Earnings breadth has also improved materially in the United States, reducing the market’s previous over-reliance on a narrow group of technology stocks.
A broadly neutral macro backdrop
The firm characterizes the overarching macroeconomic picture as “broadly neutral.” The Atlanta Fed’s GDPNow model estimated annualized US growth at 5.0% at the end of July 2026, while unemployment held at 4.2%; signs of a resilient, consumer-driven economy.
But inflation remains the key complication: core Personal Consumption Expenditures (PCE) inflation came in at 3.3% in June 2026, well above the Federal Reserve’s 2% target, according to Bureau of Economic Analysis (BEA) data. The report describes Fed Chair Warsh’s approach as creating “additional uncertainty” and ultimately expects the Fed will need to tighten further.
The AI tilt
Despite a July 2026 shift toward a more style- and size-neutral US equity position, Franklin Templeton retains an artificial intelligence tilt, with overweight exposure to the US, Japan, and emerging markets.
The firm argues that while AI hardware trades saw some July volatility as investors took profits, the underlying adoption story is intact and less-crowded positions now look more attractive at lower valuations. The report does flag AI commoditization as a risk: if broader-economy adopters stop requiring the latest hardware models, capital expenditure demand could fall; good for hyperscalers, but negative for semiconductor and hardware suppliers.