Stocks Close Strongest Quarter in Years, But Future Volatility Looms
Major indices notched significant gains in the first half of 2026, though geopolitical events and upcoming elections could introduce market instability.
U.S. stocks concluded their most robust quarter in years on Tuesday, with investors looking past concerns about an artificial intelligence (AI) stock bubble and anticipating a resolution to geopolitical tensions in Iran. Despite the strong performance, analysts warn that increased volatility may lie ahead.
The Dow Jones Industrial Average reached a record close of 52,319.20, a gain of 0.3% for the day, while the S&P 500 and Nasdaq saw increases of 0.8% and 1.5%, respectively. This upward trend was bolstered by a resurgence in chipmaker stocks, including Nvidia, Advanced Micro Devices, and Intel, all of which experienced significant gains. The VanEck Semiconductor ETF also saw a notable rise, contributing to the market's positive momentum.
As the second quarter of 2026 drew to a close, the Dow completed its best six-month period since 2021, and the S&P 500 and Nasdaq recorded their largest quarterly gains since the early stages of the COVID-19 pandemic. The first half of the year saw the Dow climb 8.9%, its best performance in this period since 2021. The S&P 500 and Nasdaq rose 9.6% and 12%, respectively, during the same timeframe. The small-cap Russell 2000 index posted its strongest first half since 1991, with a gain of over 21%.
Key market drivers during the quarter included fluctuations in oil prices, influenced by the conflict in Iran, and ongoing discussions surrounding the valuation of AI stocks. Looking ahead, market watchers anticipate that the outcome of the Iran conflict, expectations for the November elections, and corporate performance from companies like SpaceX and the potential initial public offering (IPO) of Anthropic will be significant factors in the third quarter.
"If hostilities resume in Iran, it will reverse recent gains in the market," said Kenin Spivak, chief executive of SMI Group. "It also could depress pricing if markets expect the Democrats to take control of both houses [of Congress], because that would potentially paralyze the Trump administration."
Analysts suggest that as the year progresses, markets will increasingly focus on the upcoming midterm elections and their potential impact. Historically, September has presented challenges for the market, with a tendency towards late-summer doldrums. Investors will also be monitoring the Federal Reserve and new chairman Kevin Warsh for signals regarding interest rate policy. While Warsh's recent hawkish speech on June 17 initially caused market reactions, the market has largely absorbed the news.
Despite the anticipated volatility, some experts remain optimistic about the broader market trend. Ken Mahoney, chief executive of Mahoney Asset Management, predicts a continued bull market but advises investors to remain prepared for fluctuations in both upward and downward directions. He noted that while July historically shows strong performance, the third quarter of midterm election years can be particularly volatile.