There is an old saying that smooth seas do not make skillful sailors. The first half of 2026 has been a meaningful reminder of that principle for investors. Markets navigated a series of significant events—including the war in Iran, rising oil prices that pushed inflation to multi-year highs, and continued questions surrounding artificial intelligence (AI). Yet despite these challenges, markets climbed to new all-time highs, corporate earnings expanded at a double-digit pace, and a broad range of asset classes delivered strong results.
The first six months of the year reinforce an important lesson: uncertainty is a normal part of investing, and maintaining a long-term perspective remains one of the most effective ways to navigate it. That perspective is especially valuable today, as the business cycle has entered its seventh year while the current market cycle approaches its fifth. For many investors, it can feel as though familiar concerns—including inflation, the Federal Reserve, and market valuations—have repeatedly moved in and out of focus. Rather than representing obstacles to investing, these periods of uncertainty are a reminder of why discipline and patience have historically been rewarded over the long run.
Looking ahead, the second half of the year will undoubtedly bring its own developments, from the ongoing conflict in the Middle East and the approaching midterm election to continued activity in the IPO market. While no one can predict exactly how these events will unfold, maintaining perspective will remain essential.
Key market and economic highlights from the first half of 20261
The S&P 500, Nasdaq, and Dow Jones Industrial Average have 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 has risen 0.6% year-to-date. The 10-year Treasury yield ended the second quarter at 4.47%, rising from 4.17% at the start of the year.
Developed market international stocks (MSCI EAFE) have gained 7.7% and emerging market stocks (MSCI EM) have returned 22.7% year-to-date, both in U.S. dollar terms.
The Bloomberg Commodities Index has risen 12.3% year-to-date. This was due to a strong first quarter which experienced a gain of 23.3%, versus 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 business cycle is now in its seventh year of expansion
Some investors may be surprised to learn that the current business cycle began in April 2020, during the depths of the pandemic, and passed its sixth anniversary in the second quarter of 2026. Along the way, there have been multiple moments when investors and economists feared a recession might be imminent, including when inflation peaked in 2022 and when tariffs disrupted global trade last year. Through each of those challenges, the economy demonstrated remarkable resilience, continuing to grow at a steady pace.
The business cycle influences many aspects of our financial lives—from mortgage rates and employment opportunities to business investment and corporate earnings. While the stock market and the broader economy are not identical, they have historically been closely connected over time. The chart above places the current cycle in historical context. The longest expansions on record, including those following the 2008 financial crisis and during the 1990s, each lasted a decade or more.
As for the economy's current condition, inflation remains elevated but could ease further if oil prices stay near recent lows. The job market has regained momentum, reversing last year's concerns about sluggish hiring. The dollar has stabilized and recently rebounded, trade conditions remain uncertain but have improved, and business investment has picked up. Consumers continue to express pessimism in surveys while also spending on both everyday necessities and discretionary goods. Taken together, these mixed signals point to an economy that has remained resilient—a backdrop that has historically supported financial markets over the long term.
Broad asset class performance has supported diversified portfolios this year
A wide range of global asset classes has contributed positively to portfolios so far in 2026, building on the trend established last year. Gains have extended beyond large-cap U.S. stocks to include small caps, emerging markets, and commodities, as illustrated in the chart above. The second quarter, in particular, ranked among the strongest on record. This strength was partly a function of timing, as the onset of the war in Iran meant that the subsequent market recovery began right at the start of April.
Several themes have driven these returns, including the resilience of the economy, optimism surrounding a potential peace agreement in Iran, and enthusiasm for AI. Many of these factors have supported corporate earnings growth, with profits for S&P 500 companies rising more than 20% over the past twelve months.²
This favorable market environment has also sparked a wave of high-profile IPOs, including SpaceX in the second quarter, with the anticipated listings of OpenAI and Anthropic still on the horizon.
Although IPOs often attract significant attention when they debut, their greatest impact is typically measured over years, not days. More importantly, they expand the universe of publicly traded companies available to investors. As with any investment, what ultimately matters is not the excitement surrounding a company's debut, but how it performs over the years and market cycles that follow.
These positive developments have also pushed U.S. stock valuations to historically elevated levels. The S&P 500 currently trades at a price-to-earnings ratio of 20x, above the long-term historical average of 16x.³
Valuation measures are not reliable predictors of near-term market direction, but they remain useful inputs when building long-term portfolios and evaluating opportunities across asset classes. Taken together, this year's performance reinforces the value of maintaining a diversified portfolio rather than relying on any single investment, sector, or theme.
Inflation remains elevated, but easing oil prices offer some relief
The conflict in Iran has affected the U.S. economy primarily through its impact on energy markets. Disruptions to oil transportation through the Strait of Hormuz pushed Brent crude to nearly $120 per barrel before prices pulled back sharply. In recent weeks, oil has fallen to around $70 per barrel, close to pre-conflict levels. Gasoline prices have followed a similar trajectory with a brief lag, peaking above $4.50 per gallon nationally before retreating below $4.00 per gallon.4
These swings in energy prices have had a direct effect on inflation. The Consumer Price Index rose 4.2% year-over-year in May, its highest reading in several years, with the gasoline component jumping 40.5% over the same period. Notably, core CPI, which strips out food and energy prices, rose only 2.9%.5 This distinction highlights that inflationary pressures have been concentrated in fuel costs rather than spreading broadly across the economy.
With oil prices retreating in recent weeks, many economists are cautiously optimistic that inflation may be near its peak. This pattern echoes previous geopolitical shocks that disrupted oil supply, including Russia's invasion of Ukraine in 2022, among others illustrated in the chart above. In past episodes, once conditions stabilized, oil prices tended to recover and inflation rates gradually declined over time.
Market volatility has remained contained relative to historical norms
Investors have become increasingly familiar with brief bouts of market volatility triggered by macroeconomic developments. Tariffs, the Middle East conflict, and uncertainty surrounding the Fed have all contributed to short-lived market swings over just the past year. This pattern is visible in the VIX, a widely used measure of stock market volatility. Encouragingly, the current VIX reading of 16 sits below its long-term average of 18.4 and well below recent peaks. As shown in the chart above, periods of elevated volatility have historically coincided with some of the most compelling market opportunities.
Another useful lens for understanding how market moves affect investors is tracking the largest pullback within each calendar year. In 2026, the S&P 500's steepest peak-to-trough decline has been 9%. While no drawdown is ever comfortable, markets have a consistent history of rebounding at moments when investors least anticipate it. Today, the market has not only recovered fully from that earlier pullback, but the S&P 500 has gone on to set 24 new all-time highs so far this year.6
The experience of the first half of 2026 reinforces a familiar truth: the greatest risk during periods of market volatility is often not the volatility itself, but how investors respond to it. The temptation to time the market during uncertain periods is understandable, but history has shown that remaining disciplined is often the more effective approach. A well-constructed portfolio is designed to weather changing market environments while remaining aligned with long-term financial goals. That discipline will remain just as important in the months ahead.
Remaining invested matters more than sitting on the sidelines
One consequence of investors stepping out of markets during periods of volatility is the accumulation of what is commonly called "cash on the sidelines." The central challenge with this approach is determining the right moment to re-enter. The chart above illustrates the scale of this dynamic today. Money market fund assets have reached a record $7.9 trillion, more than double their pre-pandemic level when interest rates were near zero. This reflects both the market uncertainty of recent years and a period of higher short-term rates that made holding cash more appealing.
Although cash may feel secure and predictable, the reality is that cash yields often fail to keep pace with inflation. For example, current average rates on certificates of deposit mean that the real income from cash is negative once inflation is taken into account.7 Even when the nominal yields on money market funds and short-term instruments look attractive, investors face challenges from both inflation and the uncertainty of sustaining those yields over time. The net result is that the purchasing power of cash holdings can steadily erode.
This is precisely why maintaining a balanced portfolio that can participate in growth, generate income, and preserve capital remains the more prudent path. While market conditions will continue to evolve, a disciplined investment approach is most effective when it supports a thoughtful financial plan. Keeping that long-term perspective allows investors to make decisions with greater clarity and confidence, regardless of the headlines.
The bottom line?
The first half of 2026 rewarded investors who stayed diversified and maintained a long-term perspective, even as geopolitical and economic headlines created short-term uncertainty. While the second half of the year will undoubtedly bring new questions and unexpected developments, the principles that support long-term investing remain unchanged. A well-designed financial plan and a disciplined investment strategy are built to navigate periods like these—helping you stay focused on your goals with clarity and confidence, no matter what the headlines may bring.
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.
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.
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