SKN | RBC Says 2026 Equity Rally Runs Deeper Than AI as Small Caps, Industrials Lead Broad Market Strength

Key Points

• The first half of 2026 delivered a broad-based U.S. equity rally, with gains extending well beyond semiconductor stocks as small-cap, mid-cap, industrial, and equal-weight indexes outperformed the traditional market benchmarks.
• RBC Wealth Management believes strong corporate earnings, resilient economic growth, and improving profit expectations have created a healthier market backdrop, although investors should remain prepared for increased volatility during the second half of the year.
• The firm continues to recommend maintaining diversified equity exposure while monitoring valuation risks, Federal Reserve policy, and the concentration of AI-related investments.

The remarkable performance of semiconductor stocks dominated headlines throughout the first half of 2026, but RBC Wealth Management argues the U.S. equity rally has been far broader than many investors realize.

While chipmakers generated many of the market’s biggest gains, strength extended across multiple sectors, market capitalizations, and investment styles, suggesting improving fundamentals rather than a narrowly concentrated technology-driven advance.

Strong Earnings Powered the Rally

According to RBC, one of the biggest drivers behind the market’s performance was a significant improvement in corporate earnings expectations.

Consensus forecasts for S&P 500 earnings growth in 2026 climbed sharply from 13.6% at the beginning of the year to 23.3% by the end of June, an unusually large upward revision this late in the economic cycle.

Economic conditions also remained supportive, with U.S. GDP expected to expand near its long-term trend over both 2026 and 2027, reinforcing investor confidence despite geopolitical disruptions earlier in the year.

Market Leadership Expanded Beyond Technology

Although semiconductor companies delivered exceptional returns as artificial intelligence infrastructure spending accelerated, RBC noted that market participation broadened considerably.

The S&P 500 Equal Weight Index outperformed the traditional capitalization-weighted index, while both small-cap and mid-cap stocks generated substantially stronger returns than large-cap benchmarks.

Seven of the eleven major sectors finished the first half with above-average gains, while industrials emerged as the strongest-performing sector, followed closely by technology and energy.

This broader participation suggests investors increasingly rewarded companies benefiting from improving earnings, attractive valuations, and expanding economic activity rather than focusing solely on mega-cap technology stocks.

AI Infrastructure Continues Driving Semiconductor Demand

Artificial intelligence remained one of the most powerful investment themes during the first half of 2026.

Massive spending on AI data centers fueled unprecedented demand for advanced semiconductors, memory chips, and related hardware, resulting in extraordinary gains across several leading chip manufacturers.

RBC believes ongoing global shortages of advanced chips and sustained AI investment should continue supporting the semiconductor industry, although investors should expect greater volatility following such rapid appreciation.

The firm advises maintaining disciplined portfolio allocations and avoiding excessive concentration in any single industry after substantial price gains.

Small and Mid-Cap Stocks Stage a Comeback

One of the year’s biggest surprises has been the resurgence of small-cap and mid-cap equities after several years of underperformance.

Improving earnings forecasts, attractive relative valuations, and greater exposure to manufacturing and industrial growth all contributed to their strong returns during the first half.

RBC believes these market segments could continue benefiting if domestic economic growth remains resilient, although rising interest rates could create additional pressure should inflation remain elevated.

Outlook for the Second Half

Looking ahead, RBC remains constructive on U.S. equities while acknowledging several potential risks.

Upcoming U.S. midterm elections, Federal Reserve policy decisions, inflation trends, and continued geopolitical uncertainty could introduce periods of increased market volatility.

Nevertheless, improving market breadth, healthy earnings momentum, and resilient economic data continue supporting the firm’s recommendation to maintain a market-weight allocation to U.S. equities within diversified portfolios.

Closing Insights

RBC’s first-half review suggests the 2026 bull market has evolved beyond a narrow AI-driven story into a broader earnings-led expansion across multiple sectors and market segments. While semiconductor companies remain central beneficiaries of artificial intelligence investment, diversified participation across industries may provide a stronger foundation for the next phase of market performance, provided economic fundamentals remain supportive.

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