After a sharp 5% decline in March following the outbreak of conflict in Iran, equity markets launched a stunning recovery throughout the second quarter. The S&P 500 bounced 15% to finish the first half of the year up just over 10%. Notably, the “Magnificent Seven” (Apple, Microsoft, Alphabet, Meta, Nvidia, Amazon, and Tesla) underperformed the broader market for the first time in recent quarters, finishing the first half down approximately 3% in aggregate.

Instead, leadership shifted decisively to chipmakers and memory providers. Semiconductor stocks doubled, while memory companies surged over 150% year-to-date. With key industry leaders like SK Hynix and Samsung domiciled in South Korea, the country’s benchmark Kospi index skyrocketed over 100% since the start of the year.

Geopolitical anxieties eased significantly after the United States and Iran signed the historic Islamabad Memorandum of Understanding (MOU) on June 17, establishing a framework that effectively ended the war. Despite sporadic subsequent flare-ups, global markets maintained their trend of looking past geopolitical friction. Oil prices have retraced to pre-war levels after peaking roughly 40% higher in March, even as major news outlets report that traffic through the critical Strait of Hormuz will take time to fully normalize.

The market also successfully digested the first of three highly anticipated “mega-IPOs.” SpaceX went public on June 12 at $135 per share, implying an initial valuation of $1.77 trillion. The company listed 555.6 million Class A shares to raise $75 billion, marking the largest public market debut in history. While the share price briefly spiked to an intraday high of $225 before giving up some of those gains, its public market capitalization currently stands around $2 trillion. As of this writing, SpaceX sits as the seventh-largest company in the world, trailing only Nvidia, Alphabet, Apple, Microsoft, Amazon, and Taiwan Semiconductor. This blockbuster debut sets a historic precedent for OpenAI and Anthropic, both of which filed confidential S-1s in June and are targeting trillion-dollar valuations within the next year.

AI capital expenditure continues to accelerate. The five major hyperscalers are now projected to spend $739 billion on infrastructure this year, up from $419 billion in 2025. While this massive capital deployment is translating into spectacular earnings for data center chip and equipment suppliers, broader corporate fundamentals remain robust across almost all sectors. Consensus estimates now peg full-year 2026 S&P 500 earnings growth at an impressive 23%.

This strong earnings growth has actively helped compress equity valuations. The forward price-to-earnings (P/E) ratio for the S&P 500 currently sits at 20.1x, down from its mid-2025 peak of 23x. Although this remains elevated relative to the 30-year historical average of 17.2x, the downward trajectory provides an encouraging cushion for equity investors.

Concurrently, the underlying U.S. economy continues to show reassuring signs of resilience. Although headline job creation has moderated from post-pandemic highs, with an increasing number of firms citing AI integration as a catalyst for restructuring, the unemployment rate remains historically low at 4.3%. Consumer spending remains healthy, supported by outsized tax refunds during the April filing season. Furthermore, delinquency rates on auto loans and credit cards have finally leveled off after climbing steadily throughout 2022 and 2023 in response to the Federal Reserve’s aggressive tightening cycle.

Ultimately, we remain optimistic that the U.S. economy and equity markets rest on solid footing as we enter the second half of the year.

Monetary policy entered a new chapter as Kevin Warsh chaired his inaugural FOMC meeting as Federal Reserve leader on June 16–17. While political pressure for rate cuts remains a persistent backdrop, Warsh strongly asserted central bank independence. The committee voted unanimously to hold the federal funds rate steady at 3.50%–3.75%. However, the updated Summary of Economic Projections revealed a distinct hawkish shift: out of 18 submitted dots, 9 participants now project at least one rate hike by the end of 2026. This represents a stark reversal from the March FOMC meeting, where 5 participants expected multiple cuts and 14 anticipated just one or zero. In a deliberate break from traditional forward guidance, Chair Warsh withheld his own personal rate projection, ushering in a self-declared “regime change” aimed at reducing market reliance on speculative Fed signaling.

Some market participants are taking these hawkish June projections with a grain of salt, given that oil prices plunged immediately following the Islamabad MOU. Nevertheless, if the Fed does pivot back toward rate hikes, it introduces a distinct restrictive risk to economic growth.

We also remain vigilant against signs of market euphoria. With total U.S. IPO volume projected to reach a massive $250 billion this year, questions remain regarding how easily the equity market can absorb this influx of secondary supply. Additionally, any structural deceleration in the return on investment (ROI) for AI data center spending could cause investors to sour on the tech sector’s primary earnings engine.

Ultimately, we remain optimistic that the U.S. economy and equity markets rest on solid footing as we enter the second half of the year. In alignment with our core philosophy, we maintain a disciplined approach: actively rebalancing portfolios to long-term asset allocation targets and ensuring balanced, diversified sector exposure.

The opinions expressed in this video are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual. It is only intended to provide education about the financial industry. As always, please remember that investing involves risk of loss of principal and capital. Nelson Capital Management, LLC is a registered investment adviser with the U.S. Securities and Exchange Commission. Advisory services are only offered to clients or prospective clients where Nelson Capital Management, LLC and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Nelson Capital Management, LLC unless a client service agreement is in place. Likes and dislikes are not considered an endorsement for our firm.