iCapital Sees Slower Growth, AI Scrutiny Ahead

A midyear outlook from alts platform iCapital warns that the second half of 2026 will likely see slower economic growth, with greater scrutiny of artificial intelligence investments, weaker U.S. consumer spending and persistent inflation and the implications for both traditional investment and private market assets.

iCapital researchers noted that, despite geopolitical headwinds, growth in the first half of the year was quite strong, with S&P 500 earnings per share up 25% year over year in the first quarter. However, they estimate that a confluence of factors could slow growth in the third quarter. These include a lack of a definitive resolution of the war in Iran, which iCapital researchers feel the market has underpriced; greater investor focus on AI monetization and a less confident U.S. consumer. As a result, they forecast modest upside for investors in U.S. stocks, limited compensation for higher risk on bonds, and a preference for infrastructure over private equity and private credit in the alternatives space.

In iCapital's view, growing skepticism about the AI sector and the likelihood that interest rates will remain at their current 3.5% to 3.75% level mean there will be curtailed growth in U.S. equities. AI was a major driver of U.S. stock market outperformance in the first half of the year, but investors are becoming wary of concentration risk and increasingly want to see monetization rather than just earnings growth. As a result, iCapital projects that the S&P 500 will be in the 7,500 to 7,900 range in the second half of the year, up between 0% and 5.0%.

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"The 'rising tide' dynamic within AI has faded. Correlations within technology stocks have fallen to post-pandemic lows as investors become more selective based on how effectively companies are converting AI spending into revenue and cash flow," iCapital researchers wrote. "Investors are no longer treating the group as a single trade, instead differentiating more aggressively across business models and execution."

While international equities offer more attractive valuations and less concentration risk in AI, growth in international stocks still lags U.S., making it unlikely they will outperform this year. In the long-term, however, iCapital views prospects for international equities positively.

With no interest rate cuts expected at least for the next two quarters, iCapital also projects that yields on 10-year Treasuries will trend toward the lower end of the 4.0% to 4.8% range. That means that over the next six months, pro-rated returns for bond investors will remain near current levels. iCapital researchers note that while yields on corporate bonds are slightly higher, they are still near the low end of their historical range. "We view that trade-off as uncompelling, given the elevated risks to growth and liquidity," they wrote.

iCapital remains cautious on private equity and private credit investments in the short term. Tighter financing conditions and a continued slowdown in M&A activity still pose a challenge for private equity buyouts. U.S. private equity deal value in the first quarter was 3% below the trailing eight-quarter rate, while deal count was up 6%. That suggests that private equity players are investing in smaller transactions, iCapital researchers noted.

On the flip side, private credit deals might be attractive in a higher-interest-rate environment because of their floating-rate structure, but they pose a short-term risk to credit quality. In the first half of 2026, NAVs on private credit deals declined, reflecting higher pricing of credit risk, according to iCapital. While there are now indicators of a systemic credit issue right now, "valuation markdowns may continue to move unevenly through the second half of the year," iCapital researchers wrote. "Loans originated at peak valuations appear most vulnerable and could contribute to a rise in non-accruals in the second half of 2026."

One alternative investment sector iCapital remains quite positive on is infrastructure. Infrastructure is an inflation-resistant asset class and stands to benefit from the drive toward data center construction, energy transition and energy independence heightened by the war in Iran. In fact, during periods of moderate inflation, infrastructure assets have delivered annualized returns of approximately 12.9%, 270 basis points above those of traditional 60/40 portfolios, according to iCapital.