Strong Finish to the First Half

Highlights include:

• The S&P 500 recovered all of its first-quarter losses and finished the first half of the year at a new record high, returning approximately 10% year-to-date and 22% over the trailing year ended June 30, 2026.
• After strong gains early in the year, geopolitical tensions in the Middle East sent oil prices sharply higher during the first quarter, fueling concerns that inflation would remain elevated and interest rates would stay higher for longer. As a result, the initial strong gains turned into market losses. During the second quarter, progress toward a ceasefire reduced fears of a broader conflict. Oil prices fell, inflation concerns eased, and markets rebounded.
• Artificial intelligence (AI) remained one of the market’s dominant themes, although performance varied widely within the Technology sector. Companies benefiting from AI infrastructure spending, including semiconductor and hardware manufacturers, continued to lead the market, which helped push Industrials and Information Technology to among the best-performing sectors in 2026.
• Financials, Consumer Discretionary, and Communication Services were the weakest-performing sectors. Software companies were particularly challenged, with the S&P 500 Software & Services subsector falling nearly 16% year-to-date as investors questioned which companies will weather the challenge from AI substitution.
• The U.S. economy has remained resilient despite ongoing uncertainty. The unemployment rate has held near 4%, inflation has eased to approximately 2.4%, and the Federal Reserve, with Kevin Warsh as its new chair, has maintained a patient, data-dependent approach to interest rates.

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Katharine E.W. Dudley, AIF^®
Senior Vice President, Client Advisor

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