We are officially halfway through 2026, and the first half of the year was another good reminder that markets do not need perfect conditions to move higher.

Coming into the year, investors had plenty to worry about: inflation, tariffs, interest rates, government debt, geopolitical headlines, AI valuations, and whether a small handful of mega-cap technology stocks were carrying too much of the market.

Many of those risks are still there.

But markets usually do not require everything to be perfect. They need conditions to be better than feared, earnings to hold up, and investors to eventually look past the crisis of the day. So far this year, that is basically what has happened.

1. The Market Had a Strong First Half, But It Is Not Cheap
The S&P 500 finished June near all-time highs, and valuations remain above long-term averages. According to J.P. Morgan’s Guide to the Markets, the S&P 500 was trading around 20.4x forward earnings at the end of June, compared to a 30-year average of 17.2x.

That does not mean the market has to fall. Expensive markets can stay expensive, especially when earnings are growing.

But it does mean the bar is higher.

At these levels, the market needs earnings growth to continue. If earnings estimates keep moving higher, stocks can justify higher prices. If earnings disappoint, there is less room for error.

Bottom line:
I do not view this as a “sell everything” market. I also do not view it as a market where investors should blindly chase whatever worked best over the last 12 months. This is a good market, but not a cheap one.

2. The Rally Has Started to Broaden
One of the healthier developments this year has been the broadening of market leadership.

For the last few years, most of the attention has been on the Magnificent Seven. That made sense. Those companies were producing huge earnings, dominating index returns, and driving the AI narrative.

But in 2026, the story has started to shift.

J.P. Morgan’s data showed that through midyear, the S&P 493 was outperforming the Magnificent Seven. In other words, the market has not just been about a few mega-cap tech names this year. More companies and more sectors have participated.

That is a good thing.

Markets are healthier when leadership broadens. It also reinforces one of the most important investing lessons: we do not want to build portfolios only around last year’s winners.

We want to participate in what is working, but we also want to avoid becoming overly dependent on one narrow part of the market. Indexes help us achieve this.

3. AI Is Real, But the Question Is Who Benefits
AI remains the center of gravity for markets.

The question is not whether AI is real. It is real.

The better question is: who captures the economics?

There are really three groups to watch:

  • The companies building the infrastructure: semiconductors, hardware, power, data centers, and related equipment.
  • The companies spending the money: the large hyperscalers writing enormous checks to build out AI capacity.
  • The companies that can use AI to improve productivity, margins, customer service, pricing, or operating leverage.

Right now, the market has rewarded many of the “shovel sellers” in the AI buildout. That makes sense. If everyone is rushing to build data centers, the companies selling chips, power, cooling, memory, and infrastructure are obvious beneficiaries.

But there is also a second side to this. The companies spending the money need to eventually prove that the investment produces a return.

AI should be a deflationary force over the long run if it helps companies do more with less. But in the short run, the buildout itself is creating huge demand for chips, memory, storage, electricity, and data center capacity.

In other words, AI can be deflationary over time and inflationary during the buildout phase. Both can be true.

4. New Highs Are Not Automatically a Sell Signal
It can feel uncomfortable to invest when the market is near all-time highs. That is normal.

But historically, all-time highs are not automatically bearish. In fact, new highs often come in clusters during bull markets. The market does not know or care that a round-number headline feels scary.

J.P. Morgan’s data showed that investing at new highs has historically produced returns that were very similar to investing on any other day over longer periods of time.

This is one of the reasons I am careful about trying to time the market based on headlines or gut feelings. Markets can always pull back. They can always correct. But selling simply because the market is up has historically been a very difficult strategy to get right.

Unless your personal situation has changed, the better answer is usually to stay invested, rebalance when appropriate, and make sure your portfolio still matches your plan.

5. What We Are Watching in the Second Half
The second half of the year will likely come down to a few key questions:

  • Can earnings keep moving higher?
  • Can inflation continue to cool without the economy slowing too much?
  • Can the Fed eventually cut rates without reigniting inflation or will the talk of hikes pick up steam?
  • Can the AI spending boom continue without investors questioning the return on investment?
  • Can market leadership remain broad?

There is always something to worry about. That is normal. The important thing is not to build a financial plan that requires perfect conditions.

We do have trend-following strategies integrated into some portfolios to help manage risk during deeper market declines, but as of now, the broader trend remains constructive.

That can always change. If it does, we will adjust. But as of today, the evidence still supports staying invested rather than trying to outguess every headline.

6. What We Are Doing
We are staying invested, but disciplined.

That means:

  • Rebalancing where portfolios have drifted.
  • Avoiding unnecessary concentration in a small group of winners.
  • Keeping fixed income, cash, and equities aligned with each client’s plan.
  • Using market strength to make sure risk levels still make sense.
  • Not making emotional changes based on the crisis of the week.

The message is not that everything is perfect.

It is not.

The message is that the market has handled a lot of concerns better than expected, earnings have continued to support stock prices, and leadership has broadened in a way that is healthier than what we saw in prior years.

This post is an excerpt from a private client newsletter on 7/7/2026.