There is an old line that smooth seas never made a skilled sailor. If you stayed invested through the first half of 2026, you felt the truth of it. The headlines rarely let up. There was conflict in the Middle East, oil prices that drove inflation to multi-year highs, and open questions about how far artificial intelligence can carry the market. And yet stocks closed the first half at new records, corporate earnings grew at a double-digit pace, and a wide range of asset classes did their part. The first six months were a reminder that staying invested and holding a long time horizon still do the heavy lifting.
That lesson carries more weight now than it did a year ago. The economy has entered the seventh year of this expansion, and the market cycle is closing in on its fifth. The same worries keep rotating through the news: inflation, the Fed, valuations, and whatever feels most urgent that week. Working through those competing pressures is a permanent part of investing. The second half is likely to bring its own surprises, from the next chapter in the Middle East to the midterm election to a busy calendar of new public offerings. The real question is how you hold steady while all of it plays out.
Key Data Points From the First Half
Here is where the numbers stood at the close of the first half. All figures are historical and current as of June 30, 2026.
- The S&P 500, Nasdaq, and Dow Jones Industrial Average returned 9.6%, 12.8%, and 8.9% year to date through the end of June. The second quarter was historically strong, with the S&P 500 up 14.9%, the Nasdaq up 21.4%, and the Dow up 12.9%.
- The Bloomberg U.S. Aggregate Bond Index rose 0.6% year to date. The 10-year Treasury yield ended the quarter at 4.47%, up from 4.17% at the start of the year.
- Developed market international stocks (MSCI EAFE) gained 7.7%, and emerging market stocks (MSCI EM) returned 22.7% year to date, both in U.S. dollar terms.
- The Bloomberg Commodities Index rose 12.3% year to date, lifted by a 23.3% first quarter and pulled back by an 8.9% decline in the second.
- Brent crude peaked just under $120 per barrel in May before closing the quarter near $73.
- Gold traded around $4,007 per ounce, while Bitcoin fell to a recent low of $58,633.
- Headline CPI rose 4.2% year over year in May, driven largely by energy prices. Core CPI, which strips out food and energy, rose 2.9%.
- The Federal Reserve held rates at 3.50% to 3.75% through the first half, and Kevin Warsh was sworn in as Fed Chair in May.
The Expansion Just Entered Its Seventh Year
It may surprise you to learn that the current expansion began in April 2020, in the depths of the pandemic, and passed its sixth anniversary in the second quarter. More than once along the way, investors and economists braced for the next recession, when inflation peaked in 2022 and again when tariffs disrupted trade last year. Through all of it, the economy kept growing.
The business cycle touches nearly everything, from the cost of a mortgage to the size of your annual raise. A healthy economy supports consumer spending and business investment, which feed corporate earnings and, over time, stock returns. The market and the economy are not the same thing, but they tend to move together. History offers some perspective here: the longest expansions, including the one that followed the 2008 financial crisis and the stretch through the 1990s, ran for a decade or more.
So where does the economy stand today? Inflation is elevated but could ease if oil prices stay low. Hiring has picked up again after last year’s slowdown, the dollar has steadied and firmed, and business investment has accelerated. Consumers say they feel gloomy, yet they keep spending on both essentials and extras. The signals are mixed, but the overall picture looks healthy, and that backdrop has historically been constructive for markets over the long run.
Gains Came From More Than Large-Cap Stocks
One of the more encouraging features of this year is how broad the gains have been. It was not only large-cap stocks in the S&P 500. Small caps, emerging markets, and commodities all contributed, and the second quarter ranked among the strongest on record. Part of that strength traces to timing, as the recovery took hold at the start of April, around the arc of the war in Iran.
Several forces sit behind these returns: a resilient economy, hopes for a peace deal in Iran, and continued enthusiasm around AI. Those same forces have fueled earnings, with profits across S&P 500 companies rising more than 20% over the trailing twelve months. The strong backdrop has also opened the door to a wave of public offerings, including SpaceX in the second quarter and the anticipated listings of OpenAI and Anthropic.
It is worth keeping public offerings in perspective. The headlines cluster around the first few days of trading, but the real payoff, if it comes, tends to build over years. What these listings do right away is widen the opportunity set, which matters more than usual now that many companies stay private far longer than they once did. All of this strength does carry a caveat: U.S. valuations are historically high. The S&P 500 trades near 20 times earnings, above its long-term average of about 16 times. Valuations like these say little about the next year or two, but they are useful guides for building a long-term portfolio, which is one more argument for keeping your holdings balanced across asset classes. That balance sits at the center of how we approach investment management.
Oil Round-Tripped, and Inflation Followed
The conflict in Iran reached the U.S. economy mainly through the energy market. Disruptions to shipping through the Strait of Hormuz pushed Brent crude close to $120 per barrel before prices fell back sharply. In recent weeks, oil has traded near $70, roughly where it sat before the conflict. Gasoline followed the same path on a delay, topping $4.50 per gallon nationally before easing back below $4.00.
Those energy swings showed up directly in inflation. The Consumer Price Index rose 4.2% year over year in May, its highest reading in several years, with the gasoline component alone jumping 40.5%. The more telling number is core CPI, which excludes food and energy and rose just 2.9%. That gap suggests the inflation of the past few months has been concentrated in fuel rather than spread across the economy.
With oil prices retreating, many economists think we may be near the peak for inflation. There is precedent for that view. Past shocks to the oil supply, including Russia’s invasion of Ukraine in 2022, followed a similar pattern. Once the situation steadied, oil prices often improved and inflation tended to cool in the months that followed.
Volatility Showed Up, and Stayed Manageable
If the year felt bumpy at times, that is because it was. Tariffs, the Middle East, and uncertainty around the Fed each produced short-lived market swings. You can see it in the VIX, a common gauge of expected volatility. Even so, the current reading of about 16 sits below its long-term average of 18.4 and well beneath recent peaks, a reminder that stretches of volatility are often where opportunity is greatest.
Another way to size up the year is the largest drop from peak to trough, which for the S&P 500 has been about 9% so far in 2026. Declines like that are never comfortable, yet markets tend to turn higher when few expect it. The index has not only recovered from that pullback but has set 24 new all-time highs this year.
The pattern across the first half is clear enough. How you respond to volatility usually matters far more than the volatility itself. Reaching for the exits when uncertainty spikes feels prudent in the moment and often backfires. The steadier path is to hold a portfolio built to weather every part of the cycle while still serving your long-term goals. That is also the heart of sound retirement planning, where a long time horizon does much of the work.
Cash Feels Safe, but It Carries a Cost
When markets wobble, money tends to move to the sidelines. The trouble with cash as a strategy is knowing when to step back in, and the scale of cash on hand today is striking. Money market fund assets have reached a record $7.9 trillion, more than double where they stood before the pandemic, a reflection of both lingering caution and the higher short-term rates that made cash more appealing.
Cash can feel safe on paper, but it carries a real cost. Yields on cash often fail to keep pace with inflation. Average rates on certificates of deposit right now leave the real income from cash negative once you adjust for rising prices. Even when short-term yields look attractive, they face two headwinds, inflation on one side and the difficulty of holding those rates on the other. Over time, the purchasing power of a large cash balance can erode.
This is the case for a balanced portfolio that can draw on growth, income, and capital preservation at the same time. As the market and economic cycle age, that kind of balance only grows more useful.
What This Means for Your Portfolio
If the first half of 2026 carried a single message, it is that the greater risk was usually your own reaction, not the headline that provoked it. Our approach at Holland Capital Management starts from that premise. We build portfolios at the client level using individual securities rather than model portfolios or packaged products, which lets us target taxes with intent, manage concentrated positions deliberately, and keep your holdings aligned with your goals rather than the day’s news. A portfolio built this way is meant to hold up across every part of the cycle, leaning on growth, income, and capital preservation as conditions shift. As this expansion ages and the second half brings its own surprises, that discipline tends to matter more, not less.
Frequently Asked Questions
Why did the market perform so well in the first half despite the conflict in Iran?
Several forces worked in the market’s favor at once. The economy stayed resilient, corporate earnings grew at a double-digit pace, and enthusiasm around AI continued to draw investment, even as the conflict in Iran created real uncertainty. Markets also began recovering early in the second quarter, which turned out to be one of the strongest quarters on record. It is a useful reminder that markets often climb through unsettling headlines rather than waiting for perfect conditions.
What does the seventh year of this business cycle mean for my portfolio?
A maturing cycle is worth paying attention to. It is not, on its own, a reason to pull back, since expansions do not end because of age and several past ones ran for a decade or more before turning. What tends to help at this stage is a portfolio with some balance built in, so you are not leaning on any single outcome. That is what lets you stay steady as conditions change.
Inflation hit 4.2% in May. Should I worry about my purchasing power?
It is worth watching, though the details offer some reassurance. Much of that increase came from energy, and oil prices have since fallen back toward pre-conflict levels. Core inflation, which leaves out food and energy, rose a more modest 2.9%, which suggests price pressure has been concentrated rather than broad. The longer-term concern for purchasing power is often cash that sits idle, since its yield may not keep pace with rising prices.
Money market yields still look attractive. Is it wrong to hold cash?
Cash has a clear role for near-term needs and peace of mind, so holding some is sensible. The caution is around large balances held for long stretches, because cash yields have often failed to offset inflation, which can erode real purchasing power over time. Deciding how much cash to hold is really a question of matching your money to your goals and time horizon. That is a conversation worth having as part of your broader plan.
With the midterm election and new IPOs ahead, how should I approach the second half?
The second half is likely to bring surprises, as every stretch does, and trying to trade around them tends to be difficult to get right. Elections in particular generate a great deal of noise but have historically been a poor reason to overhaul a long-term portfolio. New listings can broaden the opportunities available to you over time, though their real value usually shows up over years rather than days. The steadier approach is to keep your portfolio aligned with your goals and let the plan, not the calendar, drive your decisions.
The bottom line: the first half of 2026 rewarded investors who stayed diversified and kept a long-term perspective, even as conflict and inflation dominated the headlines. The second half is likely to bring fresh uncertainty of its own. The same discipline that carried a portfolio through the first six months is what tends to carry it through what comes next.
Disclosures. Holland Capital Management, LLC is a registered investment adviser. The views expressed in this update are those of Holland Capital Management as of July 1, 2026, and are subject to change as markets and conditions evolve. This material is provided for educational and informational purposes only and does not constitute individualized investment, tax, or legal advice. Any economic or market data referenced is historical, is drawn from sources believed to be reliable, and is not indicative of future results. Different investments carry different types and degrees of risk, and no strategy can remove the risk of loss in a declining market. Index returns are shown for illustration, are not available for direct investment, and do not reflect fees or expenses. Nothing here should be relied on as a recommendation to buy, sell, or hold any security or to adopt any particular strategy. Before acting on anything discussed here, consider your own circumstances and consult Holland Capital Management or your chosen professional adviser.
