OVERVIEW
Markets resumed their advance last week, with most major asset classes finishing higher following the brief pullback the week before. The S&P 500 gained 1.76%, while the technology-heavy NASDAQ climbed 2.12%. The Dow Jones Industrial Average also posted a strong 1.97% gain, as large-cap stocks broadly participated in the rally. For the year, the Dow is now up 10.06%, the NASDAQ has gained 11.15%, and the S&P 500 is higher by 9.32%.
Beneath the surface, leadership shifted back toward larger companies. The Russell 3000 advanced 1.68%, with both growth and value stocks participating in the rally. The Russell 3000 Growth Index gained 1.74%, narrowly outpacing the 1.64% increase in the Russell 3000 Value Index. Large-cap stocks led the way, with the S&P 100 rising 2.29%, while smaller companies lagged. The S&P 400 Mid-Cap Index slipped 0.35%, and the S&P 600 Small-Cap Index fell 0.85%. Even so, both remain among the year’s strongest performers, up 15.06% and 21.40%, respectively.
International markets also moved higher. Developed international stocks climbed 2.72%, while emerging markets gained 0.88%. Emerging markets continue to be one of the top-performing asset classes of 2026, with an impressive year-to-date gain of 22.58%.
Fixed income was mixed as interest rates moved higher during the week. Short-term Treasuries were little changed, gaining 0.07%, while intermediate- and long-term Treasuries declined 0.48% and 1.63%, respectively. Investment-grade bonds fell 0.49%, although high-yield bonds continued to hold up well, gaining 0.29%. Municipal bonds slipped 0.09%, while TIPS declined 1.25%.
Real assets also produced mixed results. MLPs gained 1.20%, while commodities were essentially flat, rising just 0.07%. Oil declined 1.42% but remains one of the standout performers this year, up more than 50%. Real estate fell 0.66% after its strong rebound the previous week. Gold added 0.72%, though it remains down 4.96% year to date, while corn edged higher by 0.30%.
Market volatility eased considerably as stocks pushed to fresh highs, with the VIX falling 12.28% during the week. The U.S. dollar slipped 0.42% but remains up 4.85% for the year. Overall, last week’s action reflected a healthy return to risk-taking, with large-cap stocks reclaiming leadership while international equities also contributed to the broad-based advance. While small-cap stocks took a breather, they continue to hold a commanding lead in year-to-date performance.
KEY CONSIDERATIONS
The Best Cycle Is a Non-Cycle – Well, when it was all said and done, it ended up being a pretty good first half for the U.S. stock market. The S&P 500 gained nearly 10%. The Nasdaq rose almost 13%. And small-cap stocks? They surged roughly 22%.
And if you believe the latest FactSet analysis, the market may have more room to run. Their consensus price target calls for the S&P 500 to rally another roughly 20% over the next 12 months, reaching 8,918.
They also expect all 11 sectors to post double-digit gains.
That’s certainly a bullish outlook. Our indicators suggest the same. But while the weight of the evidence still leans positive, we have seen a little bit of deterioration in recent weeks.
For the most part, most of that weakness has come from areas that fall within the Federal Reserve’s domain: interest rates and liquidity.
For example, our Interest Rate Composite, shown below, turned negative a few months ago and continues to weigh on our model.
Liquidity has been in a similar position, remaining negative for several months and preventing our overall Economic Model from improving further.
That said, it’s worth remembering that if the Fed does embark on a new tightening cycle soon, these types of cycles don’t always unfold the same way. Sometimes the Fed hikes rates once or twice and then stops, rather than embarking on a long series of increases. We call these “non-cycles.”
Interestingly, history suggests those non-cycles have actually produced the strongest stock market performance. As the chart below shows, the S&P 500 has historically outperformed both fast and slow tightening cycles during the first two years after the initial rate hike.
The reason is fairly intuitive: if the Fed only needs a couple of hikes before stepping aside, it’s often because the economy is strong enough to withstand modest tightening without requiring a prolonged battle against inflation.
So, if the Fed does decide to pump the brakes after just one or two hikes, it could actually become another sort of tailwind for stocks in the months ahead.
Of course, no single indicator rules the day, and risks remain. But taken together, the evidence still points toward an environment where the bull market remains intact, even if the path forward ends up being bumpier than what investors enjoyed during the first half of the year.
This is intended for informational purposes only and should not be used as the primary basis for an investment decision. Consult an advisor for your personal situation.
Indices mentioned are unmanaged, do not incur fees, and cannot be invested into directly.
Past performance does not guarantee future results.
The S&P 500 Index, or Standard & Poor’s 500 Index, is a market-capitalization-weighted index of 500 leading publicly traded companies in the U.S.
The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The Nasdaq 100 Index is a basket of the 100 largest, most actively traded U.S. companies listed on the Nasdaq stock exchange. The index includes companies from various industries except for the financial industry, like commercial and investment banks. The Russell 3000 Index is a capitalization-weighted stock market index that seeks to be a benchmark of the entire U.S. stock market. The S&P MidCap 400 is designed to measure the performance of 400 mid-sized companies, reflecting the distinctive risk and return characteristics of this market segment. S&P 600 Index measures the small-cap segment of the U.S. equity market. The index is designed to track companies that meet specific inclusion criteria to ensure that they are liquid and financially viable. The S&P 100 index is a capitalization-weighted index based on 100 highly capitalized stocks for which options are listed on the CBOE (Chicago Board of Exchange). The MSCI EAFE Index is an equity index which captures large and mid cap representation across 21 Developed Markets countries* around the world, excluding the US and Canada.
The Bloomberg U.S. Corporate Bond Index measures the investment grade, fixed-rate, taxable corporate bond market. The Bloomberg U.S. Corporate High Yield Index is comprised of domestic and corporate bonds rated Ba and below with a minimum outstanding amount of $150 million. The Bloomberg U.S. Municipal Index covers the USD-denominated long-term tax exempt bond market. The index has four main sectors: state and local general obligation bonds, revenue bonds, insured bonds and prerefunded bonds.