There is an old saying that smooth seas do not make skillful sailors. In the world of investing, the first half of 2026 has proven this point more clearly than most. Investors contended with significant events, including the war in Iran, oil prices pushing inflation to multi-year highs, and ongoing questions surrounding artificial intelligence (AI). Despite these challenges, markets climbed to new all-time highs, corporate earnings grew at a double-digit pace, and many asset classes delivered strong results. The opening six months of the year served as a powerful reminder of why staying invested and maintaining a longer time horizon matters so much. 

This lesson carries even greater weight today, given that the business cycle has entered its seventh year and the market cycle is approaching its fifth. For many investors, it can feel as though the same set of concerns, including inflation, the Fed, and valuations, have repeatedly cycled in and out of focus. Navigating these competing pressures is not just an unavoidable part of investing; it is precisely why those who stay the course are rewarded over the long run. 

The second half of the year will almost certainly bring its own unexpected developments, from new turns in the ongoing Middle East conflict to the upcoming midterm election and fresh market activity such as initial public offerings (IPOs). Maintaining perspective as these events unfold will be essential 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 crudepeakedjust 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, drivenlargely byenergy 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 has now entered its seventh year 

Some investors may be surprised to learn that the current business cycle began in April 2020 during the pandemic and recently passed its sixth anniversary in the second quarter. There have been multiple moments along the way when investors and economists feared another recession was imminent, including when inflation peaked in 2022 and when tariffs disrupted global trade last year. Through it all, the economy has demonstrated remarkable resilience, continuing to grow steadily in the face of these headwinds. 

The business cycle touches virtually every aspect of investing and financial planning, from mortgage costs to annual pay raises. A healthy economy supports consumer spending and business investment, which in turn fuels corporate earnings and ultimately drives stock market returns. While the stock market and the broader economy are not identical, they tend to move in close step over time. The chart above places this cycle in historical context, noting that the longest expansions, including the one following the 2008 financial crisis and the 1990s dot-com era, have stretched for a decade or more. 

How does the economy stand today? Inflation remains elevated but may ease if oil prices hold near current levels. The labor market has regained momentum, reversing last year’s concerns about sluggish hiring. The dollar has stabilized and rebounded of late, trade remains uncertain but has found some footing, and business investment has picked up. Consumers are expressing pessimism in surveys yet continue to spend on both necessities and discretionary goods. On balance, the economy appears healthy despite some mixed signals, a backdrop that has historically been constructive for financial markets over the long run. 

A broad range of asset classes has delivered positive results this year 

A wide array of global asset classes has contributed meaningfully to portfolios so far this year, building on the trend that took shape in 2025. This includes not only large cap domestic stocks as represented by the S&P 500, but also small caps, emerging markets, and commodities, as illustrated in the chart above. The second quarter, in particular, ranked among the strongest on record, partly because the onset of the war in Iran meant that the subsequent market recovery began right at the start of April. 

A number of themes have underpinned these returns, including the durability of economic growth, hopes for a peace deal in Iran, and enthusiasm surrounding AI. Many of these factors have supported corporate earnings, with profits for S&P 500 companies rising over 20% in the past twelve months.2 This favorable environment has also sparked a wave of high-profile IPOs, including SpaceX in the second quarter, alongside the anticipated listings of OpenAI and Anthropic, both AI companies. 

While much attention tends to focus on the first few trading days of an IPO, the real value for investors typically accrues over a much longer horizon. These new listings expand the investment opportunity set for all market participants, which is particularly meaningful given that many companies have chosen to remain private for longer periods. What ultimately matters is how these businesses perform over the years and decades ahead. The largest technology companies of today, for example, built their scale through many market and economic cycles. 

These positive trends do come with one important caveat: U.S. stock valuations are historically elevated. The S&P 500 currently trades at a price-to-earnings ratio of 20x, above the long-term historical average of 16x.3 These ratios do not reliably predict market direction over the next year or two, but they do provide a useful framework for constructing long-term portfolios, particularly when weighing other asset classes and managing risk. Taken together, this year’s results underscore the value of maintaining a well-balanced approach. 

Inflation remains a concern, though recent oil price declines offer some relief 

The fluctuations in the Iran conflict have affected the U.S. economy primarily through energy markets. Disruptions to oil transportation through the Strait of Hormuz pushed Brent crude to nearly $120 per barrel before prices retreated sharply. In recent weeks, oil has fallen to around $70 per barrel, near pre-conflict levels. Gasoline prices have followed a similar trajectory with a short lag, reaching above $4.50 per gallon nationally at the peak before pulling back below $4.00 per gallon more recently.4 

These energy price swings have had a direct effect on inflation readings. The Consumer Price Index rose 4.2% year-over-year in May, its highest level in several years, with the gasoline component surging 40.5% over the same period. Notably, core CPI, which strips out food and energy, increased only 2.9%.5 This distinction matters, as it suggests that inflationary pressure has remained concentrated in fuel costs rather than spreading broadly through the economy. 

With energy prices now retreating, many economists are hopeful that inflation may be near its peak. This pattern mirrors other historical episodes involving geopolitical disruptions to oil supply, such as Russia’s invasion of Ukraine in 2022, and several others shown in the chart above. Once those situations stabilized, oil prices tended to improve, helping to bring inflation rates down over time. 

Volatility has remained at manageable levels throughout the year 

Investors have become increasingly familiar with brief bouts of volatility triggered by macroeconomic events. 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 followed measure of stock market volatility. Encouragingly, the VIX currently stands at 16, below its long-term average of 18.4 and well off recent peaks. As the chart above illustrates, periods of elevated volatility have historically also represented some of the most compelling opportunities for long-term investors. 

Another useful lens for understanding how market swings affect investors is the largest annual drawdown. So far in 2026, the S&P 500’s peak-to-trough decline has reached 9%. While no pullback is comfortable to experience, markets have a tendency to recover when investors least anticipate it. Not only has the market fully recouped its earlier losses, but the S&P 500 has reached 24 new all-time highs so far this year.6 

The experience of the first half of the year reinforces an important principle: the greatest risk for investors during volatile episodes is often not the volatility itself, but the reaction to it. The temptation to time the market during periods of uncertainty can frequently backfire. A more effective approach is to hold a portfolio designed to weather all phases of the market cycle while keeping long-term financial goals in focus. This kind of preparation will serve investors well as they navigate the inevitable uncertainties of the second half of the year. 

Remaining invested is critical to long-term outcomes 

One consequence of investors stepping out of the market during volatile periods is the buildup often described as “cash on the sidelines.” The central challenge with this approach is determining the right moment to re-enter. The chart above captures the current scale of this phenomenon. 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 elevated short-term rates that made holding cash comparatively attractive. 

Although cash can feel reassuringly stable, it carries a hidden challenge: cash yields frequently fail to keep pace with inflation. The current average rates on certificates of deposit, for instance, mean that real income from cash is currently negative after adjusting for inflation.7 Even when nominal yields on money market funds and short-term instruments look attractive on the surface, investors face both the drag of inflation and the difficulty of sustaining those rates over time. The result is that the purchasing power of cash holdings can erode gradually. 

This is why maintaining a balanced portfolio, one capable of capturing growth, generating income, and preserving capital, remains so important. That balance will only become more valuable as the market and economic cycle continues to evolve. 

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 

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