Key Takeaways:
The S&P 500 has climbed about 10 percent this year even as the U.S.-Iran war and a trade conflict dragged through four months.
The S&P 500 closed at 7,711.76 on Friday, down 0.25 percent, while the Nasdaq Composite slipped 0.52 percent to 26,402.42.
"The bull market can continue and the S&P 500 can advance an additional 5 percent to 7 percent for the 2026 year," Argus Research said in its midyear outlook, citing corporate earnings trends and still-favorable valuations.
Energy has led the S&P 500 with a 30 percent gain this year, followed by information technology at 29 percent and industrials at 19 percent, while communication services has lagged with a 6 percent decline and consumer discretionary has slipped 1 percent. Gold dropped 3 percent on Friday after Federal Reserve Chairman Kevin Warsh's remarks lifted bets on an interest-rate hike, and crude oil settled lower for the week.
The resilience has left investors weighing whether the market has priced out geopolitical risk or grown complacent, with the next test coming as the Fed's September meeting approaches and the war in the Strait of Hormuz continues to threaten energy supplies.
The S&P 500's advance through four months of conflict stands in contrast to the midyear gains of 14.5 percent in 2024 and 5.5 percent in 2025, Argus data show. The benchmark's forward price-to-earnings ratio of 20 times sits near the midpoint of its normal 15-to-24 range, and the gap between the S&P 500 earnings yield and the 10-year Treasury yield is 400 basis points, near the historical average.
Corporate earnings have reset the outlook for 2026. Argus raised its forecast for S&P 500 earnings from continuing operations to $340 per share from a prior $315, consistent with mid- to high-20 percent annual growth. The VIX, at about 15, sits below its historical average of 20, suggesting options traders see limited near-term risk.
The dollar and short-dated Treasury yields climbed on Friday as traders added to bets for an interest-rate hike after Warsh's speech, while the MSCI global equities gauge rose. Crude oil remains up 33 percent for the year, and gold has gained 1 percent, even as the war in the Strait of Hormuz has kept energy supplies in focus.
The 2-year Treasury yield rose with the dollar on Friday, and the 10-year yield's spread over the 2-year tightened to 28 basis points at the end of June from 69 basis points at year-end 2025, the steepest since 2021. Argus expects the Fed to neither raise nor cut the federal funds rate in 2026, with GDP growth forecast at 2.3 percent.
The next test comes with the Fed's September meeting, where odds of a rate hike stand at 42 percent, down from 63 percent a week earlier after weak jobs data. For investors, the question is whether the market's calm reflects genuine resilience or a complacency that a sudden escalation in the Iran conflict could puncture.
This article is for informational purposes only and does not constitute investment advice.
