2026 Markets: First Half in Numbers

Instead, subsequent tariff relief helped stabilize investor sentiment and allowed the ongoing bull market to regain its footing.

But this year’s rally has been markedly different than recent years.

No longer powered by the Mag Seven, the S&P 500 Top Ten Index lagged the broader market, barely eking out a gain in the first half of the year—up 0.75%.

Several of the market’s leading stocks struggled during the period. Microsoft, Meta Platforms, and Tesla posted declines, while Amazon, Apple, and Nvidia underperformed the broader market.

Alphabet was the only Mag Seven firm to outperform the S&P 500, and even then, its excess return was relatively modest. All in all, the Roundhill Mag Seven ETF shed 2.52% in the first half.

Instead, the S&P 500’s advance was bolstered by high-performing chip stocks, including Micron, AMD, Intel, Applied Materials, and SanDisk, according to Jefferies.

That said, the broader market wasn’t left behind.

Indexes that had lagged during the bull market outperformed. For instance, the Equal-Weight S&P 500 Index bested the market-cap-based S&P 500 in the first half of 2026 with a gain of 11.11% versus 9.55% for the market-cap-weighted index.

The year is far from over, but the Equal-Weight Index has come up short in each year since 2023 (the current bull market began in late 2022).

While the Dow’s advance failed to outpace the S&P 500 in the first half of the year, it still posted a respectable 8.85% return.

In addition, mid-caps posted a solid advance of almost 17%, while small caps, which have struggled in the bull market, advanced by over 20% when measured by Standard & Poor’s and the Russell 2000 Index.

But subpar performance in key tech names didn’t prevent the Nasdaq Composite from turning in an upbeat advance of 12.79%.

Overall, an expanding economy, strong corporate profits, and relatively stable bond yields continued to support the overall market in the first half of 2026.

Sources: FactSet, Dow Jones Market Data, WSJ, S&P Dow Jones Indices
December 31, 2025–June 30, 2026

An earnings explosion

S&P 500 companies have posted double-digit earnings growth for six consecutive quarters—a streak that began in Q4 2024.

Q1’s 2026 increase of 29.4% was the best reading since Q4 of 2021. It’s not unusual for the S&P 500 to register earnings increases north of 20% during the early stages of an economic recovery because year-over-year comparisons are easy because the economy is exiting a recession.

Even so, a profit increase just shy of 30% is striking this late in an economic expansion, highlighting the outsized contribution of companies benefiting from the AI boom.

It’s common for the S&P 500 to top early estimates amid conservative analyst forecasts. Historically, that beat runs roughly three to four percentage points.

In Q1, the final tally of 29.4% was double the forecast issued as Q1 ended.

Data source: LSEG
*Preliminary estimate as of 7/1/2026

Key S&P 500 sectors: tech and industrials

The economic strength of technology has been well documented, but it is also underpinning growth in other sectors.

Strong capital expenditures tied to power infrastructure, the AI buildout, defense spending, and energy projects continue to underpin industrials. Further, such demand also supports materials.

Energy’s third-place finish was the result of higher oil prices, even as the price of oil slipped from first-half highs.

Meanwhile, consumer staples lagged amid sluggish overall revenue trends and pressure from higher input costs.

Financials lagged in the first half of 2026 as declining lending yields squeezed net interest margins, and investors rotated into sectors exposed to the AI buildout, including technology, industrials, and power infrastructure.

Lingering concerns about the credit cycle, commercial real estate, and the economic outlook also weighed on sentiment toward banks, despite the ongoing economic recovery and strong Q2 earnings from the nation’s largest banks.

Data Source: StockCharts
YTD through 6/30/2026

Around the world

In tandem with US markets, international stocks continued to rise in the first half of 2026, though not at the pace we saw in 2025, when global counterparts had an outstanding year.

Unlike a year ago, the dollar has stabilized, eating into international gains—Table 5.

South Korea has emerged as 2026’s top-performing major market, climbing just over 100% through the first six months of the year. The rally was driven largely by the explosive gains in SK Hynix and Samsung Electronics, whose combined weight of roughly 45% in the KOSPI Index (as measured by iShares MSCI South Korea ETF) has made them the primary beneficiaries of investor enthusiasm for AI and memory-chip demand.

Tapping into strong U.S. investor interest, SK Hynix raised approximately $26 billion through its Nasdaq debut in early July, giving American investors another avenue to gain exposure to the global semiconductor industry.

Data Sources: FactSet, Dow Jones Market Data, WSJ
YTD through 6/30/2026

Table 5 illustrates that global markets performed well during the first half of 2026, though the stabilization of the US dollar modestly limited gains.

A big winner this year has been the MSCI Emerging Markets Index, which has easily outperformed other major global indexes. Broadly speaking, the global AI hardware boom, a concentration in tech-centric markets, and favorable macro conditions have aided the group.

Data Source: MSCI.com
YTD through 6/30/2026

Style—Growth tops value, tilted to smaller and mid-caps

Once again, in the battle between growth and value, growth continues to shine, but with a twist.

In contrast to previous periods, large-cap stocks no longer emerged as the top performers, as small-cap and mid-cap growth led the way. In part, investors are finally recognizing the valuation gap between smaller and mid-sized companies and larger companies. But it’s not simply a valuation story.

The AI buildout is also creating a powerful trickle-down effect across the technology ecosystem.

As chipmakers, hyperscalers, and cloud giants pour capital into AI infrastructure, a broad network of smaller suppliers, from semiconductor equipment makers to component providers, is capturing a growing share of AI-related spending.

Meanwhile, concerns about inflation and a modest rise in the term premium for longer-term bonds kept bond fund returns in check during the first half.

In addition, chatter about a possible rate cut this year has been replaced by talk of a possible Fed tightening.

Source: iShares
The performance quoted represents past performance and does not guarantee future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than the original cost. Current performance may be lower or higher than the performance quoted.
Data through 6/30/2026
1-year, 3-year, 5-year returns as of June 30, 2026

Yields inch higher

The Fed controls the short end of the yield curve and can influence, but does not control, yields at the longer end of the curve. Note the gradual rise in the yield for the 3-month T-bill, as investors attempt to price in a possible Fed rate hike this year.

Following the Fed’s quarter-point December rate cut, the fed funds target rate fell to 3.50–3.75%. Note that the 3-month T-bill has crept above the target.

The 2-year Treasury yield is often considered to be a proxy for what may happen to the fed funds rate. As the year has progressed, the 2-year yield drifted higher. By the end of the first half, the 2-year yield had risen well above the target range for the fed funds rate, signaling that investors believe the next move in the fed funds rate will be higher.

We’re also seeing a higher 10-year yield, though the spread between the two bonds has narrowed.

An uptick in inflation, a wider term premium, and a wide and intractable federal deficit are likely pressuring the long end of the curve.

Despite inflation failing to return to the Fed’s 2% target, the 10-year breakeven rate has remained stable. It’s a market-based indicator that suggests inflation expectations remain anchored.

Data Source: St. Louis Federal Reserve
*Proxy for the yield curve
**Breakeven Rate: 10-year Treasury yield minus 10-year TIPs yield, which provides a proxy for 10-year inflation expectations (the yield an investor is willing to give up for inflation protection).

Corporate bonds

Investment-grade corporate bond yields have taken a similar path to Treasuries.

Historically, the spread between Treasuries and high-yield (junk) debt remains quite narrow.

Among some investors, the narrow spread suggests market complacency and easy credit conditions. Others view it as a positive economic signal.

Junk bonds are sometimes viewed as the economic canary in the coal mine. When economic storm clouds are developing, firms on the credit bubble are more likely to struggle to service their debt, and spreads can widen considerably.

We’re not seeing that today.

Data Source: St. Louis Federal Reserve
‘BBB-’ is the lowest grade of investment debt.
*ICE BofA US High Yield Index Option-Adjusted Spread measures the difference between the yield on high-yield bonds and long-term Treasuries.

Commodities rise, gold falters

The significant rise in commodities this year was tied to the start of hostilities between the U.S. and Iran. Although the CRB Index has pulled back from its Q2 high of 516, the index remains well above its end-of-2025 level.

Separately, the dollar, which struggled in 2025, has stabilized and rallied modestly in the first half of 2026.

Solid economic growth, the potential for a US rate hike, and the global demand for US assets helped support the dollar. The beginning of the US war with Iran also encouraged the flight-to-safety trade.

Gold, which had been a big winner, lost its shine in 2026. The metal peaked at $5,354 in late January after President Trump signaled his intent to nominate Kevin Warsh as the next chairman of the Federal Reserve.

Although he had signaled a desire to cut rates, he was viewed as a hawkish nominee, and the crowded gold trade began to unwind.  

Coupled with higher bond yields, the war with Iran and surging oil prices likely prompted some global central banks to sell some of their holdings, adding pressure on gold.

Source: St. Louis Federal Reserve, Trading Economics, MarketWatch

A resilient economy

Despite uncertainty and global headwinds from higher energy prices, the US economy remains in an upward trend, aided by a boom in corporate outlays for AI.

Despite higher energy prices, there has been little evidence of any significant headwinds on consumer spending.

Gasoline is a relatively small share of the family budget. This is especially true for upper-income consumers, who have fueled spending. Tax refunds have also provided a temporary buffer.

Additionally, a sudden spike in energy prices would likely be viewed as temporary, and consumers would not be expected to immediately adjust their outlays, according to macroeconomic theory. If higher prices persist, challenges for retailers could grow over time.

Data source: St. Louis Federal Reserve
*Chained 2017 dollars

Uneven job growth

Growth in nonfarm payrolls has been weak compared with historical data. Yet, given constraints on immigration and factors that are not fully understood, the unemployment rate remains at a low.

This suggests that the level of job creation needed to prevent an unwanted rise in the unemployment rate has fallen. While job creation has been subpar in many industries, health care remains a standout sector that has contributed to employment.

Nonfarm payrolls rose by 552,000 through June, or an average of 92,000 per month. Healthcare accounted for 58% of those jobs.

Meanwhile, layoffs, as measured by first-time claims for jobless benefits, remain low. In addition, job openings have recently risen, according to US BLS data.

Data Source: St. Louis Federal Reserve, U.S. BLS

Data Source: St. Louis Federal Reserve

Sticky inflation

There are two important measures of retail inflation that investors keep tabs on—the Consumer Price Index (CPI) and the Personal Consumption Expenditures Price Index (PCE Price Index). Both are broad-based. The Fed favors the PCE Price Index.

Economists lean toward core inflation, which excludes food and energy, as their preferred inflation gauge. More often than not, core offers a more accurate picture of underlying trends.

Despite the Fed’s repeated commitment to returning inflation to its 2% target, its goal remains out of reach.

What if the Federal Reserve were to base its progress on the PCE Price Index Trimmed Mean instead of the broader-based core PCE Price Index?

Fed Chair Warsh has said he prefers to track underlying inflation trends rather than temporary price movements caused by events such as oil shocks, weather, geopolitical disruptions, or sudden swings in a few product categories.

The trimmed mean—provided by the Dallas Federal Reserve—trims the outliers from the index. Consequently, the bottom 25% and the top 30% are removed from the index.

Critics argue that eliminating over half the index could provide an incorrect signal. To some extent, this occurred during the 2021–2022 inflation outbreak, when trimmed measures reacted more slowly than headline inflation.