it’s translated into investment opportunities outside of the United States.

While we’ve seen that concentration over the last couple of years being AI-led by the US, we have a lot more players at the table now.

Jeff Blazek: That scarcity, too, that Shannon mentioned on how this translated in terms of the bottlenecks it’s creating, it’s also creating this inflationary pressure that we didn’t have on our bingo card as a possible driver into inflation itself, even outside of AI, because there’s actual shortages in so many critical components and chips that feed other traditional devices that were never even related to the AI trade in the first place. It’s really been fascinating to watch this year.

Anu Rajakumar: Yes, I love that. I think you talk about AI participation outside the US, the scarcity aspect, the unequal access, and the inflation aspect as well. This is a multi-dimensional, multi-pronged opportunity, and there’s a number of risk factors to consider as well. Thank you for that, Shannon. Jeff, not everything landed from what we set out in Solving For. We said the worst was behind us for long rates, but 10-year, 30-year Treasuries had other ideas. Explain what happened there.

Jeff Blazek: This is one where if I could plead my case with my grade, I’d be telling the teacher the dog ate my homework. Can I get away with that? No. [laughs]

Anu Rajakumar: I’ll hear your case at least.

Jeff Blazek: Again, the Iran war really derailed this call, but we did at least get it partially right that if one were to be duration-neutral on the curve, what would be the best part of the curve? It’s been the long end. Believe it or not, the long end as of this morning was only up 8 basis points on the year. The problem is the short end, the 2 years, up 75 basis points, and that’s responding purely because of this change in the function of what is expected for central banks.

Unfortunately, not all duration is created equal. If you have been long duration this year, it has not been a lot of fun. Basically, the bond indexes, so listeners that are invested in the Bloomberg aggregate index are staring at break-even P&L, where principal losses offset the positive carry you’ve earned, lagging badly against pretty much any public equity index out there in the world. We didn’t get that one right. The worst is not quite over. The 30-year has been testing 5% off and on, and there will be further debates around as we have a faster-growing nominal growth economy globally, that could put upward pressure on the 30-year. We’ll see how it goes.

On credit, what I would say is that’s a more nuanced discussion. Shannon and I have been in conversations with other members of our firm in the last few weeks about how we think about credit because, on one hand, we acknowledge spreads are really tight. The investment-grade corporate bond index is only 70 basis points. The high-yield benchmark is only at 260 basis points. This is not typically a lot of carry where you’re getting rewarded, but we look at the quality, the fundamentals of the balance sheets.

We think that that extra carry, even if it’s a little leaner than what you would expect historically, you’re going to be rewarded because we have conviction, particularly with good security selection, that you can earn that.

Shannon Saccocia: I think that’s consistent, too, with our view on real rates. We’re not looking at inflation expectations driving those. We’re looking at an expectation of higher growth. That higher growth is underpinning the foundation of our credit views. What’s great is that we have consistency across our views, but we also have so many different levers to be able to pull in a multi-sector portfolio to take advantage of the dynamic that we see today, even if perhaps the call wasn’t quite right for the first half of the year.

Anu Rajakumar: Absolutely. Well, we talked about higher growth there, so now let’s talk through equities, Shannon. We had flagged in the piece early this year a froth in stretched valuations, but the rally kept running. How do you score that one, and what are you watching as we go into the third quarter?

Shannon Saccocia: If I could take the first two months of the year, [chuckles] I’m going to be very prescriptive on this timeframe. We really anticipated, and we had started to see this at the end of 2025, that there would be a broadening out. Again, we thought about AI as an overarching theme. We knew that the next phase of AI was going to be the implementation of AI in different businesses, and that was going to necessitate a broadening out in not only that spend, but also stronger expectations from analysts in terms of earnings growth.

We also knew that the economy was fairly strong globally and should underpin the earnings growth expectations coming into this year. Earnings growth has actually proven to be stronger here in the United States and outside of the United States based upon this earnings momentum. However, what we’ve seen is that, in the last couple of months, we have seen a reversal to some of the more concentrated behavior.

One, on geopolitical tensions and a desire perhaps to capture what has been the areas of winners over the last couple of years. Two, the broadening that we had anticipated has instead brought into other parts of technology and the very AI-adjacent parts of the market. We have seen some new winners. We have seen some new leaders, but they aren’t in the sectors that we anticipate would be the winners over the next 6 to 12 months, which are those that are able to incorporate AI into their businesses and drive both bottom line as well as top line growth by the introduction of AI.

This isn’t just a productivity story. The important piece, though, is that we’ve seen that leadership outside of the United States as well. If you look at emerging markets, for instance, incredibly strong this year. That has a lot to do with AI, but it also has those dynamics of continued investment. If you look at capital investment, for instance, by the Chinese government, that is going to continue to catalyze meaningful growth and opportunity.

We acknowledge that there are some pockets of froth and there may be some overvaluation in certain areas in the market, but we have yet to scratch the surface in terms of the opportunity for those broader sectors. We’ve started to see a hint of that rotation back over the last few weeks.

Jeff Blazek: This rotation is being led by the earnings, as you pointed out. Also, I think it’s interesting that the Magnificent Seven have finally seemed to have found their match. They’re lagging as a collective basket. Those seven stocks are not working anymore. We’ve also had a longstanding overweight in small cap, and that’s really delivered 2x the large-cap index. It’s still a very quirky market, very narrow, a certain set of stocks, but the fundamentals, at least, are guiding us, and there are those hints that you mentioned.

Anu Rajakumar: Do you think, going forward, the broadening really does broaden, or do you think this stays with AI-adjacent companies?

Jeff Blazek: I personally, and Shannon should comment on this, I think it does broaden because the capital expenditure cycle is so strong. This was our thesis last year with a lot of the fiscal stimulus that was put out there, and we do see those green shoots in that area. That’s what I would say.

Shannon Saccocia: I would say, too, the broadening will not be decoupled, however, from the overarching AI momentum, but rather in coincidence and in parallel with this stronger economic footprint.

Jeff Blazek: Exactly.

Anu Rajakumar: Now, turning to private markets, we expected ongoing demand for liquidity solutions and a more diversifying and expansive private credit market. How has that thesis tracked?

Jeff Blazek: Yes. In general, I think we still pointed out some of the perils of privates, what they’re dealing with. It’s very early on. Six months in the realm of a private investment evaluation is such a short period of time, as our colleagues will often point out. The backlog is still there. We have $14 trillion of NAV on the ground in one form or another. A lot of it’s getting older. There’s some stale portfolio companies out there.

The general premise that we laid out at the core, which is being a liquidity provider, I think has been rewarded because a lot of the LPs in these investments and the GPs are motivated to figure out creative solutions to keep the juices flowing in some of these investments, bearing in mind that they’re getting toward the middle, if not the late part of the fund life. The IPO activity is exciting. It’s on very large mega-cap tech companies, which does not translate into literal distributions for many of these private equity portfolio companies, but it gets the animal spirits awoken.

Last year, we saw the second-highest level of M&A deal volume. A lot of that was sponsor-led. There’s really good signs here. The economy is doing well. The one fly in the ointment here is probably interest rates. As Shannon said, it’s going up for the right reason, with real rates, not inflation. That financing cost is going to be a bit of a hurdle. This is going to be an area, again, where we want to be very selective and be a provider of liquidity to some of the seizing up that we’re still seeing in the private equity ecosystem.

Shannon Saccocia: One could counter that the opportunity with slightly higher rates is the opportunity for better yield in private credit. We saw this overhang of concerns around AI disintermediation, particularly in the February, March time period. We’ve seen a tick-up in redemptions from private credit vehicles, particularly BDCs. On the flip side of that, though, we’re again seeing continued strong fundamentals, a little bit more yield. Fund managers are being more selective in terms of the credits they take on into the portfolio.

That improved yield dynamic and better terms, as well as perhaps a more prescriptive and disciplined approach to software lending, is likely to yield over the course of the next couple of years a strong pool of loans for investors to be invested in. We also have the broader dynamics of what is private credit. We have asset-based credit. We have direct lending. We have focused here at Neuberger more on the PE sponsor-backed direct lending piece, but perhaps the death of credit in our world was likely overblown and has created an interesting environment for investors as we move through the back half of the year.

Anu Rajakumar: Absolutely. Maybe just to summarize two key comments: Jeff, you said being a liquidity provider, still being rewarded, and Shannon, as you said before, more selective, more disciplined approach in private credit means that there are still plentiful opportunities for investors who are in those markets. As you look at the second half of 2026, I’d like to ask both of you: what are two or three things that are keeping you up at night or, on the flip side, that are really giving you great conviction?

Jeff Blazek: The main thing that jumps out at me is the digestion of trillions of dollars of implied market cap and hundreds of billions of outright IPO issuance. We’ve never seen anything of this scale before. Right now, for one particular name that was brought a couple of weeks ago, we were on the buy side of that, where there’s enthusiasm among retail and institutions to get their first crack at owning that company.

Now what’s happening is the reverse, is the sell side. There’s a lot of existing holders that are going to be unlocked and will bring their shares to market. Tremendous volatility, day-to-day volatility in that name and the broader market and the other IPOs that’ll come along with it is just going to be something that adds a lot of churn. The second thing I worry a little bit about is the fact that there’s been so much pent-up technicals on the AI trade, many of these names that are up 100% to 200% to 300% in short order, and easy come, easy go.

If there’s any sentiment reversal, and maybe it’s triggered by a fundamental change in the trajectory of CapEx, probably not going to happen, but we think there’s still a solid basis for that, but you never know. If it’s some kind of unwind and it feeds on itself, that downside volatility is there. It does feel, to us, that the market is a bit frothy here. That should be just viewed as a very short-term concern, not really informing our tactical views over a medium term.

Shannon Saccocia: Inflation has become paramount in terms of concerns, not necessarily because there’s evidence that this is becoming more structural and less transitory, particularly the inflation that has emanated from the closure of the Strait of Hormuz. However, central banks and their reaction function to that inflation, as Jeff mentioned earlier, in terms of divergence, creates some uncertainty in terms of wanting to invest globally, both across equity and fixed income.

The other, perhaps, conundrum or challenge in this environment is with fiscal policy. There’s an anticipation, there has been an anticipation for the last 18 months of a meaningful fiscal impulse in Europe that has not manifested and has created perhaps a more dampened sentiment around that region. Japan, in looking at what they’re doing from a fiscal perspective, whether that’s consumer-related or around defense, those are meaningful drivers, as we know, for broader economic growth and could create both opportunity but risk for investors who perhaps have been anticipating those.

The last thing that I would say is around the overarching sentiment of the market: it’s ebullient, it’s exuberant, and it feels as if they’re looking around that next corner and wanting to maintain a more appropriate risk posture is difficult. Being quite disciplined around portfolio construction and reiterating the fact that these times might not potentially last forever, but that they create opportunity on the other side, perhaps just not in the areas that have done well, I think is going to be a continued challenge in the second half of the year.

Anu Rajakumar: Now, as we wrap up here, we’ve talked about IPO activities, the AI theme, geopolitical surprises, central bank divergence. The second half of the year, we’ll also see midterms in the US as well. There’s a lot of excitement that will probably happen to close out 2026. How should our investors be thinking about positioning for the second half of the year and beyond?

Shannon Saccocia: It’s all about dispersion. We think that’s going to continue. Whether that’s in the private markets or the public markets, whether it’s AI or some of the fiscal spend, the anticipation of a rate environment that’s not quite as accommodative as one could have imagined coming into this year, that is going to create a dynamic of winners and losers, an active selection among both managers, as well as at the individual security level, is going to be critical to capturing those opportunities.

The idea that one could come into this year and remained disciplined, we saw a similar event, if you will, last year. If you look at investor behavior and reaction, if you maintained your discipline, if you maintained your asset allocation, you were rewarded for that patience, but you also afforded an opportunity to be able to invest in the opportunities created by that dislocation or disruption.

That’s the message that if we can distill that down for our investors for the second half of the year, that’s what we’re going to do, but it’s what they should do as well because as you said, seasonal volatility in the summer, midterms, the potential for a bit of back and forth still in the Middle East, all of those create an opportunity for greater volatility.

Jeff Blazek: Yes, I’d like to double down on that sentiment because I just think it’s paramount that diversification and not to be the boring, you-should-rebalance guy, but I’m going to be that guy, which is, go ahead and take advantage of higher real rates and bonds. That part of your portfolio is lagged. Your equities have done really well. It’s time to gravitate back towards your target that you had before because that’s just going to ensure a healthy behavior for your portfolio in the long run.

Also, on the geopolitical side, as we taped this morning, we had yet more turnover of a UK prime minister, the sixth in the last seven years. The polarization of the world, this is just going to be the way it is. You have to keep your head on a swivel and be ready for it and understand that there will be these shock outcomes that’ll come and go. Like Shannon said before, don’t let that derail you from your strategy. Just take advantage of those opportunities of the volatility if they give you a way to express it in the future.

Anu Rajakumar: Excellent. Well, thank you both so much for your thoughts today. I can’t let you go without a quick bonus question. We are in the middle of summer now. I’ll give you-- There’s two options. This is a choose-your-own-adventure. I’d love to know what’s either on your summer reading list, if you’re rereading a favorite book or anything like that, or on the other hand, if you have a summer playlist, what’s a song that’s on your summer playlist? Jeff, you want to go first?

Jeff Blazek: I’ll go first. On my summer reread list is a book that, and it’s because an analyst on our team, Kevin McCarthy, mentioned this because he’s doing a lot of work on the consumer. It appears it might be getting a cult following. I’m proud to say I read it during Christmas two or three years ago. It’s called Die With Zero by Bill Perkins. It changed my life because it helped me realize that life is short.

Chapter by chapter, what it goes through and says, when you’re age 80, all that money that you stored with the plan that you were going to have this great hiking life, you’re not going to be physically able to do it. If anything, you should really be managing your life and your wealth together in a collective way where you’re not hoarding it or ruining it. Now, what happened with this, you have to be careful because my daughter, we’re getting ready to go to Japan as she graduates high school. This morning, she was sending me a text making a case for an added activity and said, “Die With Zero, Dad.” It can be used in a very-- You have to be careful how you calibrate rolling this out with your family and friends.

Shannon Saccocia: Well, I’m definitely not going to bring Die With Zero home because my kids would jump on that immediately, especially with our upcoming vacation. On my playlist this summer is Walking on Sunshine. I feel that if this is the time, especially in the market, where there’s a million reasons to be concerned and being able to continue to balance those concerns with the optimism that, at least I believe, is reinforced by what’s happening with AI, the opportunity that is incredibly important as we identify those risks, making sure that we’re looking 5, 10, 15 years beyond. Seeing what the industrial revolution, globalization, the internet did, we have to maintain that optimism.

Anu Rajakumar: Absolutely. I think that’s a great way to end this episode. Thank you very much for sharing your thoughts, Jeff and Shannon. Although we are only halfway through the year, it’s hard to deliver a final score on the Solving for 2026 piece. So far, I think that based on our conversation, the framework is largely held. There were calls on policy divergence; AI continued to be strong, even as geopolitical shocks appended the rates view. Heading into the second half of the year, Shannon, as you said, it’s all about dispersion. It produces winners and losers.

Both of you really doubled down on this idea to maintain discipline, to be rewarded for your patience, and really gravitate back to your target. Again, thank you so much for sharing all of that. Hopefully, we’ll catch you on the show very soon.

Jeff Blazek: Thank you very much.

Anu Rajakumar: Thank you. Our annual Market Outlook publication is called Solving for 2026, if you’d like to revisit those original themes. To all our listeners, if you’ve enjoyed what you’ve heard today on Disruptive Forces, you can subscribe to the show from wherever you listen to your podcasts, or visit our website at nb.com/disruptiveforces for previous episodes and more information about our firm and offerings.

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