Markets Reward Discipline Through a Volatile First Half

Markets Reward Discipline Through a Volatile First Half

U.S. markets finished the first half of 2026 with solid gains despite a challenging backdrop that included the conflict in Iran, significant swings in oil prices, elevated inflation, and uncertainty surrounding interest rates. Through the end of June, the S&P 500 gained 9.6%, the Nasdaq rose 12.8%, and the Dow Jones Industrial Average returned 8.9%. The second quarter was particularly strong, with the S&P 500 gaining 14.9%.

Strength Across Markets

Market gains were not limited to large U.S. companies. Developed international stocks gained 7.7% through June, while emerging markets returned 22.7%. Commodities also advanced during the first half of the year. This broad participation across asset classes reinforces the importance of diversification, particularly when leadership can shift quickly from one area of the market to another.

Economy Remains Resilient

The economy has remained resilient despite recurring concerns about a potential slowdown. The current economic expansion has now entered its seventh year, supported by continued consumer spending, improving business investment, and a labor market that has shown renewed strength. Corporate fundamentals have also remained supportive, with S&P 500 earnings growing more than 20% over the past 12 months.

Inflation Pressures Ease

Inflation remains one of the primary risks facing investors, but recent energy market developments have been encouraging. Brent crude oil approached $120 per barrel during the height of Middle East tensions before retreating to approximately $73 by the end of the quarter. Headline inflation rose 4.2% year-over-year in May, while core inflation, which excludes food and energy, increased a more moderate 2.9%, suggesting much of the recent inflation pressure has been concentrated in energy prices.

Volatility Remains Contained

Despite significant headlines during the first half of the year, market volatility has remained manageable. The S&P 500 experienced a 9% peak-to-trough decline earlier this year before recovering and reaching 24 new all-time highs through the end of June. The VIX, a common measure of expected stock market volatility, ended the first half below its long-term average.

Looking Ahead

Looking ahead, investors will continue to monitor developments in the Middle East, inflation and energy prices, Federal Reserve policy, corporate earnings, and the upcoming midterm elections. Unexpected events are inevitable, but the first half of 2026 provides another reminder that short-term uncertainty does not necessarily determine long-term market outcomes.

As Always

I’d like to leave you with the final line we’ve used since we started these commentaries back at the very height of market volatility in March 2020. Always remember that we create financial/investment plans not for the easy times, but to prepare for the tough ones.