There is an old saying that smooth seas do not make skillful sailors. This idea rings especially true for investors who have navigated the first half of 2026. Major events have tested investor patience, including the war in Iran, oil prices pushing inflation to multi-year highs, and ongoing questions about artificial intelligence (AI). Despite all of this, markets have reached new all-time highs, corporate earnings have grown at a double-digit pace, and many different types of investments have performed well. The first six months of the year serve as a powerful reminder of why staying invested and keeping a long-term outlook matters so much.
This lesson carries even more weight today because the current business cycle (the period of economic growth since the last downturn) has entered its seventh year, while the market cycle is approaching its fifth. Along the way, investors have repeatedly faced familiar concerns such as inflation, decisions by the Federal Reserve (the Fed, which is the central bank of the United States), high valuations (how expensive stocks appear relative to company earnings), and more. Navigating these challenges is not just a normal part of investing. It is also precisely why investors who remain committed over time tend to be rewarded.
The second half of 2026 will almost certainly bring its own unexpected developments, including updates on the ongoing Middle East conflict, the upcoming midterm election, and new market activity such as initial public offerings (IPOs, which are when private companies first sell shares to the public). Keeping perspective as these events unfold will be key for investors.
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 current business cycle has now reached its seventh year
Some investors may be surprised to learn that the current business cycle began in April 2020, during the pandemic, and just passed its sixth anniversary in the second quarter of 2026. Over that time, there have been multiple moments when investors and economists worried about a potential recession, including when inflation peaked in 2022 and when tariffs disrupted global trade last year. Through each of these challenges, the economy has shown resilience, continuing to grow steadily.
The business cycle touches nearly every aspect of financial life, from the cost of a home mortgage to annual wage increases. When the economy is healthy, consumers spend more and businesses invest more, which boosts company profits and, in turn, supports stock market returns. The chart above compares the current cycle to past periods in history. Notably, the longest business cycles on record, including the one that followed the 2008 financial crisis and the 1990s dot-com boom, lasted a decade or more.
As of today, the economic picture is mixed but generally positive. Inflation remains elevated, though it could ease if oil prices stay low. The job market has picked up again after last year’s slow hiring pace raised concerns. The U.S. dollar has stabilized, trade uncertainty has lessened somewhat, and business investment has picked up speed. Consumers feel cautious, yet they continue to spend on both everyday needs and optional purchases. On balance, the economy looks healthy, which has historically been a good sign for financial markets over the long run.
A wide range of investments have delivered positive returns in 2026
A broad variety of global investments have contributed positively to portfolios so far this year, building on the trend seen last year. This includes not only large company stocks, represented by the S&P 500, but also small company stocks, stocks in developing countries (emerging markets), and commodities such as oil and metals, as shown in the chart above. The second quarter, in particular, was one of the strongest on record, partly because market recovery began at the start of April, just as the war in Iran was getting underway.
Several factors have driven these gains, including the strength of the economy, hopes for a peace agreement in Iran, and excitement around AI technology. Many of these forces have supported strong corporate earnings growth, with profits for S&P 500 companies rising more than 20% over the past twelve months.2 This positive environment has also triggered a wave of notable IPOs, including SpaceX in the second quarter, with the anticipated listings of AI companies OpenAI and Anthropic still on the horizon.
While the early days of an IPO often generate the most headlines, the real value for investors typically builds over a much longer period. These new listings expand the range of investment options available to all investors, which is especially valuable given that many companies have been choosing to remain private for longer before going public. What matters most is how these businesses perform over the years and decades ahead. The largest technology companies today, for example, have grown through many market and economic cycles over a long period of time.
All of these positive trends do mean that U.S. stock valuations are historically high. The S&P 500 currently trades at a price-to-earnings ratio of 20x, above the long-term historical average of 16x.3 A price-to-earnings ratio compares a stock’s price to the company’s profits, and a higher number means stocks are more expensive relative to earnings. These ratios are not reliable predictors of short-term market direction, but they are useful guides for building long-term portfolios, particularly when thinking about diversification across different asset types and managing risk. Overall, this year’s results highlight why holding a balanced mix of investments remains important.
Inflation remains elevated, but lower oil prices offer some relief
The conflict in Iran has affected the U.S. economy most directly through energy markets. Disruptions to oil transportation through the Strait of Hormuz pushed Brent crude oil prices to nearly $120 per barrel before they pulled back significantly. In recent weeks, oil prices have fallen to around $70 per barrel, close to pre-conflict levels. Gasoline prices have followed a similar pattern, peaking above $4.50 per gallon nationally before dropping below $4.00 per gallon more recently.4
These swings in energy prices have directly affected the overall inflation rate (which measures how quickly prices are rising across the economy). The Consumer Price Index (CPI), a common measure of inflation, rose 4.2% year-over-year in May, its highest reading in several years. The gasoline component alone jumped 40.5% over the same period. Importantly, core CPI, which strips out the more volatile food and energy categories, rose only 2.9%.5 This suggests that broader inflation pressures remain more contained.
With oil prices recently declining, many economists believe we may be near peak inflation. This pattern mirrors past geopolitical events that disrupted oil supply, such as Russia’s invasion of Ukraine in 2022, as well as other historical examples shown in the chart above. Once conditions stabilized in those cases, oil prices typically improved and inflation rates gradually eased.
Market swings have remained within manageable levels
Investors have become familiar with short bursts of market volatility (rapid price swings) triggered by economic and world events. Tariffs, the Middle East conflict, and uncertainty about Fed policy have each caused brief market swings over just the past year. This can be seen in the VIX index, a widely used measure of expected stock market volatility. 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. Importantly, history shows that periods of high volatility can also present the greatest opportunities for investors.
Another useful way to understand market swings is to look at the largest pullback each year. A pullback refers to a temporary drop in market prices from a recent high. So far in 2026, the S&P 500’s largest peak-to-trough decline has been 9%. While these drops are never comfortable to experience, markets have a historical tendency to recover when investors least expect it. In fact, not only has the market fully bounced back from its earlier decline, but the S&P 500 has now reached 24 new all-time highs so far this year.6
The first half of the year makes clear that the biggest risk for investors during uncertain times is not the volatility itself, but rather how they respond to it. It can be tempting to try to time the market, meaning moving in and out of investments based on short-term events. However, this approach often backfires. A better approach is to hold a well-constructed portfolio that is built to weather all parts of the market cycle while supporting long-term financial goals. Taking this approach can help investors stay on track through whatever challenges the second half of the year may bring.
Remaining invested is one of the most important choices an investor can make
When investors pull out of the market during volatile periods, the result is often described as “cash on the sidelines.” The main challenge with this approach is knowing the right moment to get back in. The chart above illustrates just how much money is sitting in cash today. Money market fund assets (low-risk funds that hold short-term investments and function similarly to savings accounts) 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 interest rates that made holding cash more appealing.
While cash may feel like a safe choice, the challenge is that the interest earned on cash often does not keep pace with inflation. For example, current average rates on certificates of deposit mean that the real income from cash (that is, after adjusting for inflation) is currently negative.7 Even when the stated interest rates on money market funds or short-term accounts look attractive, inflation and the possibility that those rates may not last can erode the actual value of those savings. Over time, this means the purchasing power of cash holdings can quietly shrink.
This is why holding a balanced portfolio designed to pursue growth, generate income, and preserve capital remains the more effective long-term strategy. As both the market and economic cycle continue to evolve, this principle will only become more important.
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.
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.