At the midpoint of 2026, stocks have achieved a series of new highs despite a myriad of macroeconomic challenges. U.S. equities have appreciated by roughly 10% year-to-date, which includes a 9-week winning streak for the S&P 500 index during the recently completed quarter. Gains have been supported by strong earnings results and enjoyed by companies across all sectors, with profit growth for the second quarter expected to exceed 20%. Additionally, solid business trends are being observed in industries beyond the Artificial Intelligence (AI) and technology sphere, as leading healthcare, banking, and industrial corporations have also enjoyed success.

Despite strong continued performance, the second quarter brought heightened volatility for financial markets due to geopolitical tensions, inflation concerns, and shifting expectations for central bank monetary policy. In response, political leaders and company executives have taken a more defensive posture, focusing inward to secure energy supplies, to fortify industrial capabilities, and to strengthen supply chains. Notably, the US-Iran war has caused one billion barrels of oil to be removed from the market.

While the broader stock market appears expensive through the lens of traditional valuation metrics, the investment case for the equity market remains sound thanks to growing company revenues, profit margin discipline, and the continued pursuit of innovation. Diversification also continues to reward investors, as international equities and small-cap stock funds have generated leading returns year-to-date.

The broad U.S. economy has continued to expand at a measured pace, although economists have observed mixed signals on the employment front. In June, the U.S. economy created 57,000 additional jobs, resulting in an unemployment rate of 4.2%. Real GDP recently grew by 2.1%, of which 1.5 percentage points was fueled by AI-related business investment. Looking ahead, as new Fed Chair Kevin Warsh weighs his dual mandate of stable prices and full employment, he is expected to pivot the focus of the Federal Reserve to that of reigning in inflation. Rising prices have become a significant challenge in the U.S., eclipsing the Fed’s 2% inflation target for 63 straight months.

Going forward, investors will be paying close attention to the path of inflation, the ability for companies to churn out ever higher profits, and the health of a U.S. job market that has been showing signs of cooling. Midterm elections later in the year will add to uncertainty and could amplify market volatility, with the political party in power typically losing ground. On the AI front, the largest technology companies are expected to spend over $1 trillion for data center construction and related computer chips. Much of the computer spending is funded by debt financing, thus ratcheting up the pressure for these organizations to eventually demonstrate a return on investment.