2026 Mid-Year Update

The first half of 2026 was a reminder of why staying invested and maintaining a long-term perspective matters. During this year markets have climbed to new all-time highs, corporate earnings grew at a double-digit pace, and a wide range of asset classes delivered strong returns. These events occurred even as the war in Iran, rising energy prices, and uncertainty around the Federal Reserve created short-term turbulence along the way.

The current business cycle is now in its seventh year, and while there have been several moments in recent years when a recession seemed possible, including when inflation peaked in 2022 and when tariffs disrupted trade last year—the economy has been resilient throughout these periods and continues to grow.

Today, the economic picture remains generally positive. The job market has been holding this year, with payroll growth averaging 111,000 jobs per month. Consumer spending has also held up, business investment has accelerated due to AI trends, and the dollar has stabilized. One challenge is that inflation remains elevated, largely because of higher energy prices. The ceasefire with Iran has not been honored, and oil prices remain elevated and volatile.

Steady economic growth has supported the stock market, with the S&P 500 reaching 24 new all-time highs so far this year. The S&P 500 returned 9.6% in the first half while the Dow Jones Industrial Average rose 8.9%. Perhaps just as important is the breadth of performance across global asset classes. Emerging market stocks gained 22.7%, while small-cap equities rose nearly as much. Most clients of South Coast Planning & Wealth Management have healthy allocations to both small cap equities and emerging market equities.

What’s driving market returns? One major factor is that corporate earnings have supported returns, with earnings growing more than 20% over the past twelve months for S&P companies. It is worth noting that U.S. stock market valuations are elevated compared to historical levels, however, the strong corporate earnings growth has supported and allowed for market growth even with the backdrop of relatively high stock market valuations.

For bond holdings, the current yield environment is among the most attractive in recent decades. The Bloomberg U.S. Aggregate Bond Index yields approximately 4.7%, well above its average of 3.0% since 2009. Investment-grade corporate bonds yield 5.1%. Bonds act as a source of income and a stabilizing force in a balanced portfolio.

Looking Ahead to the Second Half

There will likely be more periods of market volatility ahead. The conflict in Iran is ongoing, investors continue to scrutinize the Fed, and the November midterm elections will attract attention in the media.

On that note, while it can be difficult to do, it’s important to keep media headlines and financial goals separate. Markets have historically been positive under every combination of political party control. While headlines create short-term swings, the true drivers of markets are corporate earnings, economic fundamentals, and the business cycle.

The first half of 2026 has rewarded investors who remained invested, properly diversified, and focused on the long term, even as geopolitical and economic headlines created short-term uncertainty. As we navigate the second half of 2026, it’s important to keep in mind that your portfolio is designed to weather various economic outcomes.