Midyear Review: From Spring Slump to Summer Surge1
The US market struck fresh highs near the year’s midway point, rallying after taking a downward turn in March as investors weighed the impact of the war in Iran, among other factors. Driven by chipmakers and other technology stocks, the S&P 500 Index hit record levels in late May and early June followed by up-and-down trading near the end of the month. Without the massive surge in artificial intelligence and data center investment, U.S. GDP growth would be significantly weaker, potentially stalling out at roughly 1.0% annualized rather than the headline projections hovering around 2.0% to 2.2%2. Equity returns in developed international markets were in line with those in the US, but emerging markets fared better than both. The US Federal Reserve, now under new leadership, continued holding interest rates steady amid an uptick in inflation. In the bond market, US Treasury prices fell as the benchmark 10-year yield rose to nearly 4.5%, close to its highest level in more than a year. This reinforces the importance of evaluating the role assets play in a portfolio. Stocks offer something in exchange for their risk: a positive expected return.
Inflation Persists
At its most recent meeting in June, the US Federal Reserve held the federal-funds target rate steady at 3.5% to 3.75%. It was the first meeting under new Fed Chairman Kevin Warsh. The decision came amid an increase in headline inflation, which rose to its highest level since 2023. Productivity growth, strong capital investment, and job gains also influenced the decision. Core inflation, which excludes more-volatile food and energy items, remained relatively steady in May, rising 2.9% from a year ago. In the bond market, US Treasuries fell 0.3%, sending the yield on the benchmark 10-year Treasury up to 4.46% as of June 19. The broader bond market was slightly higher, with the Bloomberg US Aggregate Bond Index up 0.02% and the Bloomberg Global Aggregate Bond Index (hedged to USD), a broad benchmark of sovereign and corporate debt, rising 0.7% as of June 19.
Small and Value Start the Year Strong
Small cap and value stocks, or those with low relative prices, had a strong first half of the year in the US, a notable shift from their underperformance in 2025. Large cap stocks with growth characteristics, or higher relative prices, were particular laggards in the US and globally. Over the past five years, non-US developed market value stocks have quietly led among equity asset classes, which may surprise some investors. Elsewhere, high profitability stocks were outpaced by low profitability stocks in global developed markets, while the opposite was true in emerging markets.
Rather than trying to guess the next winner, investors may be better served by maintaining exposure to equities around the world. Global diversification helps ensure that when leadership shifts across regions, as it often does, investors are positioned to participate in those gains.
To your success,
The Avion Wealth Team
[1] Dimensional Fund Advisors. June 25, 2026
[2] Federal Reserve Bank Philadelphia. Second Quarter 2026 Survey of Professional Forecasters. May 15, 2026