In an ongoing commitment to keep you abreast on a range of issues that might affect your business, AAFCPAs is pleased to share Q2 2026 Market Insights published by AAF Wealth Management, a wholly owned subsidiary of AAFCPAs. This provides investors with an understanding of what’s driven performance of late.
The first half of 2026 combined strong underlying momentum with periods of disruption. Markets began the year on solid footing, supported by resilient consumer spending, continued business investment, and rapid advancement in areas such as artificial intelligence and infrastructure. That momentum was tested in March, when geopolitical tensions and energy supply concerns introduced renewed volatility and shifted market focus toward inflation and global supply dynamics.
Even with these developments, the U.S. economy remains on solid ground. Wage growth continues to outpace inflation, employment conditions are stable, and both consumers and businesses continue to adapt. At the same time, ongoing investment in technology and productivity remains an important driver of economic activity.
As we look ahead, the path of energy prices and their influence on inflation will be a key factor for markets.
Growth Holds Firm Amid Disruption
Consumer spending and business investment continue to support the U.S. economy. Even with recent geopolitical disruptions, overall activity has remained steady, backed by wage growth, a strong labor market, and solid household balance sheets.
A key question for markets is whether higher energy costs will persist long enough to put meaningful pressure on inflation. Before the disruption, U.S. inflation—measured by the Consumer Price Index—was holding at 2.4%. Since then, attention has shifted to the Strait of Hormuz, which accounts for roughly 20% of global oil and natural gas shipments, as any sustained disruption could affect both inflation and economic growth.
Our base case assumes these energy-related shocks prove temporary, allowing global expansion to continue. If disruptions persist, however, the risk of a more challenging stagflationary environment increases.
Supported by Earnings, Increasingly Selective
Corporate earnings continue to provide a strong foundation for equity markets, with growth expected across large-, mid-, and small-cap companies. This broader earnings base reinforces that economic strength is extending beyond a narrow segment of the market.
While valuations, particularly in the S&P 500, remain elevated, they continue to be supported by solid underlying fundamentals. At the same time, markets remain sensitive to key risks, including persistent inflation, higher interest rates, and the potential for a slowdown in profit growth.
Several themes continue to shape equity markets:
Energy sensitivity continues to present a risk for non-U.S. markets, reinforcing the value of maintaining diversification across regions, sectors, and company sizes.
Income Opportunities with a Focus on Risk Control
Higher yields continue to strengthen the role of fixed income within portfolios, providing more meaningful income potential than in recent years. At the same time, uncertainty around inflation, particularly related to energy, calls for a more selective approach.
Market expectations currently place inflation around 2.4%, with projections rising closer to 3.2% over the next year. While the Federal Reserve appears likely to hold rates steady in the near term, persistent inflation pressures could prompt adjustments later this year.
A Known Risk with Evolving Impacts
Recent developments in the Middle East, including the apparent collapse of the U.S.–Iran memorandum of understanding amid renewed tensions, have reignited immediate supply side concerns and contributed to upward pressure on energy prices. These events illustrate how swiftly regional conflicts can transmit disruptions to global markets.
While supply disruptions were partially offset through inventory drawdowns and rerouted shipments, they have also contributed to higher costs across transportation and logistics.
Markets are currently treating this as an inflation-driven shock rather than a demand-related downturn. Encouragingly, consumption and employment data remain stable, with no clear signs of weakening demand at this stage.
The key factor continues to be how long these conditions persist. Short-term disruptions may introduce periods of volatility, while more prolonged pressure could begin to affect broader economic growth and market valuations.
At the same time, continued investment in AI and productivity-enhancing technologies remains an important counterbalance, supporting growth even as external pressures evolve.
Policy, Inflation, and Regional Divergence
Recent Federal Reserve communication points to a cautious, data-driven approach, with no immediate changes to interest rates. While some projections include the possibility of rate increases later this year, the broader expectation remains for a period of steady policy as inflation trends continue to evolve.
Around the globe, central banks are responding differently to inflation pressures, while governments are increasingly using fiscal measures such as subsidies and tax adjustments to help offset the impact of higher energy costs.
Regional dynamics are also becoming more distinct:
As we look to the second half of the year, markets are continuing to balance two important forces—ongoing economic resilience alongside periodic disruptions tied to geopolitics and inflation. While these dynamics can introduce uncertainty at times, they are also a natural part of the market cycle and reinforce the importance of maintaining a disciplined, long-term approach.
These insights were contributed by AAF Wealth Management.
Questions? Reach out to our authors directly or your AAFCPAs partner. AAFCPAs offers a wealth of resources on financial planning.
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This commentary incorporates insights from third-party research providers including U.S. Bank, Morgan Stanley Investment Management, J.P. Morgan Asset Management, S&P Global, and Morningstar. While believed to be reliable, information is subject to change and should not be relied upon as a sole basis for investment decisions.
It is provided for informational purposes only and should not be construed as individualized investment advice or a recommendation to buy or sell any security. Market and economic conditions are subject to change, and past performance is not indicative of future results. Index performance is shown for illustrative purposes only and does not reflect the performance of any specific investment.
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