The first half of 2026 has seen significant headline-driven market uncertainty, from geopolitical events to inflation risk. Given the level of uncertainty, many investors might have assumed that equity markets would be down midway through the year. Yet, the S&P 500 has posted positive returns (hitting several all-time highs earlier in the year) amidst continued strong corporate earnings, rewarding those who have been able to look past the headlines and remain invested.
In this article, James Liu, CEO of Clearnomics, explores how advisors can put news headlines into context for clients in a data-driven way, helping them maintain perspective and recognize that periods of uncertainty don’t necessarily lead to weaker equity market returns.
Looking at equity markets, the energy sector has been a standout performer in the first half of the year amidst the spike in oil prices associated with the conflict with Iran, though certain technology stocks have been supportive as well amidst continued enthusiasm surrounding developments in Artificial Intelligence (AI). International stocks have also joined the U.S. market in experiencing positive returns for the first half of the year, with both developed and emerging markets posting gains. At the same time, valuations (as measured by the S&P 500’s forward price-to-earnings ratio or the Shiller Cyclically Adjusted Price-to-Earnings [CAPE] ratio) remain elevated in historical terms (though these data points don’t necessarily predict where the market is heading next).
Inflation has perked up this year, with the Consumer Price Index (CPI) rising 4.2% year-over-year in May, representing a multi-year high. However, this figure was largely driven by its energy subcomponent, which jumped 23.5% year-over-year, with core CPI (which excludes food and energy) rising only 2.9% over the same period – suggesting that if declines in oil prices seen over the past few weeks continue, the headline inflation figure could moderate.
In addition to affecting the prices consumers pay, inflation also plays heavily in the minds of decision-makers at the Federal Reserve (alongside the labor market, which has strengthened this year). After starting rate cuts in late 2024, expectations for further cuts flipped earlier this year, with investors now anticipating rate hikes in the coming months. The Federal Open Market Committee appears divided, with roughly half of members expecting rates to remain steady through year-end and the other half expecting them to move higher.
Although future Fed interest rate decisions remain to be seen, current interest rates remain elevated across all maturities of the U.S. Treasury yield curve. While bond returns have been relatively subdued so far this year amidst higher rates, current yields could help restore fixed income to its traditional role as a portfolio stabilizer and income generator. On the other side of the coin, higher bond yields could serve as a headwind for equity prices, as they increase the attractiveness of bonds as an alternative and raise the discount rate applied to future earnings.
Ultimately, the key point is that while headlines can often drive short-term market moves, underlying fundamentals, such as corporate earnings, typically drive long-run returns. Which suggests that financial advisors have a valuable role to play by providing clients with perspective on the broader market picture and showing them how their asset allocation is designed to meet their short- and long-term goals!
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-1024x683.jpg "Strait Outta Hormuz: Getting the Iran Oil Story Straight")
