The Philadelphia Semiconductor Index just had its best quarter on record. The S&P 500 just wrapped its strongest quarter in six years. Two months ago, traders were tracking a war in the Middle East and an unpredictable Federal Reserve. Markets shrugged most of it off.Wall Street’s four-word summary of all that came from Baird investment strategist Ross Mayfield in a Yahoo Finance interview on July 5: “It’s a bull market.” He didn’t bury the lead. But the reasoning behind those four words is worth understanding before acting on them.Why Wall Street is calling this a bull market right nowMayfield did not hedge when asked for his read on the market. He said the bull market is “driven by earnings and liquidity, and those are the kind of things that can keep this going into the 2nd half of the year, and probably, in my opinion, into 2027 as well,” Yahoo Finance noted.More Wall Street:Wall Street has a new problem, and it’s not the technologyWall Street’s biggest banks just landed the AI IPO of the yearWall Street’s top analysts just doubled down on 3 stocksThe reasons behind that call are specific. Falling oil and gasoline prices after the U.S. and Iran suspended fighting removed one of the bigger macro headwinds from the first half. The June jobs report, which came in at 57,000 payrolls against expectations of 115,000, signaled a labor market cooling without collapsing, and more importantly, one unlikely to push the Fed toward rate hikes this year. Small- and mid-cap stocks outperformed alongside semiconductors last quarter, giving the rally a broader base than most expected.”I think there’s just more to be excited about than there is to be nervous about,” Mayfield added.The earnings and liquidity pillars he cited have external support. FactSet data showed analysts predicting a 21% gain in the S&P 500 over the next 12 months. JPMorgan recently lifted its year-end target to 7,800. Goldman Sachs has gone further, setting its own target at 8,000 on the back of AI-driven earnings growth, as TheStreet reported. The convergence of multiple major Wall Street banks around the same bullish thesis is itself a signal worth noting.What the AI trade actually looks like going into Q3 earningsTechnology remains the center of gravity. The Philadelphia Semiconductor Index posted its best quarter ever, but the Magnificent 7, traditionally the driver of index gains, actually underperformed semiconductor stocks last quarter. Investors are asking harder questions about whether the enormous AI infrastructure spending by major hyperscalers will show up in earnings in a way that justifies the capital committed.Veteran market strategist Ed Yardeni put it plainly, noting that investors are “questioning whether the hyperscalers’ massive spending on AI infrastructure will ever pay off,” according to Yahoo Finance. The free cash flow profile of some of the biggest AI spenders has become a genuine concern alongside the more bullish semiconductor narrative.Dan Ives, a veteran technology analyst who departed Wedbush Securities on July 1 to launch his own AI-focused merchant bank, said the next test arrives in July.”You have to see, as we go into earnings season in July, the validation and monetization of AI,” Ives said, as Yahoo Finance reported.Schwab Asset Management CEO Omar Aguilar told Yahoo Finance the AI trade has not peaked, but has simply reached a different phase, closer to “the middle section of the innings.” He pushed back on concentrated megacap positioning, emphasizing diversification instead.
Mayfield’s bull case comes with a specific warning.Santiago/Getty Images
Where strategists are finding opportunities beyond megacap techAguilar’s sector rotation call was specific. He is not pointing to the usual AI infrastructure names. He is pointing to the industries that come after them in the adoption chain.”We really like areas like industrials, like healthcare, like materials that are just at the beginning of really taking advantage of the AI structure,” Aguilar added.Small- and mid-cap companies are another area strategists are watching. They outperformed last quarter, and some analysts argue they still have room to close the gap with large-cap leaders if earnings hold and the macro backdrop stays cooperative. Wells Fargo made a similar rotation argument in its own second-half outlook, as TheStreet reported, favoring cyclicals and AI infrastructure names over concentrated megacap exposure. International stocks have also drawn attention from strategists who see rotation opportunities as U.S. markets digest a strong first half.What could slow the second-half rally downMayfield’s bull case comes with a specific warning. The semiconductor index’s record quarter produced exactly the kind of chart pattern that tends to make experienced investors cautious. Mayfield flagged it directly, noting that stocks in parabolic runs rarely cool off by moving sideways. They tend to correct sharply when sentiment turns.Valuation is the broader version of that concern. The market is not starting the second half from a cheap base. A Bloomberg survey of strategists put the average year-end S&P 500 target at 7,716, which implies only modest additional upside from late-June levels. The case for more gains is not that stocks are underpriced. It is that the earnings and liquidity picture is strong enough to justify where prices already are.Rate risk remains a factor. The June jobs report eased immediate concerns about Fed tightening, but any shift in inflation data or Fed signaling could change the math quickly. Geopolitics also remains open-ended. The first half survived a war, oil spikes, and rate volatility with strong returns. Expecting the same resilience in the second half is a reasonable bet, but it is still a bet.Related: Goldman Sachs doubles down on stock market outlook for 2026