What the First Half of 2026 Teaches Investors About the Road Ahead

The first half of 2026 was eventful for investors. Major developments included the war in Iran, rising oil prices pushing inflation to multi-year highs, and growing questions around artificial intelligence (AI). Despite all of this, markets climbed to new all-time highs, corporate earnings grew at a double-digit pace, and many asset classes performed well. The key lesson from the first six months is simple: staying invested and keeping a long-term view matters.

The second half of the year will likely bring its own surprises, including developments in the Middle East conflict, the upcoming midterm election, and new market activity such as initial public offerings (IPOs). Understanding what drove markets in the first half can help investors stay grounded as new events unfold.

Key market and economic highlights from the first half of 2026 1

  • The S&P 500, Nasdaq, and Dow Jones Industrial Average returned 9.6%, 12.8%, and 8.9% year-to-date through the end of June, respectively. The second quarter was historically strong, with the S&P 500 returning 14.9%, the Nasdaq 21.4%, and the Dow 12.9%.
  • The Bloomberg U.S. Aggregate Bond Index rose 0.6% year-to-date. The 10-year Treasury yield ended the second quarter at 4.47%, up from 4.17% at the start of the year.
  • Developed market international stocks (MSCI EAFE) gained 7.7% and emerging market stocks (MSCI EM) returned 22.7% year-to-date, both in U.S. dollar terms.
  • The Bloomberg Commodities Index rose 12.3% year-to-date, driven by a strong first quarter gain of 23.3%, offset by a decline of 8.9% in the second quarter.
  • Brent crude peaked just under $120 per barrel in May before closing the quarter at $73 per barrel.
  • Gold prices fell to $4,007 per ounce while Bitcoin declined to a recent low of $58,633.
  • Headline CPI rose 4.2% year-over-year in May, driven largely by energy prices. Core CPI, which excludes food and energy, rose 2.9%.
  • The Federal Reserve kept rates unchanged at 3.50% to 3.75% through the first half of the year. Kevin Warsh was sworn in as Fed Chair in May.


The current business cycle is now in its seventh year

The current business cycle, which is the period of economic growth and activity between recessions, began in April 2020 during the pandemic. It has now passed its sixth anniversary. Along the way, there were several worries about a possible recession, including when inflation peaked in 2022 and when tariffs disrupted trade last year. The economy proved resilient each time.

Today, inflation remains high but could ease if oil prices stay low. The job market has picked up again, the dollar has stabilized, and business investment has grown. Consumers remain cautious but are still spending. Overall, the economy looks healthy, which has historically been a positive sign for financial markets over the long run. Economic forecasts and market expectations are subject to change and may differ from these projections.

A wide range of asset classes have delivered positive returns this year

Returns shown represent historical performance and are not indicative of future results. Different asset classes involve varying levels of risk and volatility, and investors may experience losses. Additional information on indices can be found at the end of the page.

 

Many different types of investments contributed to portfolio performance in the first half of 2026. This includes large cap stocks (the S&P 500), small cap stocks, emerging market stocks, and commodities. The second quarter was particularly strong, partly because markets began recovering at the start of April following the war in Iran.

Corporate profits rose over 20% in the past twelve months for S&P 500 companies. 2 Strong earnings, hopes for peace in Iran, and excitement around AI all helped drive returns. One caution worth noting: U.S. stock valuations, or how expensive stocks are relative to earnings, are historically high. The S&P 500 trades at a price-to-earnings ratio of 20x, above the long-term historical average of 16x. 3 This does not predict short-term market moves, but it is a useful reminder to keep portfolios balanced across different asset types.

Inflation remains elevated but oil prices have pulled back

Historical trends and patterns do not guarantee future market performance.

The conflict in Iran disrupted oil supply routes, pushing Brent crude to nearly $120 per barrel before prices fell back to around $70, near pre-conflict levels. Gasoline prices followed a similar path, peaking above $4.50 per gallon before retreating below $4.00 per gallon.4

These energy price swings pushed the Consumer Price Index (CPI), a common measure of inflation, to 4.2% year-over-year in May. 5 However, core CPI, which strips out food and energy, rose only 2.9%. This suggests that inflation has been concentrated in fuel costs rather than spreading broadly through the economy. With oil prices now lower, many economists believe inflation may have peaked.

Market volatility has remained manageable despite headline risks

Market volatility refers to how much prices swing up and down. One common way to measure it is the VIX index. The current VIX reading of 16 is below its long-term average of 18.4, suggesting that markets have been relatively calm despite the many headlines. The S&P 500’s largest decline from peak to trough in 2026 was 9%, and the market has since fully recovered, reaching 24 new all-time highs so far this year.6

The real risk during volatile periods is not the market swings themselves, but reacting to them by selling or trying to time the market. A portfolio built to weather different market conditions, and aligned with long-term financial goals, is a more reliable approach than trying to predict short-term moves.

Staying invested beats sitting on the sidelines

When markets become uncertain, some investors move their money into cash. Money market fund assets have reached a record $7.9 trillion, more than double their pre-pandemic level. While cash can feel safe, it comes with a hidden cost. The real income from cash, meaning what you earn after accounting for inflation, is currently negative. 7 In other words, cash holdings can slowly lose purchasing power over time.

A balanced portfolio that includes growth assets, income-generating investments, and capital preservation strategies offers a more effective way to build wealth over time. The first half of 2026 is a clear example of why staying invested through uncertainty tends to pay off.

The bottom line? The first half of 2026 has rewarded investors who stayed diversified and maintained a long-term perspective, even as geopolitical and economic headlines created short-term uncertainty.

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References

  1. All figures are as of June 30, 2026 and are on a price return basis unless otherwise noted
  2. Clearnomics research and LSEG data as of June 30, 2026
  3. Ibid.
  4. https://gasprices.aaa.com/
  5. https://www.bls.gov/news.release/cpi.nr0.htm
  6. Clearnomics research and Standard & Poor’s data as of June 30, 2026
  7. Clearnomics research and FDIC data as of June 30, 2026

Index Descriptions

S&P 500
The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

Dow Jones Industrial Average
The Dow Jones Industrial Average consists of 30 stocks that are major factors in their industries and widely held by individuals and institutional investors.

NASDAQ
The NASDAQ Composite Index measures all NASDAQ domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index.

MSCI Emerging Markets Index
The MSCI EM (Emerging Markets) Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of the emerging market countries of the Americas, Europe, the Middle East, Africa and Asia. The MSCI EM Index consists of the following emerging market country indices: Brazil, Chile, Colombia, Mexico, Peru, Czech Republic, Egypt, Greece, Hungary, Poland, Qatar, Russia, South Africa, Turkey, United Arab Emirates, China, India, Indonesia, Korea, Malaysia, Philippines, Taiwan, and Thailand.

MSCI EAFE Index
The MSCI EAFE Index is a free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the US & Canada. The MSCI EAFE Index consists of the following developed country indices: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland and the UK.

Bloomberg US Aggregate Bond Index
The Bloomberg U.S. Aggregate Bond Index is an index of the U.S. investment-grade fixed-rate bond market, including both government and corporate bonds.

This material is provided for informational and educational purposes only and should not be construed as individualized investment advice. The information contained herein has been obtained from sources believed to be reliable, but is not necessarily complete and its accuracy cannot be guaranteed. No representation or warranty, express or implied, is made as to the fairness, accuracy, completeness, or correctness of the information and opinions contained herein. The views and the other information provided are subject to change without notice. All reports posted on or via www.arswealth.com or any affiliated websites, applications, or services are issued without regard to the specific investment objectives, financial situation, or particular needs of any specific recipient and are not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. Past performance is not necessarily a guide to future results.