Despite ongoing Middle East conflicts, oil prices surging and then plummeting, and interest rate expectations experiencing the most volatile swings in years, a diversified portfolio of stocks, bonds, and commodities has just delivered its strongest first-half return since 2021.
If the first half of the year was about survival, the second half is about coexisting with what remains. Higher valuations, higher borrowing costs, and a disruptive wave of artificial intelligence reshaping markets. In nearly every mid-year outlook report, Wall Street is betting that markets can adapt to these three forces.
At the start of the new quarter, investors realized that the market would not run smoothly. June’s non-farm payroll data showed that although the unemployment rate declined due to a drop in labor force participation, hiring activity sharply cooled, prompting traders to lower their expectations for Federal Reserve interest rate hikes.
Most seller institutions expect the economy to continue expanding, even if at a slower pace. JPMorgan Chase believes inventories will rise, business confidence will strengthen, and artificial intelligence spending will no longer be limited to large-scale technology companies.
Stephen Dover and Larry Hatheway of Franklin Templeton Institute wrote: “The performance of the global economy and financial markets has been better than many expected. The outlook is centered around one core idea: resilience.”
BlackRock, Invesco, and other firms believe that the focus of artificial intelligence trading is no longer solely on acquiring the largest technology companies, but is expanding into sectors such as the real economy, semiconductors, memory, power grids, data centers, and industrial infrastructure. Meanwhile, rising bond yields are increasingly seen as opportunities rather than challenges, reviving yield strategies focused on short-term bonds and high-quality credit.
“We prefer to generate returns through short-term investments, particularly eurozone government bonds, rather than relying on long-duration or interest-rate-sensitive long-term bonds,” wrote the BlackRock Investment Institute team led by Jean Boivin. “We maintain an overweight position in U.S. equities and are focused on investment opportunities at the bottlenecks of artificial intelligence growth.”
The differences lie more in degree than direction. JPMorgan warned that strong economic growth could keep inflation elevated, forcing central banks to further tighten monetary policy. Meanwhile, Barclays believes this rally has been much narrower than suggested by the overall index, estimating that semiconductor and computer hardware companies accounted for about 87% of the S&P 500’s gains in the first half of the year. Risks remain: another geopolitical shock, persistently high inflation, and upcoming U.S. midterm elections.
Alexander Outman of Barclays’ Equity Tactical Strategies wrote: “I fully believe that the second half of 2026 will be just as eventful as the first. Consider this: over the past six months, there have been three major geopolitical conflicts, the semiconductor market has seen its second-largest gain in history, and the software market has experienced its sixth-largest sell-off ever.”
