Can Broader Market Gains Persist Amid a Hawkish Fed?

U.S. equity gains widened in the first half of 2026. The Nasdaq-100 and S&P 500 rallied about 32% and 18%, respectively, from March lows. The Russell 2000 rose roughly 22%, its strongest first half since 1991. Mid-cap U.S. stocks gained 17.4% and developed international equities climbed 15.1% over the same period.

The Federal Reserve kept the federal funds rate at 3.50–3.75% at its June meeting, the fourth hold of 2026 and the first chaired by Kevin Warsh. The policy statement was shortened and removed language that had signaled a bias toward future cuts. The Committee said it “will deliver price stability.” Warsh did not submit a personal projection in the updated dot plot.

The Fed’s Summary of Economic Projections showed a shift toward tighter policy. Nine of 18 officials now expect at least one 25 basis-point hike this year and six expect at least two. The median year-end federal funds forecast rose to 3.8% from 3.4% in March. Market pricing on the CME FedWatch Tool implies another hold in July, with the next move priced more as a hike than a cut.

The economic data cited by policy makers included May personal consumption expenditures inflation at 4.1% year over year, the highest since April 2023. Nonfarm payrolls increased by 172,000 in May and the unemployment rate held at 4.3%.

Market leadership shifted through the quarter in response to geopolitical and commodity developments. A conflict involving Iran and a spike in oil prices briefly pushed cap-weighted, AI-related and semiconductor stocks to the forefront through May. Shipping through the Strait of Hormuz later resumed and oil prices moved back near pre-conflict levels. Since the end of May, equal-weight indexes and small caps have outperformed larger cap-weighted benchmarks.

Liquidity support from the Fed declined. The Reserve Management Purchases program, which funds monthly Treasury bill purchases to keep bank reserves ample, was reduced to about $10 billion a month from roughly $40 billion in December 2025. That 75% reduction represents a smaller ongoing source of balance-sheet accommodation. Markets that have shown sensitivity to liquidity include cryptocurrencies, precious metals, high-momentum stocks and some large technology and AI companies.

Fixed-income returns were modest through June. High-yield corporate bonds rose about 1.9%, municipal bonds gained 1.8% and Treasury Inflation-Protected Securities added 1.2% in the first half.

Commodity prices showed wide dispersion. Crude oil surged 53.9% in H1 2026 and a broad commodity basket climbed about 14.4%. Precious metals fell, with silver down about 17.0% and gold down about 7.0%.

Semiconductor and memory company results highlighted strong demand for AI-related chips. Micron Technology reported trailing 12-month earnings per share of $44.17, an increase near 700% year over year, and a non-GAAP gross margin of 84.9%. Micron’s stock jumped about 16% the day after the report and has risen roughly 800% over the past year. Company reports and analysts noted that memory markets have historically experienced cycles of tightness followed by oversupply and that expanding high-bandwidth memory capacity requires significant investment and time to add production.

The median company in the S&P 1500 reported double-digit earnings growth and roughly 7% sales growth through the period. For the first half of 2026, market returns and policy actions reflected a combination of strong corporate results, elevated commodity volatility and reduced Federal Reserve liquidity support.