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- Despite conflict in the Middle East, oil above $100 per barrel,1 and a shifting interest rate outlook, U.S. stocks reached record highs in the first half of 2026.2
- Healthy corporate earnings helped stocks set new records and small-cap stocks posted their best first half in more than three decades.3
- The economy has been resilient, supported by a stable labor market and growth that is moderating rather than contracting.
- Market leadership broadened across geographies, company sizes, and sectors, rewarding diversified investors.
By almost any measure, investors have had plenty of reasons to be cautious this year. The ongoing conflict in the Middle East pushed oil prices above $100 per barrel in March,1 driving inflation higher. This helped shift the interest rate outlook from expected cuts to talk of possible hikes, even with a new Federal Reserve Chair in place.10 Add in fiscal deficits, political uncertainty, and the ongoing debate about AI and market valuations, and it would have been easy to stay on the sidelines.
However, the markets told a different story. Healthy corporate earnings lifted equity markets in the first half of 2026. U.S. stocks reached record highs, with the S&P 500 up 10.2% in the first six months of the year, despite a 1% decline in June.2 The Dow Jones Industrial Average rose a more modest 9.8% year to date, but was up 2.7% for the month.4 The tech-heavy Nasdaq Composite was down 2.8% in June, but outperformed the broader S&P 500 year to date, returning 13.1% as of June 30th.5 The small-cap Russell 2000 Index delivered its best first half in more than three decades, up 22.6% year to date and 3.6% for the month.3 International markets also produced strong returns: The developed markets MSCI EAFE Index returned 9.4% year to date and 0.1% in June.6 Credit markets were resilient, returning 1.0% in the first six months and 0.2% in June.7
Looking back over the first six months of the year, several themes stand out that investors should keep in mind as we head into the second half of 2026.
Markets Rarely Wait for Certainty
Markets tend to price what investors expect to happen next, not what is happening today. Accordingly, they often move in ways that seem disconnected from the headlines. Investors naturally want certainty before committing capital, but markets rarely provide it.
We’ve seen this lesson repeated many times across market cycles. During the financial crisis, stocks bottomed in March 2009, months before the economy stopped shrinking. In 2020, markets began recovering just weeks into the pandemic, long before a vaccine became available. Stocks turned higher in late 2022 while inflation was still elevated. The regional banking stress of 2023 passed without derailing that recovery. This year followed the same pattern. Earlier this year, stocks began climbing in the spring while the Middle East conflict was still unresolved and the rate outlook was uncertain. Markets do not require perfect news to move higher. Improving expectations can be enough to drive them higher. The message to investors is that waiting for certainty can mean allowing attractive opportunities to pass by.
Economic Resilience Matters More Than Perfection
One of the biggest surprises this year has been the resilience of the economy. Corporate America has continued to deliver generally healthy earnings, balance sheets are strong, and businesses continue to invest in their futures despite higher financing costs. Consumers have held up as well. Unemployment has stayed near 4.3%,8 wage growth has moderated to a more sustainable pace, and spending has slowed but continues to expand.
Source: FRED, U.S. Census Bureau. Seasonally Adjusted
The broader economy tells a similar story. First-quarter 2026 growth was revised up to an annualized 2.1%,9 a sign that economic growth is moderating toward a sustainable pace rather than sliding into recession. Higher energy prices lifted headline inflation this spring, but core measures have stayed cooler. Despite temporary setbacks, inflation should continue to normalize as oil prices ease. None of this is perfect, but it does not need to be. Resilience, not perfection, has been the defining characteristic of this economy, and it has been enough to support positive investment outcomes for markets so far this year.
Innovation Continues to Drive Long-Term Opportunity
Much of this year’s market-related conversation has centered on Artificial Intelligence (AI). Looking more broadly across the economy, however, there’s more to innovation than AI, and many noteworthy investments being made today by corporations are benefiting balance sheets and investors. Businesses are investing in automation, digital transformation, productivity tools, healthcare innovation, and manufacturing efficiency. All of these innovations, AI included, focus on the same goal: producing more with less.
History suggests that investing in new technologies may matter more than political headlines. From the telegraph to the microchip, innovation has been a powerful driver of productivity, earnings growth, and long-term wealth creation. Individual winners and losers will emerge along the way, but the broader wave of investment tends to lift productivity across the entire economy. Political headlines can make noise, but today’s investment in new technologies may prove far more important.
Market Leadership Never Stands Still
For much of the past decade, a handful of large U.S. technology companies dominated market returns. One of the healthiest developments this year has been the broadening of market leadership beyond that group. Since 2025, international stocks as measured by the MSCI EAFE Index have delivered strong returns,6 keeping pace with or outperforming U.S. equity benchmarks. Small caps, long overlooked, have led the market in 2026.3 Sectors such as energy, health care, and industrials have taken turns at the front, and equal-weight indexes have had an easier time keeping up with market-weight indexes than in the past.
Source: YCharts
Why does this matter? Diversification in equity markets works because leadership changes over time. Investors who spread their portfolios across company sizes, styles, and geographies were rewarded this year. They did not need to guess the winner in advance. The first half of 2026 served as yet another reminder that yesterday’s winners are not always tomorrow’s leaders.
Successful Investing Is More About Behavior Than Prediction
Consider what an investor attempting to time the market would have needed to predict correctly this year: a major conflict in the Middle East, oil above $100 per barrel and then back near $70,11 a Federal Reserve that moved from rate cut expectations to rate hike discussions, and small-cap stocks leading the market. Predicting that sequence of events would have been a near impossibility. Yet a diversified portfolio captured solid returns without any of the work.
Source: FactSet, WTI Crude Oil
That is the real lesson of the first half of 2026. Investors spend enormous energy trying to forecast elections, inflation, interest rates, wars, and oil prices. Very few succeed consistently, and even accurate predictions often fail to translate into profitable decisions. What many successful investors do instead is simpler and more repeatable: they stay diversified, rebalance periodically, maintain perspective, avoid emotional decisions, and keep their focus on long-term objectives.
Successful investing is not about predicting uncertainty but about preparing for it. That principle sits at the center of our investment philosophy, which is rooted in diversification as a primary risk management tool. The first six months of 2026 provided one of the clearest demonstrations of that principle in recent memory.
Maintaining Perspective
As we enter the second half of the year, we are monitoring several developments, including the path of inflation as energy prices settle and second-quarter corporate earnings. We are watching whether productivity gains from technology investment begin to appear in the data, and whether market leadership remains broad. We are also following fiscal policy, deficits, and events in the Middle East. Any of these could produce headlines and short-term volatility, but none changes the framework we use to invest.
Every year reminds investors that uncertainty never goes away; it simply evolves. A year ago, the market was focused on tariffs and elevated valuations. Today, the conversation has shifted to oil prices, interest rates, and geopolitical events. Next year, the concerns will almost certainly be different. Successful investing is not about eliminating uncertainty. It is about maintaining the discipline to invest through it.
The first half of 2026 reinforced an important investment lesson: markets are inherently forward-looking. While short-term disruptions often dominate the headlines, long-term returns are ultimately driven by earnings growth, innovation, productivity, and economic resilience. We cannot predict every event or market reaction, but we can build diversified portfolios designed to navigate a wide range of environments. That disciplined, long-term approach remains the foundation of our investment philosophy and will continue to guide our decisions in the months ahead.
1 U.S. Energy Information Administration, This Week in Petroleum, March 2026
2 S&P Dow Jones Indices, S&P 500, June 30, 2026et
3 FTSE Russell, Russell 2000 Index, June 30, 2026
4 S&P Dow Jones Indices, Dow Jones Industrial Average, June 30, 2026
5 Nasdaq, Inc., Nasdaq Composite Index, June 30, 2026esk
6 MSCI Inc., MSCI EAFE Index, June 30, 2026
7 Bloomberg Index Services Limited, Bloomberg U.S. Aggregate Bond Index, June 30, 2026
8 U.S. Bureau of Labor Statistics, Employment Situation Summary, June 2026
9 U.S. Bureau of Economic Analysis, Gross Domestic Product (Third Estimate), 1st Quarter 2026, June 25, 2026
10 Federal Reserve Board, Kevin Warsh Takes Oath of Office as Chairman, May 22, 2026
11 U.S. Energy Information Administration, Crude Oil Prices: West Texas Intermediate (WTI), June 30, 2026
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Index Definitions
The Standard & Poor’s (S&P) 500 Index is an index of 500 stocks seen as a leading indicator of U.S. equities and a reflection of the performance of the large cap universe, made up of companies selected by economists. The S&P 500 is a market value weighted index and one of the common benchmarks for the U.S. stock market.
The Russell 2000® Index is a capitalization-weighted index designed to measure the performance of a market consisting of the 2,000 smallest publicly traded U.S. companies (in terms of market capitalization) that are included in the Russell 3000® Index.
Dow Jones Industrial Average® (Dow Jones or DJIA) is a stock market index representing the price weighted average of 30 large, publicly owned companies trading on the New York Stock Exchange (NYSE) and the NASDAQ. The component stocks are accorded relative importance based on the prices, unlike other indices which weight by market capitalization. The companies in the DJIA are leaders in their industries, and their stocks are widely held by individuals and institutional investors.
The NASDAQ Composite Index measures all NASDAQ domestic and international based common type stocks listed on The NASDAQ Stock Market.
The MSCI EAFE Index is a stock market index that measures the performance of large- and mid-cap companies across 21 developed markets countries around the world. Canada and the USA are not included. EAFE is an acronym that stands for Europe, Australasia, and the Far East.
The Bloomberg U.S. Aggregate Bond Index is a market capitalization weighted index, meaning the securities in the index are weighted according to the market size of each bond type. Most U.S. traded investment grade bonds are represented. Municipal bonds and Treasury Inflation-Protected Securities are excluded, due to tax treatment issues. The index includes Treasury securities, Government agency bonds, mortgage-backed bonds, corporate bonds, and a small number of foreign bonds traded in the U.S. CSP2026204
