What's Driving 2026's Market Gains?
We’re nearly halfway through 2026, and the most interesting thing about this market isn’t how far it has risen. It’s who’s driving the gains. For the first time in years, the gains aren’t coming from a short list of giant technology names. Instead, they’re coming from a much broader swath of the market and benefiting diversified investors.
A Wider Market
Take a look at where the returns have come from this year. For the second year in a row, emerging-market stocks lead the way and up more than 28%. Small U.S. companies have gained nearly 21%, and commodities are up almost 18%. Each has outperformed the S&P 500 (an
index of the largest US companies), which has posted a still-healthy 10.2%, though it sits near the back of the pack. Bonds are the lone laggard, barely positive as interest rates remain high.
Asset Class Returns YTD through June 18, 2026
Source: YCharts, as of June 18, 2026. Index returns are illustrative and cannot be invested in directly..
If you’ve ever wondered why we keep talking about looking beyond the S&P 500 (foreign stocks, smaller companies, value, and the parts of the market that felt like dead weight a year ago) this is the year that discipline earned its keep.
And this time, the gains have support
So, what’s supporting this rise in stock prices? Back in late March, analysts expected S&P 500 earnings to grow about 13% in the first quarter. They actually grew nearly 28%—more than double the forecast. And strength wasn’t limited to technology, either; communication services and consumer companies blew past near zero expectations.
Source: FactSet, as of the Q1 2026 reporting season. “Expected” reflects estimates as of March 31, 2026.
That gap matters more than it may seem. A rally built on rising profits stands on firmer ground than one built on optimism alone. Earnings have been the quiet stabilizing force underneath the headlines all year, and the first quarter confirmed it. For those that were worried about valuations (prices higher than earnings could support), the rise in earnings has brought the valuations more in line.
So why keep diversifying?
Fair question. If technology is still delivering strong results, why not simply own more of it? Because the ten largest companies in the S&P 500 now make up nearly 39% of the entire index—close to a record—and they’re priced for that dominance to continue. The reality is that the market has had a phenomenal run the past few years. This run-up in stocks has led many investors to be overweight in stocks relative to bonds. This could be a good time to realign risk by taking some of the stock market gains and redeploying them into the bonds that are at higher interest rate levels relative to the past 20 years. The 10-year treasury was almost four and a half percent (4.46%) as of June 22nd. While inflation continues to be a risk, bonds continue to deliver yields over inflation.
A historic listing and a familiar lesson
The quarter's biggest headline came on June 12, when SpaceX went public on the Nasdaq under SPCX — the largest IPO in history, valued near $1.8 trillion and a top ten U.S. company on day one. Naturally, clients are asking whether they should or will own a piece. And naturally, investors are asking whether they own it, or should.
The most useful answer is to look at what the index providers have done, because they haven’t all taken that approach. Nasdaq and Russell moved quickly to make room for SpaceX through fast-entry rules, while broad total-market indexes that allow quicker additions may also pick it up early. The S&P 500 did the opposite. It declined to bend its rules and kept SpaceX out because the index still requires a company to be profitable, and SpaceX is not yet. This similar to what happened with Tesla, which didn’t join the S&P 500 until 2020. It’s highly likely we will continue to see high levels of volatility as the market attempts to sort out the true value of this company. With a relatively small number of shares trading on SpaceX today, we will continue to review how we index.
SpaceX is the first big IPO this year, but probably not the last. Two major players in AI (OpenAI, and Anthropic) are lurking. As investors, our approach will remain patient and disciplined, to assess the impact of both including and sizing these holdings in our portfolio. This means we will be looking at HOW we index over the coming months as pre-IPO SpaceX shareholders are allowed to sell their shares over the next six months.
So whether you own any SpaceX today depends entirely on which funds you hold and in the index most core portfolios are built around. The answer for now is none or very little. While that's not a verdict on the company, it's a reminder that disciplined, rules-based investing doesn't chase a story until the fundamentals are there. It's the same principle we apply to your plan: participate in growth through a diversified mix, and let results, not headlines, decide how much any single name earns its place.
The Fed has a hard job and a new boss
The complication this quarter was inflation. After a long stretch of cooling, consumer prices ticked back up to 4.2% in May from 3.8% in April, pushed in part by higher energy costs tied to renewed tension around Iran and the Strait of Hormuz. Steady employment alongside firmer inflation is exactly the bind that makes the Fed's job difficult, and it lands in the lap of a new Fed chair.
Kevin Warsh chaired his first meeting on June 16–17, and he used it to signal change. The committee held rates steady at 3.50%–3.75% for a fourth straight meeting, but the news was Warsh himself: he dropped the practice of giving markets "forward guidance" and launched a set of task forces to rethink how the Fed operates, stressing a firm commitment to getting inflation back to 2%. With inflation at its highest since 2023, almost every member of the rate-setting committee now expects either a hold or a hike this year. Only one still sees a cut. The path back to lower rates runs through the Strait of Hormuz: if the U.S.–Iran peace holds and oil flows normalize, the inflation pressure could ease on its own. While Warsh may view the historical data differently than his predecessors, he will still need to see a path to contained inflation through Fed action or patience in the economy to work it out.
We would be remiss if we did not take a special moment of remembrance for former chair Alan Greenspan who passed this week at age 100. For those of you who are wondering how to spend your 60’s and 70’s in retirement, Greenspan took the Fed job in 1987 as a Reagan appointee at age 61 and stayed on through H.W. Bush, Clinton, and most of W. Bush until 2006 through age 79.
So what are we watching?
- Whether inflation’s uptick proves temporary and energy-driven, or something stickier
- Whether Warsh's break from forward guidance calms markets or adds to the uncertainty
- Whether this year’s broad strength holds, or leadership narrows back to the biggest names
- Flashpoints around the Strait of Hormuz and U.S.–China relations
Practically, this may be a sensible moment to take some chips off the table where stocks have run hard and rebalance into bonds if that meets your long-term objectives.
Ultimately, it’s about you
Markets will keep handing us reasons to worry (AI, oil, the Fed, the next headline out of the Middle East). They always do. We will also get reasons to be euphoric (AI, IPOs, record earnings). But this year is a good reminder that patience and a wide lens tend to win out over trying to respond to the noise. The strongest position from which to make any adjustment is one of relative strength, not at the lows when emotions run highest.
