In 30 seconds: The first half of 2026 saw a major market rotation with small caps up 22%, value outperforming growth, the Magnificent 7 declining, and broad market breadth improving even as semiconductor stocks pulled back sharply. Oil prices spiked over 7% as Trump declared the US-Iran ceasefire 'over', driving Brent above $80 per barrel, surging diesel crack spreads, and tightening crude markets back into backwardation. June FOMC minutes showed a divided Fed, with a 'few' participants seeing a case for hiking at the June meeting and 'almost all' expecting higher rates if inflation pressures persist, under new Chair Kevin Warsh. Major tech firms including Amazon, Alphabet, Nvidia, Meta, Oracle, and SpaceX have collectively raised $182bn in investment-grade bonds in 2026 to fund AI infrastructure, though investor appetite is showing early signs of strain.
The first half of 2026 delivered the kind of rotation that makes you wonder whether the last few years of mega-cap dominance were a fever dream. US small caps surged 22%, their best first half since 1991, and outperformed large caps by 12%, a gap not seen since 2001. The Mag 7 have gone sideways since last October, and the effect has been to broaden the market in a positive way. Yesterday, 284 S&P 500 stocks finished higher even as the index itself slipped 0.5%, pushing the advance/decline line to new highs — and not a single stock in the S&P 500 made a new 52-week low. That is not what a fragile market looks like. Semiconductors are the conspicuous exception. Memory chips are all in bear markets from the recent highs: Micron is down 22%, AMAT down 23%, WDC down 28%, and STX down 24%, all from recent peaks. The context matters: Micron is still up 228% year to date, AMAT up 115%, WDC up 208%, STX up 200%. The SOX semis group is set to open below its 50-DMA, something it hasn't closed below since early April. Meanwhile, NVIDIA has bucked the trend, rising 6.2% since June 26 as the rest of the semis have gotten slammed. The rotation into first half losers is already underway. Software and digital travel stocks had an awful first half, but caught a bid to start Q3 as traders rotate out of 2026 winners into 2026 losers. Private equity stocks have bounced sharply over the last week as investors rotated into areas that did poorly in the first half. Even AI Doom stocks related to data have seen a huge counter-trend rally over the last week, with many now more than 10% above their 50-DMAs. In June, 40% of households expected higher stock prices in a year — the highest share in more than five years — while the probability of missing a minimum debt payment fell to its lowest since April 2023. The valuation warning is still there: the current level of the cyclically adjusted earnings yield implies very low returns for the coming decade. But for now, the market is telling you it would rather be wide than tall.
Brent pushed above $80 per barrel. US commercial petroleum stocks fell 4 million barrels last week, with the headline decline driven by a steep drop in refining products — especially diesel. UK yields shot up sharply, widening spreads against other sovereigns — a reminder of the high-beta nature of that bond market. Geopolitical risk remains a structural factor determining the short-term direction of markets, clouding the long-term outlook.
A "few" participants saw a case for hiking at the June meeting, while nine FOMC participants had a hike at a future meeting in the SEP. The distinction matters: the minutes frame the committee's divide as a split over the outlook, not necessarily over tactics. That is close to unanimity on a hawkish contingency. The Chair added that "the effects of tariffs on inflation should begin to abate soon." Bond markets have shifted from pricing in 2 rate cuts at the start of the year to pricing in 1 to 2 rate hikes today — nearly a 1% swing in expectations. The Fed is not the only central bank recalibrating: New Zealand hiked rates for the first time in three years, a 25 basis point increase to 2.50%. The global rate cycle, it turns out, can still go in both directions.
Amazon's bond sale alone totaled $25 billion. It is far too early to worry about AI credit stress — that is a 2027 concern. For now, creditors are willing to participate to secure a seat at the IPO table.
Here is what your portfolio did this session.
S&P 500: 7,482.71, down 0.28% on the day
10-Year Treasury yield: 4.57%, up 4 bp on the day
30-Year Treasury yield: 5.07%, up 2 bp on the day
13-Week T-Bill yield: 3.72%, down 0 bp on the day
Gold: $4,090.90, down 1.31% on the day
Fed funds rate: 3.75, flat 0.00% on the day
Long bonds (TLT): $84.36, down 0.22% on the day