“What we are seeing really is basically that there is a trade-off between the war and then the AI capex boom on the other side, robust US earnings growth and then there is also a perception that US policymakers are going to keep monetary policy relatively easy. So, all three of those factors are sort of winning out against the war,” Browning said.
She highlighted that earnings growth in the US has remained exceptionally strong. “In the first quarter, S&P earnings were up 24%. If you exclude the hyperscalers, they were up 18%. We just raised our earnings growth forecast for US stocks from 14% to 22%. So, this is very-very strong earnings growth that we are seeing and what is happening is people are looking through what is going on in the war to this very strong earnings growth and they are investing in it for the long term,” she noted.
Browning also pointed to improving investor sentiment around geopolitical risks. “We just completed a fund manager survey and what we saw there is that 54% of the respondents expect the war to end by the end of June. Now, I do not know whether they are going to be right or wrong, but the point is that a majority of investors expect the war to end relatively quickly.”
Sectoral Recovery May Differ After Conflict Ends
Discussing the possible normalization of the global economy after the conflict subsides, Browning said the recovery would not be uniform across sectors.“Well, it is going to vary a lot by sector as to how quickly things normalise. Some sectors it is going to take longer than others,” she said.According to Browning, energy markets could stabilize relatively quickly if geopolitical tensions ease. “In terms of the oil sector, we think that if it were to end by the end of June that you could see oil prices back at sort of the $85 level by the end of 2026.”She added that global recession risks still appear limited. “We are not expecting there to be a recession globally. We are still looking for GDP growth of about 2.2% in 2026 and 2.2% also in 2027.”
However, sectors such as agriculture may take longer to fully recover from supply chain disruptions and cost pressures.
AI Spending Boom Still Has Room to RunWhile concerns over the sustainability of AI-driven growth continue to surface, Browning believes the investment cycle still has momentum.
“Well, that is a very good question. Everybody is trying to figure that out,” she said while discussing future earnings growth linked to artificial intelligence.
Browning reiterated that the current trajectory remains strong. “We expect for the full year that S&P earnings will be up 22%. So, we see this earnings growth continuing throughout 2026 and into 2027.”
She acknowledged that the long-term monetization potential of AI remains uncertain. “Now the question is how will these new technologies, how much revenue will they actually generate and how much productivity will they actually produce in the end. And so far we do not know the answer to that and I do not think we will know the answer to that for at least another year or so.”
Still, near-term spending trends remain supportive. “What we do know is that we expect the AI capex boom, investment in AI to continue for at least another 12 to 18 months. So, we see a pretty strong earnings outlook over the near term.”
Rising Debt Levels Not Yet a Major ConcernThe scale of AI infrastructure investments has sparked debate over how companies will finance the spending surge. Browning acknowledged that several companies have taken on debt to fund expansion but argued that corporate balance sheets remain significantly healthier than during earlier technology cycles.
“These companies that were effectively debt-free have taken on substantial debt,” she said. “However, if you compare the quality of the companies in the S&P 500 today in terms of their debt-to-equity ratios and their cash flow generation, if you compare those companies today to the onset of the internet, in fact, the companies today are much more profitable and have much stronger balance sheets.”
She added that while leverage trends are being monitored closely, there is no immediate concern regarding financial quality.
AI Rally Expands Beyond Big TechOne of the key shifts underway in markets, according to Browning, is that AI-led growth is no longer confined to large technology firms alone.
“What we are seeing now happening is the earnings growth is spreading out to companies beyond just technology,” she said.
Browning noted that industries tied to the AI supply chain are also benefiting. “This AI capex boom is helping companies in all different kinds of sectors. For example, construction, power generation, lots of other areas are participating in this earnings acceleration.”
She emphasized that the broader participation in earnings growth marks a major difference from earlier phases of the rally when gains were concentrated among a handful of technology giants.
India’s Long-Term Story Remains IntactOn emerging markets, Browning said geopolitical tensions have temporarily weighed on investor sentiment toward countries dependent on energy imports, including India.
“The war in Iran has badly hurt countries that particularly need more energy security such as India,” she said.
However, she believes easing tensions and policy changes could revive investor interest. “Once the war in Iran ends, that will be a real positive for India.”
Browning maintained a constructive long-term outlook on India, citing demographics and domestic demand trends. “India is one of the major emerging market countries that is really driven by domestic demand rather than exports. So, we think that that on the long run is actually a huge opportunity for India.”
She added that India’s expanding middle class and consumption-driven growth model differentiate it from export-led economies like China.
“You have got a very young demographic. It is driven by domestic demand not by export which is very different than China. And so over time you can have this growing Indian middle class and very strong consumption characteristics that would come with that.”
Bond Yields and Inflation Emerging as Key RisksDespite optimism on earnings, Browning cautioned that rising bond yields remain an important risk factor for equities.
“We are definitely concerned about rising long-term bond yields,” she said, pointing to historical trends that suggest weaker equity returns once US 10-year yields move above 4%.
She also acknowledged that inflationary pressures linked to geopolitical disruptions have altered expectations for monetary policy.
“There is no doubt that the monetary conditions are tighter today than we thought they would be at the beginning of the year and that is a direct result of the war and increased inflation.”
While Browning said her base case still assumes no Federal Reserve rate hikes this year, she admitted the probability of further tightening has increased.
On inflation, she said uncertainty remains over whether current pressures are temporary or structural. “The question is, is this inflation transitory or is it more core and I think the jury is still out on that, we are not really sure about that yet.”
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