The start of 2026 saw a rapid shift from all-time highs to correction territory. Investors were focused on the disruption of shipping through the Strait of Hormuz and the impact on oil prices. During the first quarter, oil surged above $100 per barrel, which fueled inflation fears, dampened hope for rate cuts, and sent stocks tumbling.
But the markets found their footing. After bottoming in April, U.S. stocks worked past those inflation and geopolitical concerns and staged a strong comeback. Solid corporate earnings, AI enthusiasm, and lower oil prices drove one of the strongest quarters since 2020. The S&P 500 rose 15% during the second quarter and is up nearly 10% for the year.
Source: © Exhibit A, FactSet Research Systems Inc., Standard & Poor's
This slide is for informational and illustrative purposes only. The data provided is believed to be accurate, but there is no guarantee of its accuracy, completeness, or timeliness. This is not a recommendation or offer of any financial product. Past performance is not indicative of future results, and investors should consider their own objectives and risk tolerance. Indices, if presented, do not include fees, are unmanaged, and not available for direct investment. Definitions & Methodology: The returns shown represent year to date returns using the S&P 500 for U.S. large caps, the S&P 400 for mid caps, and the S&P 600 for small caps. For the remaining categories, returns are based on ETFs provided by iShares (EEM, EFA, TIP, AGG, DJP) and SPDR (GLD, BIL), with Bitcoin reflecting the change in its underlying price. Total returns are used when possible. Data is sorted by return from highest to lowest.
A Broader Rally
A meaningful development this year has been the expansion beyond mega-cap tech names. Seven of 11 S&P 500 sectors delivered above-average gains as AI-driven investments in data centers, cloud infrastructure, semiconductors and software capabilities benefited businesses across the economy, including those connected to power generation, infrastructure expansion, electrical equipment and manufacturing. Meanwhile, the Magnificent 7 tech giants have been weighed down by questions about whether AI-related investments have become excessive. Year-to-date, the Mag7 stocks have underperformed the rest of the S&P 500 by over 14% as highlighted in the below chart.
Source: © Exhibit A, FactSet Research Systems Inc., Standard & Poor's
This slide is for informational and illustrative purposes only. The data provided is believed to be accurate, but there is no guarantee of its accuracy, completeness, or timeliness. This is not a recommendation or offer of any financial product. Past performance is not indicative of future results, and investors should consider their own objectives and risk tolerance. Indices, if presented, do not include fees, are unmanaged, and not available for direct investment. Definitions & Methodology: The S&P 500 tracks the performance of 500 large-cap U.S. companies, serving as a benchmark for the U.S. stock market. The index is weighted by market capitalization. The chart displays year-to-date price returns of the S&P 500, S&P 493, and Mag7. The Mag7 refers to Apple, Microsoft, Amazon, NVIDIA, Meta Platforms, Alphabet, and Tesla—seven large-cap stocks often cited for their market leadership. The S&P 493 represents the remaining constituents of the S&P 500 after excluding the Mag7. This breakdown highlights the performance gap between the index's largest names and the broader market.
Another beneficiary of the rapid buildout of AI infrastructure has been small-cap stocks. The S&P SmallCap 600 returned 23.9% during the first half, marking its best performance in decades. Improving earnings expectations and broader market participation remain supportive for small-cap stocks going into the second half of the year. However, if interest rates start to rise, momentum could slow in the months ahead.
International stocks showed resilience despite pressure from an unstable geopolitical landscape. Emerging Market stocks had a remarkable first half, driven primarily by a few semiconductor companies. Developed markets in Europe and Japan benefited from stronger corporate earnings and attractive valuations. Going into the second half of the year, valuations continue to look favorable relative to U.S. stocks. We continue to believe that allocating to international equities offers valuable diversification benefits.
A Rough Stretch for Bitcoin
Not everything moved higher. Bitcoin had a difficult first half, falling 33% year-to-date, with a roughly 20% drop in June. Bitcoin closed the first half trading below $60,000, more than 50% off its October 2025 peak of $126,000 (source: yahoo finance). Even so, we see reasons for cautious optimism heading into the second half: continued institutional adoption, growing regulatory clarity, and rising corporate treasury demand could all provide support.
A Bumpy First Half for Bonds
During the first half of the year, the bond market experienced a fair amount of volatility as Federal Reserve expectations shifted. Instead of the interest rate cuts initially priced in at the start of the year, expectations moved to potential rate hikes by year end. This reversal caused Treasury yields to rise during the period. As we move into the third quarter, markets will be looking for signs of where the Fed is headed. If inflation stays elevated or growth continues to surprise to the upside, we should expect more volatility in bond prices.
Source: © Exhibit A, FactSet Research Systems Inc., Federal Reserve
This slide is for informational and illustrative purposes only. The data provided is believed to be accurate, but there is no guarantee of its accuracy, completeness, or timeliness. This is not a recommendation or offer of any financial product. Past performance is not indicative of future results, and investors should consider their own objectives and risk tolerance. Indices, if presented, do not include fees, are unmanaged, and not available for direct investment. Definitions & Methodology: The U.S. Treasury Yield Curve is a graphical representation of U.S. Treasury yields across different maturities, used to gauge expectations for interest rates, economic growth, and inflation. The chart shows the U.S. Treasury yield curve currently and as of 1 year ago. It illustrates the change in the yield curve over the past year.
Looking Ahead
The first half of 2026 has once again demonstrated the importance of staying disciplined and diversified. Investors who remained invested and looked beyond the Magnificent 7 were rewarded, particularly through exposure to small-cap and emerging market stocks. As we move into the second half, we'll continue to balance the opportunities within the AI buildout against the risks of concentration, while staying alert to other themes that may benefit your portfolio.
This commentary reflects the views of RiversEdge Advisors as of July 7, 2026 and is subject to change without notice. It is provided for general informational and educational purposes only and does not constitute investment, legal, or tax advice, nor a recommendation to buy or sell any security. Nothing herein should be construed as personalized advice; please consult your advisor regarding your individual financial situation before making any investment decisions.
Past performance is not indicative of future results. All investments involve risk, including the possible loss of principal, and there is no guarantee that any investment strategy or objective discussed will be achieved.
Certain statements contained herein may be forward-looking in nature, including expressions of opinion regarding future market conditions, economic trends, or performance. These statements are based on assumptions and estimates that may prove to be incorrect, and actual results may differ materially. RiversEdge undertakes no obligation to update these statements.
Any market data, index performance, or third-party statistics cited are believed to be from reliable sources but have not been independently verified by RiversEdge. Index performance does not reflect the deduction of fees, expenses, or taxes, and indices are not available for direct investment.
References to specific asset classes, sectors, or digital assets (including cryptocurrency) are for illustrative purposes only and do not constitute a recommendation to invest in any such asset. Cryptocurrency and digital assets are highly speculative, subject to significant price volatility, and involve risks not typically associated with traditional securities, including regulatory, custody, and liquidity risk.
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