Market Rally and Economic Data
Stocks are concluding their strongest quarter in six years on an upbeat note, as semiconductor stocks continue to climb from lows triggered by the conflict, while economic data suggests resilience that bolsters confidence in corporate profits. The surge maintained momentum after reports indicated robust employment and consumer confidence. Technology shares led the charge, with the Nasdaq 100 rising 1.5%.
Bonds declined. Crude oil was on track for its steepest quarterly drop since the pandemic began, and Morgan Stanley lowered its oil price projections twice in roughly two weeks. While price increases during the Middle East war have weakened consumer mood and eroded wage growth, labor demand has been less affected because consumer spending stays robust.
The rally was driven by a confluence of factors, including surging demand for artificial intelligence chips that propelled semiconductor stocks to an unprecedented quarterly gain. Combined with resilient consumer spending and strong labor market data, these elements buoyed corporate profit expectations despite headwinds from geopolitical tensions and elevated inflation.
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Investor Sentiment and Strategy
JJ Kinahan at Cboe Global Markets said, "Today marks the end of what is turning out to be a monster first half on Wall Street despite the rocky geopolitical issues and choppy trading that's been prevalent across the board during the period." He added, "The markets have proven to be the ultimate grinder as they keep crushing it despite a lot of hand-wringing that has gone along with this incredible rally that has endured deep selloffs, the Iran war and a number of other outside influences."
For all the swings during the first half of 2026, buying the dip has become the go-to strategy for retail investors. The group has bought almost three-and-a-half times the average daily amount on days the S&P 500 has dropped, according to data compiled by Scott Rubner at Citadel Securities.
"Despite some twists and turns, the path of least resistance for stocks broadly remained up and to the right for much of the last three months," said Jeff Buchbinder at LPL Financial. "While stock market enthusiasm has increased, we do not believe it has crossed the threshold into outright irrational exuberance." "Some sentiment surveys are stretched, but others remain near long-term averages; and positioning, although still elevated, has begun to moderate, he added. Meantime, Buchbinder noted that other indicators - including record margin debt and highly overbought conditions in key leadership groups like semiconductors - point to a market with an overly optimistic outlook".
"Strong fundamentals and powerful structural themes such as AI can justify elevated valuations for a while, but they do not eliminate the typical ups and downs," he said. "Rather than signaling the end of the bull market, current conditions appear more consistent with a mature bull market that may be due for a pause. We remain constructive on equities."
Geopolitical Risks and Oil Prices
Market participants were also monitoring geopolitics closely, as Qatar confirmed that Jared Kushner and Steve Witkoff arrived in Doha for continued US-Iran peace talks.
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