Nothing could derail the U.S. stock market in the first half of 2026.
Wall Street has shrugged off various events since January: the war in Iran, concerns about an artificial intelligence (AI) bubble, private credit stress, and renewed inflation challenges.
This has led to U.S. stocks climbing or flirting with all-time highs.
The blue-chip Dow Jones Industrial Average put together its best first-half performance since 2021, registering a 9 percent gain. The yardstick of 30 leading U.S. companies is now trading in record territory, firmly above 52,000.
Change is also coming to the index, as the Dow Jones is replacing Verizon with Alphabet.
Critics warn that this could be a negative signal for financial markets, pointing to the intensifying tech concentration in U.S. stocks.
But Mark Malek, CIO at Siebert Financial, argues that it is the U.S. economy’s evolution.
“The evolution of the Dow is not necessarily a warning sign for markets. It is evidence of the American economy’s ability to reinvent itself around new technologies and sources of productivity growth,” Malek said in a note emailed to The Epoch Times.
Other leading benchmark averages, meanwhile, also logged an impressive first half.
The broad-market S&P 500 rose almost 10 percent to 7,500, and the tech-driven Nasdaq Composite Index climbed nearly 13 percent to above 26,000.
SpaceX’s blockbuster initial public offering (IPO) captured investors’ attention in June. Wall Street is now bracing for AI giant Anthropic’s trillion-dollar debut this summer, while also tempering expectations for an OpenAI IPO.
Even the Russell 2000—an index of 2,000 small-cap stocks—posted its best first-half performance since 1991, surging 22 percent.
“The Russell 2000 returns have exhibited greater amplitude than the S&P 500, with higher highs during expansions and deeper drawdowns during slowdowns, reinforcing the view that small caps remain more sensitive to changes in economic momentum,” Chris Carpenter, senior investment strategist at State Street Investment Management, said in a June 29 research note.
Heads and Tails
Numerous headwinds contributed to volatility over the past several months—including the so-called software scare in January and a 2008-style event in the $2 trillion private credit sector in February—but there have also been many tailwinds.
A significant factor has been strong broad-based earnings.
The “Magnificent Seven” and the other 493 S&P 500 companies reported their highest first-quarter earnings growth in five years, according to data from FactSet Insights.
Talk of markets being overvalued has been prevalent, but one market analyst thinks the valuations are fair based on what the earnings reports have revealed.
“Valuations look reasonable when you consider the composition of today’s market leaders, the productivity gains we’re likely to see from AI, and the strong earnings report we just received from Micron,” David Miller, senior portfolio manager and CIO at Catalyst Funds, told The Epoch Times in an emailed note.
Micron Technology has benefited from the “RAMpocalypse,” reporting a blowout quarter with record revenue amid intense demand for memory and storage products.
Another contributor has been the economy’s resilience amid higher energy costs and global supply chain disruptions.
The U.S. economy expanded 2.1 percent in the first quarter, driven by solid consumer spending and business investment. The Atlanta Federal Reserve expects the second-quarter growth rate to come in at 2.5 percent.
While consumers have been spending more on gasoline and maintaining negative sentiment about economic conditions, the data show that Americans are still opening their wallets for a wide array of goods and services.
Capital expenditures continue to mount, with AI hyperscalers planning to spend up to $1 trillion this year on the infrastructure buildout, which is adding to growth prospects.
Looking ahead to the second half of the year, the top threat to markets might be an inflation revival and the Federal Reserve pulling the trigger on interest rate hikes, Miller notes.
“The main caveat would be if inflation were to reaccelerate. That could happen if oil prices move significantly higher or if the Fed were to surprise markets by raising rates,” he said.
But early estimates suggest inflation may be stabilizing, and traders are paring back their expectations of further central bank rate hikes.
The Cleveland Fed’s Nowcasting Model indicates that consumer inflation is slowing now that crude oil and gasoline prices have fallen. Futures market data show that traders have lowered the odds of a September rate increase.
According to Miller, the S&P 500 surpassing 8,000 is possible.
“I think S&P 500 earnings can grow in the range of 13% to 15% over the next year. Combined with an earnings yield of around 5%, that would imply a return profile that supports an S&P 500 target of 8,100 to 8,150,” he said.
