Market Commentary

July 9, 2026

After posting a 4.33 percent loss in the first quarter of 2026, the S&P 500 Index climbed 15.19 percent in the second quarter, bringing the first-half return to 10.21 percent.  At the index level, that gain came entirely from earnings growth, with rising forward earnings contributing about 19 percentage points to the first-half return, offset by a 9 percentage-point contraction in the price-to-earnings multiple.  Driven by surging AI-driven demand and rising prices amid widening supply constraints, the technology sector, specifically semiconductors and semiconductor equipment, led the second-quarter rebound.  Importantly, as tensions in the Middle East continue to ease, we expect market leadership to broaden following the narrow, semiconductor-led April and May gains, as it did before the conflict and in June.

Uncertainty surrounding the U.S.-Iran conflict remains a wildcard, but we believe equity fundamentals are supportive.  With valuations near fair value relative to interest rates, further appreciation will likely depend on sustained earnings momentum.  AI investment remains a powerful growth engine, while bank lending, transportation volumes, and manufacturing PMIs point to resilient corporate earnings.  These trends lay a solid foundation for broader market participation in the second half of 2026, though a sustained broadening will likely require more stable energy prices and interest rates.

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