The first half of 2026 belonged to artificial intelligence, but Gabriela Santos, Chief Market Strategist for the Americas at JPMorgan Asset Management, believes the second half of the year could look very different. Speaking recently on CNBC, Santos argued that the market’s gains in the first half of the year have been driven by a remarkably narrow source of demand rather than broad economic strength, with AI infrastructure spending powering much of the rally.
Looking ahead, she says the next phase depends on whether the broader economy begins to participate.
The AI Spending Boom Powered Nearly Everything in the First Half of the Year
Santos characterizes H1 2026 as driven by what she called a “giant sucking sound of AI capex” rather than broad economic strength. Inside large caps, that capex has concentrated in memory semiconductors. Inside smaller names, it has flowed into industrials and materials tied to data-center buildouts.
The index numbers she cited underscore how uneven the leadership has been. According to Santos, the Russell 2000 is up 22%, the Nasdaq 100 is up 20%, and the S&P 500 is up almost 10% in the first half of 2026. She also highlighted that the SOX semiconductor index returned 88% in Q2, its best quarter ever.
The One Trend That Could Change Everything in the Second Half of the Year
The question Santos wants investors focused on is whether cyclical activity re-accelerates and whether hiring broadens beyond education and healthcare into higher-wage categories. She said she expects the upcoming jobs report to show 125,000 jobs added, which would mark a fourth consecutive month of re-accelerating job creation. She also noted that last month’s composition already broadened beyond education and healthcare, and that continued breadth, paired with firming wages, would signal broader economic improvement.
For context, the Bureau of Labor Statistics Current Employment Statistics program shows total nonfarm payrolls at 159,001 thousand in May 2026 (preliminary), up from 158,592 in January 2026. The unemployment rate has held in a 4.3% to 4.4% band through H1 2026, giving the labor market room to add jobs without an immediate wage-inflation shock.
Why Financials Could Be The Next Winners
Santos flagged financials as a sector that “could have legs” if the broadening she sees continues. Her logic is that the sector might only need the economy to be “good enough” to see a rally, with consumer default rates stabilizing and commercial and industrial lending continuing to pick up.
That framing is important for investors assessing potential rotation risk. A sector that benefits from stabilization rather than a boom might have a lower bar to clear to see gains.
The Biggest Risk Facing AI Stocks
Santos paired the constructive case with a caution on positioning. She pointed to record inflows into levered and concentrated ETFs, which she said could drive churn, a possible pullback in memory and semiconductor winners, and rotation toward hyperscalers and software.
On valuation, she offered a striking comparison: memory and semiconductors are trading at a market-cap-to-sales ratio of 6x, versus 3x for the Magnificent 7 at their peak. That gap is her shorthand for why crowding in the biggest H1 winners is a real risk into H2.
Her current stance, according to the segment, still favors secular stories over cyclical plays, but she sees upside in the cyclical trade if jobs and wages accelerate together.
What To Watch Next
Santos’s outlook ultimately depends on whether the economy begins to catch up with the AI-led rally. The first test is the next payrolls report and whether job growth meets or exceeds her expectation of 125,000 new jobs, marking a fourth consecutive month of accelerating hiring. Just as important is whether hiring continues to broaden beyond education and healthcare into higher-paying industries, accompanied by stronger wage growth.
The next indicators are consumer default rates and commercial and industrial (C&I) loan growth, which Santos identified as the key signals for whether financials can lead a broader market advance. If those trends improve, leadership could expand well beyond the AI-capex trade that dominated the first half of 2026.
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