Wall Street braced for turmoil. Geopolitical shocks and interest-rate jolts hit markets early in 2026. Yet the S&P 500 still ended the first half up 9%, and analysts now say the second half could bring a further 3% gain.
Despite the headwinds, the S&P 500 managed to climb steadily from February onward. Strong earnings reports from major semiconductor firms and a decline in geopolitical tensions in the second quarter bolstered investor confidence. The equal-weight index also posted gains, indicating that the rally was not solely reliant on a handful of mega-cap stocks.
Investors had plenty of reasons to sell. The Magnificent Seven group of big tech stocks lost roughly 2% on a total-return basis in the first six months. But other parts of the market picked up the slack.
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Tikehau Capital's head of capital markets strategies in Paris, Raphael Thuin, stated: "Record earnings growth and AI-driven enthusiasm have pushed risk assets to new highs." Marvin Loh, a senior macro strategist based in Boston at State Street, commented: "AI proved to be a calming effect to a world that faced both geopolitical and monetary policy uncertainty."
Record corporate earnings and excitement about artificial intelligence are driving the market. According to Stephen Dover and Larry Hatheway of the Franklin Templeton Institute, "the global economy and financial markets have held together better than many expected."
Higher bond yields, which usually worry stock investors, are now seen as a chance to earn income. According to Jean Boivin, leading the BlackRock Investment Institute team, "We prefer earning income in short-term maturities, especially euro-area government bonds, over relying on long bonds with high duration or sensitivity to rate moves."
Analysts are watching whether the rally will broaden beyond the AI trade or simply move to a different set of AI beneficiaries. A mix of stocks, bonds, and commodities recorded its best first-half performance since 2021. That history reminds investors that good runs can end.
Three risks stand out: another geopolitical shock, stickier inflation, and the upcoming U.S. midterm elections. Commenting on the outlook, Alexander Altmann from Barclays Equities Tactical Strategies said: "Your author has full faith that the second half of 2026 will be just as eventful as the first."
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