2026 has not behaved as investors expected. I'm Marta Norton, Chief Investment Strategist for Empower, and here are the three consensus views I heard at the start of the year. The market would broaden out from the AI trade— stronger returns outside of AI names. Number two, interest rates were coming down.

The Fed had vanquished inflation and lower rates would stimulate the economy, support the job market. And number three, it was go time for international markets based on better valuations, a weaker U.S. dollar, potentially better growth. How times change. Now to be fair, some of these views have come to pass.

We have seen strong earnings growth outside of the AI names. But if there was one takeaway from Q1 earnings season, it was that the epicenter of growth is still firmly focused on the AI names themselves, and we have seen some non-U.S. markets generate strong returns. But this also relates back to AI as we think about Taiwan and Korea and the strong results that they've generated, largely related to their role in the AI supply chain.

Meanwhile, areas like Europe have come under higher and greater pressure in the wake of the war in Iran. Now, I think there are three questions investors face as we look forward to the rest of 2026. Number one, how will U S. equities behave with a ten year Treasury at around 4.5%?

Number two, is the AI trade itself broadening out to include more names, and what does that look like? And number three, will we see a resurgence in international markets. Okay. Let me give you my hot take.

On number one, this question of rates and equities. There's a lot of evidence that higher rates are tough on equities. We can think about this from a valuation perspective or from a fundamental perspective, thinking about maybe higher borrowing costs or even just competition for dollars. Higher yields attract more investors, as we know that yields make up a big proportion of the bond market’s return.

But I'm not convinced all areas of the equity market could face equal pressure. Certainly areas that are expensive, that have weaker earnings growth, or earnings growth that is back ended far into the future. Potentially those names could face greater pressure. But what about names that are a bit cheaper where the earnings growth is coming fast and furious right now?

Potentially we could see more resilience from those areas. And spoiler alert, I think a lot of those areas are within technology, as we've been pointing out over the course of the year. Okay. Number two, what about the AI trade itself and whether it's broadening out?

I mean, we have already seen this. We don't have to look any further than memory chips, which depending on how you're measuring performance, have returned anywhere between 150% to 250% for the year to date stretch in 2026. But here's the question. Some of those areas are a bit more narrow, with maybe more commodity-like business models, and we wonder about the assumptions around earnings that are being baked into the prices that we've seen today.

Meanwhile, other areas— take the hyperscalers— also have strong earnings growth but appear a lot better priced. Okay. Number three, international markets. Now valuations have come down as we've seen greater pressure around cost and around growth.

But potentially those are balanced and properly reflecting prospects today. But when we invest internationally it's not all about the local market. It also relates to the currency. And if there was one thing we learned from 2025, it was the value of currency diversification.

We could potentially see certain central banks hike rates as a defensiveness to inflation and yet not necessarily see weaker growth. And so maybe there's still a reasonable case to be made for some measure of global diversification just for the sake of spreading exposure across more currencies.