Coming off one of the best quarters for stocks in years (and in the case of some AI-focused indexes, their best ever), the natural question is whether these gains can be sustained. Some say AI is a bubble, but the market’s verdict so far is that all systems are go for the infrastructure play.

This coming week is unusually light for scheduled news and data. One potential highlight will be the release of the minutes from the June Federal Reserve meeting, which could provide insight into the tenor of discussions under new chair Kevin Warsh. The other big event is the expected IPO of ADRs from South Korea’s SK Hynix 000660. The semiconductor stock is up a blistering 684% over the past year in local currency terms.

With the light calendar, many investors will be looking ahead to next week for the release of the June Consumer Price Index report and the start of earnings season.

In this week’s Markets Brief, we have two takes on the stock market. The first is a cautionary look at the extreme level of momentum in the market from Morningstar Wealth. The second comes from Wei Li, global chief investment strategist at BlackRock Investment Institute, who offers some caution on the emerging market’s AI trade. Still, she remains bullish on the United States as part of the team’s “scarcity” theme.

The stock market’s big mo

As we highlighted last month, there’s been a bumper crop of stocks that are up triple digits this year. With those kinds of gains, momentum strategies—essentially where traders bet that whatever is rising will continue to rise, and vice versa—can also produce gains. At the same time, the performance of momentum can be seen as a market indication of extremes.

Philip Straehl, chief investment officer, Americas at Morningstar Wealth, points to recent returns on the S&P 500 Momentum Index. From April through May, the index returned 34%, its strongest two-month period in more than three decades. “The last comparable surge occurred in late 1999, near the peak of the internet bubble,” he notes.

Straehl says that for investors, the implication is that what goes up fast can come down further. “Our research suggests that periods of strong momentum acceleration increased the likelihood of a reversal,” he says. “While every market cycle is different, periods of exceptionally strong momentum have often coincided with elevated investor optimism and speculative behavior. Although this may not signal an imminent reversal, it serves as a reminder that parts of the market may be pricing in highly optimistic outcomes. In this environment, we believe a more selective approach is warranted.”

The EM vs. US AI trade

While US stocks had their best quarter in six years, with a 15.5% gain, it paled in comparison with some rallies in emerging markets. In the quarter, the Morningstar Korea Index jumped more than 75% and Taiwan by 48%. The fuel for this explosive rally was the AI trade, which lifted key semiconductor stocks in both countries.

Coming into 2026, BlackRock was looking at an overweight in Asian EM markets for just this reason. Now Li says they’ve shifted to a neutral allocation. Li says it’s not a question of valuations, but of volatility and risk-adjusted return profiles. “Portfolio construction is always a consideration for both return and risk contribution,” and she says both markets have seen a marked increase in volatility. “We feel that at this point, we will want to sit tight a little bit and flatten the exposure rather than keep the overweight.”

But that doesn’t mean BlackRock sees an end to the AI trade. As part of a midyear global outlook discussion last week, Li and other team members highlighted “scarcity” as an investment theme. A key example was the shortages resulting from the AI buildout scramble. She says that’s where an overweight in US stocks comes in.

“There are two considerations for the US play. One is identifying bottlenecks and scarcity,” she explains. “The US does have significant advantages, be it having leading chips, leading models, energy independence, and generally the depth and the breadth of its capital market. So even though finding winners is challenging, chances are that a lot of those future winners are still going to be found in the US market.”

As for where in the market to find those winners, “we want to invest in the scarce infrastructure that every AI system requires, so that goes from power, electricity grids, to semiconductors and physical AI. Physical AI has a value chain and stack in the US as well. So this very much supports opportunities across materials, industrials, information technology, utilities, and energy.”

In addition, Li says small caps are an overlooked opportunity set for AI. For example, although memory stocks are a small part of the small-cap universe on a percentage basis, those companies have been driving returns. While some investors think of small caps “as an anti-AI trade … there is an argument to be made more on an active basis that one can find interesting opportunities in the, in the unusual exposures like small cap and value.”