S&P 500 posts best quarter in six years as markets climb wall of worry into election season

Good morning…Welcome to Part 2.

Yesterday we marked the end of the 2^nd qtr. and the first half of 2026—and what a 6 months it’s been. Think about everything this market had to digest...

A war in the Middle East creating all kinds of geopolitical conflicts, A blocked Strait of Hormuz that impacted global trade for 4 months, surging oil prices leading to surging gasoline prices, new management at the FED, Inflation that remains stubbornly high, talk of expected rate cuts turned into talk of rate hikes, an AI panic that, (for a few days), had many traders convinced the trade was over. – yet, it may be hard to believe, but the S&P had its BEST qtr. in six years.

The old phrase – ‘we are climbing a wall of worry’ was never truer.

The market climbs a wall of worry when stocks continue to rise despite a constant stream of bad news, uncertainty and reasons to be afraid. Investors worry about war, inflation, higher interest rates, geopolitical conflict, elections, recession, earnings, valuations—you name it. Every headline gives them a reason to sell.

Yet the market keeps advancing.

Why? Because markets don’t trade on today’s headlines, they trade on what investors believe tomorrow will look like. If they believe corporate earnings will continue to grow, innovation will continue, the macro data remains robust allowing the economy to weather the storms, they’ll keep buying. Yes, the headlines do and can create short-term chaos, but that’s not a reason to panic, it is an opportunity for the long-term investor.

Ironically the wall of worry is actually healthy. It means there are still skeptics, still cash sitting on the sidelines, and still investors waiting for the next pullback. As each fear fades, some of that money comes off the bench and finds its way into stocks, helping push the market higher. You for those of us who did not ‘buy’ into the fear – we are better off…and for those that made emotional decisions – well, you made an emotional decision. Remember, it’s when everyone agrees that stocks can only go up – is really when you need to start paying closer attention.

Now for the qtr. this is what it looked like –

Dow: +13% — best quarter since 2022.

S&P 500: +14.9% — best quarter since 2020.

Nasdaq: +21.4% — best quarter since 2020.

Russell 2000: +21% — small caps finally came to life.

Equal Weight S&P: +11% — proof that participation broadened beyond just the mega-cap tech names.

Mag 7: roughly +18% — they regained leadership after the late-May/early-June selloff, but they weren’t the only winners.

That last point is probably the most important. Unlike 2023 and much of 2024, Q2 2026 wasn’t just another “Mag 7” quarter. Leadership broadened considerably, with industrials, financials, transports, and small caps all participating. That’s suggests a healthier bull market with expanding breadth rather than one being carried by a handful of stocks.

For the qtr. – here is how the 11 Sectors performed.

Tech +31%, Industrials + 14.5%, Consumer Discretionary + 9%, Financials + 8.6%, Healthcare + 8.3%, Communications + 8.1%, Real Estate + 7.6%, Basic Materials + 1.6%, Consumer Staples -0.3%, Utilities lost 1.2% while Energy suffered the worst – losing 14%.

Treasuries came under pressure yesterday. The TLT fell 1.2% and the TLH lost 0.9%, pushing yields higher across the curve. For the qtr – the 2-year rose 31 bps to end the qtr yielding 4.17%, the 10 - year added 16 bps to end the qtr yielding 4.46%, and the 30-year climbed 5 bps to yield 4.96%.

Now let’s talk about oil... Remember, crude exploded higher early in the quarter as the war in the Middle East intensified, surging more than 22%. But by quarter-end, that entire move had evaporated. Oil finished the quarter 14.2% below where it began and nearly 29% below the May 15th high—a remarkable reversal.

Why? Because the market is increasingly betting that a lasting agreement with Iran will hold, keeping the Strait of Hormuz open and allowing oil, natural gas, fertilizers and other commercial products to move freely thru the strait.

This morning, crude is trading around $68.95, once again trying to break below the $70 trendline. If it does, I think the next stop is the $62–$65 range. Right now, the path of least resistance remains lower. The only thing likely to change that outlook would be a breakdown in the peace agreement or renewed geopolitical tensions.

Gold tells a similar story. It is down 14% for the quarter and is under pressure again this morning, slipping another $25 to around $3,985/oz. As geopolitical tensions cool and investors begin to consider the possibility that the Fed may need to keep rates higher for longer - or even raise rates. Remember - The market continues to price in 1 rate HIKE in the fall and Bank of America thinks we get 3! (I wonder what he is smoking?) And remember – higher rates means a stronger dollar. And as we’ve discussed many times, a stronger dollar typically puts pressure on dollar-denominated commodities like gold and oil.

From a technical perspective, I wouldn’t be surprised to see gold try to trade lower toward the $3,500 area before it finds meaningful chart support.

Now let’s turn to today’s economic calendar...

The first report is already out, and Challenger Job Cuts came in down 4.5% year-over-year, suggesting companies are still reluctant to let workers go despite all the economic handwringing.

At 7:00 am, we’ll get Mortgage Applications, followed by the June ADP Employment Report, where economists are expecting the private sector to have added about 120,000 jobs. Remember, ADP isn’t always a perfect predictor of Friday’s nonfarm payroll report, but it can certainly influence expectations.

Then, at 10:00 am, we’ll get the ISM Manufacturing Index, expected to come in at 53.9 – well into expansion territory, since anything above 50 signals growth.

But don’t get too hung up on the headline number. The real story will be the Prices Paid component, which is expected to fall to 77.5 from 82.1 last month. Why does that matter? Because it gives us one of the earliest looks at inflation pressures inside the manufacturing sector. If businesses are paying less for raw materials and inputs, that’s another sign that pricing pressures may be easing—a welcome development for the Fed, the bond market, and ultimately for stocks.

So yes, watch the headline...but pay even closer attention to Prices Paid. That number could end up being the market mover.

But let’s be honest...The Fourth of July holiday weekend is upon us, and I suspect trading volumes will begin to thin out as more and more investors head for the beach, the backyard BBQ, or the golf course.

Now remember, lighter volume can mean more volatility. With fewer buyers and sellers in the market, it takes less to push prices around.

So here’s my advice... If there are stocks you’d be happy to buy on a pullback or positions you’d be willing to sell (or trim) at higher prices, put those Good-’Til-Cancelled (GTC) orders in now. Let the market come to you instead of chasing it.

Then shut off the screens, spend some time with family and friends, enjoy the holiday, and let Wall Street do what Wall Street does. The market will still be here on Monday.

European markets are lower as the qtr. begins……..Germany bucking the trend is up 0.3%.

US Futures are lower this morning…..and that too should not be a surprise…. after the end of qtr. surge and the start of the long holiday weekend. Dow futures down 106 pts, S&P’s down 12 pts, the Nasdaq down 100 pts while the Russell is down 17 pts.

The S&P closed at 7,499, up 59 points. Trendline support is down at 7,378 with the all time high of 7,620 as resistance.

This morning we are turning the page…..It is now the 4^th of July, before you know it, it will be Labor Day, Halloween, Thanksgiving and then Hannukah and Christmas.

We are now deep into the midterm election season. The result will be what it will be – investors just want the certainty of whatever that is. Expect the rhetoric to heat up, expect the polls to shift, expect every headline to create angst. Remember - history tells us that election years often produce volatility before they produce clarity. We should all hope for gridlock because it limits sweeping policy changes. Others are hoping for a complete political shift—but if that’s your expectation, you’ll likely have to wait until 2028.

Either way, don’t let politics dictate your portfolio. Build a plan. Diversify appropriately and manage your risk. Expect more uncertainty and volatility.

Watermelon and avocado salad – a 4^th of July classic

For this – you need: Watermelon, Avocado, Red Onion, Cucumber, feta cheese, fresh mint.

For the dressing you need: Olive oil, Fresh Lime Juice, garlic clove – minced and s&p.

Make the dressing – whisk together all the ingredients and set aside.

In a large platter – arrange the cold watermelon cubes, cucumber cubes and sliced red onion. Drizzle with some of the dressing.

Now top it all off with the feta cheese, slices of avocado and the mint. Drizzle with the dressing again. Taste and adjust if necessary.