Market Commentary – July 2026

During the Napoleonic Wars, British financier Nathan Mayer Rothschild is said to have offered this piece of contrarian wisdom: buy on the sound of cannons, sell on the sound of trumpets. The idea is not that investors should trade on every headline, but that geopolitical fear tends to be a poor long-term guide, and that markets often recover well before the underlying conflict is resolved. Few periods have tested that idea as directly as the first half of 2026.

Investors faced a war in the Middle East, oil prices that pushed inflation to multi-year highs, and no shortage of questions about AI valuations. And yet the S&P 500, Nasdaq, and Dow all finished the first half at or near record highs, corporate earnings grew at a double-digit pace, and most major asset classes delivered strong returns. The first six months of 2026 were a reminder of why staying invested through short-term uncertainty continues to pay off.

War, Recovery, and a Record-Setting Quarter

The latest Middle East conflict began on February 28, when U.S. and Israeli strikes on Iran escalated years of tension into open war. The S&P 500 fell nearly 8% over the following month, bottoming on March 30 as investors weighed a prolonged oil supply shock. On June 17, the U.S. and Iran signed a memorandum of understanding, and although a full peace deal has remained elusive since, de-escalation has been sufficient enough to change the market’s mood. Stocks rallied sharply from the March 30 low, and by June 2 the S&P 500 had closed above 7,600 for the first time, its 24th record high of the year.

For the full first half, the S&P 500 returned 9.6%, the Nasdaq 12.8%, and the Dow 8.9%, with the second quarter alone among the strongest on record: the S&P 500 gained 14.9%, the Nasdaq 21.4%, and the Dow 12.9%. The largest peak-to-trough decline all year was just 9%, and the VIX (a measure of volatility) closed the quarter at 16, below its long-term average of 18.4. Fixed income and international markets contributed too. The Bloomberg U.S. Aggregate Bond Index rose 0.6% even as the 10-year Treasury yield climbed from 4.17% to 4.47%, developed international stocks gained 7.7%, and emerging markets returned 22.7%. Commodities rose 12.3% for the half, nearly all in the first quarter, before oil reversed sharply in the second.

A Seven-Year-Old Expansion, an Aging Population, and a Month of Soccer

It may surprise some investors that the current business cycle is not new. It began in April 2020, in the depths of the pandemic, and just passed its sixth anniversary, despite repeated false alarms about recession along the way, from the 2022 inflation peak to last year’s tariff disruptions. History suggests this is not unusual; the expansions that followed the 2008 financial crisis and the 1990s dot-com boom both lasted a decade or longer. The economy today is mixed but constructive: inflation is elevated but could ease if oil stays low, the job market has reheated, the dollar has stabilized, trade policy has calmed, and business investment has accelerated, a theme we return to below. Consumers report feeling pessimistic, yet they keep spending, historically a favorable combination for markets.

One reason spending has held up may be demographics. Real consumer spending has outpaced real disposable income growth for 22 consecutive months, up 4.1% versus just 1.1%, and the personal savings rate has fallen from 5.3% in July 2024 to 2.6% in April 2026, its lowest since June 2022 (Yardeni Research). That matters less as a warning sign once you consider who is doing the spending. Baby boomers remain the largest generational cohort of U.S. households, and the youngest turn 62 this year. US Census data shows the average household income falls in retirement, to $87,300 for households 65 and older versus $155,900 for those aged 45 to 54, but there are now so many households in that older cohort that its aggregate income nearly matches the peak-earning group. More importantly, boomers control an estimated $90 trillion in wealth, including roughly $45 trillion in cash and marketable securities, and are spending and gifting it at a pace that can make savings data look softer than it really is.

A more temporary tailwind arrived this summer in the FIFA World Cup, hosted across 11 U.S. cities from mid-June through July. Even FIFA’s own projections put the total U.S. GDP benefit at less than 0.1%, a pleasant but modest boost concentrated in host-city hospitality and travel during June (Newsweek/ABC news).

SpaceX Opens the IPO Window

The strength of this market has also fueled a wave of high-profile IPOs, led by the largest in history. SpaceX began trading on the Nasdaq on June 12 at $135 per share, raising approximately $75 billion and valuing the company near $1.8 trillion. Shares jumped 19% on the first day, peaked at $225.64 on June 16, and have since settled around $171, well above the IPO price but off the initial highs.

Companies have been staying private much longer than they used to, thanks to abundant private capital, so valuations tend to already be large by the time they list. Investors often focus on the first days of trading, but that tells you little about long-term success: 8 of the 10 largest IPOs since 2006 posted negative returns over their first year, averaging a -24.7% loss. What matters far more is how these businesses perform over the years that follow. SpaceX likely will not be the last headline IPO of 2026. Both OpenAI and Anthropic have filed confidentially with the SEC, with Anthropic reportedly targeting a listing as early as October and OpenAI leaning toward 2027 amid the volatility that followed SpaceX’s debut.

Source: First Trust, Bloomberg

Inflation, Oil, and the Cost of Living

The most direct economic channel for the Iran conflict has been energy prices. Disruptions to oil transportation through the Strait of Hormuz pushed Brent crude to nearly $120 per barrel in May before prices reversed sharply, closing the quarter near $73. Gasoline followed with a delay, peaking above $4.50 per gallon before retreating below $4.00 in recent weeks. Those swings show up directly in inflation data: headline CPI rose 4.2% year-over-year in May, its highest reading in several years, with the gasoline component alone up 40.5%. Core CPI, which strips out food and energy, rose just 2.9%, a reminder that this bout of inflation has been concentrated in fuel prices rather than reflecting a broader acceleration.

This is not the first time a geopolitical shock has driven a similar pattern. Russia’s invasion of Ukraine in 2022 produced a comparable spike in energy prices and headline inflation, which eased once the situation stabilized. With oil now well off its May highs, many economists believe the worst of this inflation scare may be behind us, though the path still depends on how the conflict in Iran ultimately resolves.

Earnings and Capital Spending, Not Sentiment, Are Driving This Market

Given how far this cycle has run and how high valuations sit today, we understand why the word “bubble” keeps coming up in client conversations. The S&P 500 trades at a forward price-to-earnings ratio near 20, above its long-term average of 16, a fair question to ask. Our answer starts with where the earnings growth is coming from. It is no longer confined to the Magnificent Seven: the Roundhill Magnificent Seven ETF (MAGS) is down 2.5% year to date, while an ETF tracking large caps excluding those seven names (XMAG) is up nearly 16%. Yardeni Research has taken to calling this environment “FEMO,” for Fabulous Earnings Momentum, in place of the late-1990s dot-com era’s FOMO. Forward earnings growth is projected at 23% for the S&P 500 and 38% for technology, a gap exceeding even the 2000 peak. That naturally invites bubble talk, but it is worth remembering how quickly sentiment can turn on even the strongest companies: in 2022, Alphabet fell 39%, Netflix 50%, Tesla 65%, and Nvidia 66% from their highs, only to recover and go on to new records.

On whether today’s concentration is justified, the data offers reassurance. The Information Technology and Communication Services sectors make up 47.2% of the S&P 500’s market value but also 43.8% of its forward earnings, a share that largely justifies the weight, though that would change quickly if earnings expectations are not met. 

Investor sentiment for both individuals and institutions is balanced.  There are an equal amount pessimists as there are optimists regarding the stock market outlook over the next 6-12 months.  To us, this indicates that the investing environment is not at a euphoric level.  

It is also worth dispelling a popular narrative: despite talk of the world “selling America,” total net capital inflows into U.S. equities and other investments from private and official foreign institutions reached $1.40 trillion over the last twelve months (LSEG Datastream and Yardeni Research). Foreign investors are, in aggregate, buying more of this market, not less. 

Stock prices tend to follow earnings over time, and this cycle looks nothing like the speculative excess of 2000, when valuations ran far ahead of underlying profit growth. It looks more like real investment and real earnings doing the heavy lifting as you can see in the chart below.

Perhaps the most important story behind this year’s earnings and market strength is capital spending. According to the Bureau of Economic Analysis, business investment, not the consumer, was the primary driver of U.S. economic growth in the first quarter, contributing more to GDP growth than consumer spending for the first time in years. Investment in computers and related equipment grew at a 67.4% annualized rate and software investment 22.6% annualized, together accounting for the majority of the quarter’s growth, while data center construction hit a record annualized pace in June. 

The hyperscalers behind this buildout, including Amazon, Microsoft, Alphabet, Meta, Oracle, and others have kept analysts running behind on annual spending projections. See the chart below from Bloomberg NEF.  Some analysts anticipate that data center buildout will exceed $1 trillion over the next couple of years.

Closing Thoughts

Rothschild’s advice to buy on the sound of cannons and sell on the sound of trumpets is not a literal trading strategy, but the spirit of it held true again this year. Geopolitical fear drove a sharp, painful pullback in March, and investors who stayed the course were rewarded within weeks, not years.

The second half of 2026 will bring its own uncertainties: how the Iran conflict resolves, the run-up to the midterm elections, and whether the IPO window opened by SpaceX stays open for the AI companies waiting behind it. What we do know, from six years of this expansion and dozens of past ones, is that a diversified portfolio built around long-term goals remains the best tool for navigating whatever comes next.

As always, please reach out to your advisor with any questions about how these developments affect your specific plan. We are grateful for the trust you place in us.

Sincerely,

Chris Proctor, CIMA

Chief Investment Officer

Legacy Financial Strategies