Halfway Through 2026 – Understanding the Market Tug of War
As we close out Q2 and review the year so far, there are several interesting dynamics at play. We have often viewed the different “economic and market forces” as trending either good or bad, positively or negatively. Although that is a somewhat general and more broad-based mentality, when the factors and forces trend negatively, it can be wise to think more defensively. The counter to that notion is also valid. When these same forces are strong and lean more positively, a “risk on” investment mindset can be sensible and ultimately beneficial.
That said, as we evaluate the economy and the capital markets halfway through this year, there are some less obvious trends taking shape. As markets dramatically recovered from their corrective levels in late March, all we seem to hear about is artificial intelligence (AI). AI - the technology evolution that is rapidly advancing before our eyes, changing the landscape of the future and driving stock prices higher for all companies involved. After tech stocks sold off in March, most have recovered significantly pricewise. Meanwhile, large cap value stocks showed their more defensive nature by holding up well while the growth and momentum names consolidated and corrected.
Headlines would have you believe that market returns have been dominated by growth and technology stocks, but that is not really the case. The Russell 1000 Value Index is up roughly 16% year-to-date. Its counterpart, the Russell 1000 Growth Index, is up only 1% over that same period. Large companies/caps, both domestic and international, have been up approximately 10% halfway through the year. Small Caps, as represented by the Russell 2000 Index, are up 20% year-to-date, and emerging market equites are up over 22% over that same timeframe. As we look at what has attributed to (or detracted from) market returns this year, significant contributions have been made outside of the AI cohort.
