As we started 2026, global stocks hovered near all-time highs and investors’ expectations for the year seemed relatively clear: inflation would continue to ease, the Federal Reserve would cut interest rates a handful of times, and a high bar was set for corporate earnings to continue justifying relatively expensive valuations and an ongoing bull market. Fast forward to the halfway point for 2026 – global stocks are hovering near new all-time highs, but the narrative moving forward has seriously shifted compared to the start of the year. Inflation has shown signs of reaccelerating, money markets are now pricing in at least one rate hike from the Fed by the end of 2026, and corporate profits have proven to be significantly resilient, despite a challenging economic backdrop, which led the S&P 500 to have its best quarterly performance in over six years. The strong quarterly performance in Q2 following a lackluster start to the year is a welcome development for investors. However, the JNBA Investment Committee remains cautiously optimistic heading into the second half of 2026 as financial markets continue to be in a sensitive spot given ongoing headwinds.
The second quarter started on a strong note – markets rallied in April from both optimism for a resolution to the conflict in the Middle East and a very strong earnings season. The S&P 500 delivered its sixth consecutive quarter of double-digit earnings growth and surpassed estimated earnings growth by the largest margin in several years. This surprisingly resilient earnings season largely shifted investors focus away from the war in Iran, but this ongoing conflict continues to have negative impacts on the broader global economy. In the U.S., we’ve begun to see the effects from the shock to energy prices as inflation has started to reaccelerate. The latest Consumer Price Index reading for May climbed 4.2% from a year earlier – the largest increase since 2023 – with the underlying energy components accounting for over 60% of the total monthly increase. Although a formal end to the conflict in the Middle East has seemed imminent for several weeks, the situation remains unresolved. Oil prices have fallen from their wartime highs, and negotiations between the U.S. and Iran have shown progress, but the conflict should continue to be viewed as a risk for investors if negotiations break down. If the war with Iran drags on or escalates, upward pressure on energy prices could persist, particularly if negotiations break down. That, in turn, could weigh on the global economy: consumers may have to spend more of their income on gas and energy rather than other goods and services; producers may need to raise prices to offset higher energy-related production and transportation costs; and global central banks may be forced to raise interest rates again to combat renewed inflationary pressure.
Headline risk is nothing new to investors – there are plenty of reasons to remain invested as opportunities continue to present themselves. The global economy is experiencing a significant transition with technological advancements from artificial intelligence (AI). Whether or not you believe the boom in companies associated with AI is speculation, the companies providing the underlying components and infrastructure needed for this technology are currently reaping the rewards. To liken this to the California Gold Rush of the mid-1800’s, the adage “don’t dig for gold, sell picks and shovels” has been a powerful thematic trade thus far in 2026. For example, producers of semiconductors – a key component of infrastructure for accelerated computing and AI solutions, just recorded their best-ever quarter of performance in Q2 as demand for chips has surged over the past several quarters.
Despite ongoing geopolitical and economic issues, the first half of 2026 has proven to be incredibly strong, and markets are overall filled with enthusiasm. As we look ahead to the second half of the year, we remain cautiously positioned in stocks, mindful of the heightened uncertainty and new slate of headwinds investors will need to assess in a rapidly changing environment. As your advocate, the JNBA Investment Committee continues to monitor the market environment diligently, remains committed to keeping you informed, and reinforces the importance of discipline and long-term decision-making through periods of challenging market performance. We encourage you to reach out to your JNBA Advisory Team with any questions.
Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from JNBA Financial Advisors, LLC.
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