Mid-2026: The second-half setup

What you need to know

• Markets displayed a broadening theme in June—cyclical stocks outperformed as tech cooled after a strong run, with bonds offering diversification benefits.
• Even with volatility from geopolitical risks and inflation pressures, disciplined investors have been rewarded with solid broad-based gains over the year.
• With a constructive global backdrop unfolding, we have refined our guidance to help set up for the second half of 2026, emphasizing diversification to help capture broadening opportunities.
• Within our equity overweight, we favor U.S. and emerging-market equity, with international allocations now tilted toward value and U.S. allocations toward technology and cyclicals.

Portfolio tip

Broad diversification, backed by a disciplined rebalancing strategy, helps your portfolio more naturally benefit from leaders as markets rotate, reducing reliance on a narrow set of winners.

Where have we been?

Stock markets displayed a broadening theme in June, supporting the case for diversification. After heightened Middle East tensions and energy supply disruptions sparked a March pullback, rising expectations for a potential resolution in June sent oil prices back toward pre-conflict levels, helped ease inflation concerns and boosted economic optimism.

The resulting shift in market sentiment fueled a broadening of leadership beyond a narrow group of AI-driven stocks. Economically sensitive U.S. small- and mid-cap stocks were among the beneficiaries, extending their rally and claiming the month's top spots. A mix of cyclical and defensive sectors—financials, health care, industrials, and utilities—also posted solid gains, as more growth-oriented sectors underperformed.

Despite strong earnings trends, the tech rally cooled in June as investors took profits and looked beyond a narrow set of large-cap technology stocks and key beneficiaries of the artificial intelligence buildout. As a result, U.S. large-cap stocks and emerging-market equity—each with roughly 40% exposure to the technology sector—were among the month's laggards.

Energy also relinquished leadership alongside declining oil prices, and international developed markets trailed as the European Central Bank and the Bank of Japan raised rates in response to inflation pressures.

Despite the year's volatility from geopolitics and inflation, disciplined investors were rewarded with broad-based gains. While June results were mixed and 2026 brought periodic market volatility, longer-term results display widespread gains across markets.

Backed by resilient economic growth and supportive corporate earnings trends, stocks were broadly higher over the last 12 months, outperforming bonds. U.S. and emerging markets held a decisive lead, boosted by strength across a mix of growth, cyclical, and value sectors within these markets. While international developed markets generally lagged, weighed down by their greater sensitivity to the conflict in the Middle East, they still delivered robust gains over the period.

Bonds continued to play an important role in portfolios. Even as central banks pivoted toward tightening to curb near-term inflation pressures, fixed income markets produced gains, helped by steady interest income, anchored long-term inflation expectations and de-escalating geopolitical tensions. More economically sensitive bonds outperformed amid a constructive economic environment, contained credit spreads and strong risk appetite.

What do we recommend going forward?

Emphasize diversification to capture expanding, rotating leadership. While elevated geopolitical tensions, near-term inflation pressures and evolving central bank policies may cause periodic volatility, our forecast for ongoing economic resilience, strong corporate profits and steady consumer trends suggest the backdrop for markets will remain supportive, offering broadening opportunities.

Broad diversification and a disciplined rebalancing strategy can help your portfolio more naturally benefit from leaders as markets rotate or the breadth of gains builds. As you conduct a mid-year portfolio review, consider not only reestablishing the stock-bond mix most appropriate for your financial goals, but also enhancing the resilience of your portfolio through strategic allocations across our six recommended equity asset classes and five bond asset classes.

Emphasizing diversification in this way can help you stay prepared for what's next—rather than focusing on what has recently worked—while remaining aligned with your goals as markets shift.

Consider refining your portfolio's allocations to help set up for the second half of 2026 opportunistically. While we believe maintaining appropriately diversified allocations remains important, consider tilting your portfolio in these ways:

• Overweight equity investments, favoring U.S. and emerging-market equity over international developed-market stocks and investment-grade bonds. Specifically, we favor U.S. large- and mid-cap stocks and emerging-market equity, partly due to their exposure to tech-driven growth and the benefits of global diversification. Overweighting a mix of U.S. stocks also helps to capture benefits from the relative strength of the U.S. economy and catch-up potential as market leadership expands beyond tech. Emerging-market momentum is likely to be further supported by the more cyclical nature of the asset class, and a potential decline in the U.S. dollar, particularly as geopolitical tensions ease.
  
  While we continue to favor equity investments, we recently trimmed our equity overweight—reducing international small- and mid-cap stocks to neutral—and we remain underweight international large-cap stocks. Relative to other regions, we believe international markets now face slower growth prospects, given their greater sensitivity to Middle Eastern energy supply and near-term inflation pressures.
  
  At the same time, we raised U.S. high-yield bonds to neutral to help enhance income potential for diversified portfolios amid a constructive economic backdrop. We remain underweight investment-grade bonds, given the attractive opportunities we see within stocks.
   
• Within international allocations, overweight value-style stocks. While AI-driven innovation will likely continue supporting growth-style investments, our models indicate broader economic and corporate earnings strength will remain supportive, helping to expand market leadership to include cyclical and defensive sectors, alongside growth.
  
  In our view, international large-cap value stocks offer valuable exposure to this broadening leadership potential, as well as diversification benefits. With the sector composition of international value stocks differing from growth stocks—such as their greater exposure to financials and energy, and lesser exposure to technology and industrials, for example—an overweight to international value can help manage portfolio concentration risks.
   
• Within U.S. stock allocations, overweight tech-related and cyclical sectors. Given our expectation for the economic expansion to persist and for market leadership to potentially broaden, we continue to see opportunities in both technology and cyclical sectors relative to defensives. Consider overweighting the communication services and industrials sectors, offset by underweighting consumer staples and utilities sectors.
  
  We believe the industrials sector will continue to benefit from an ongoing manufacturing recovery. The communication services sector—which we recently raised to overweight—has lagged in the first half of the year and, as a result, valuations for the sector have declined and, in our view, do not reflect the exposure to secular growth among AI hyperscalers.
  
  We recently lowered consumer discretionary to neutral. While steady labor market conditions and increased tax refunds have supported the sector, geopolitical tensions, rising inflation and high interest rates have caused pressure, suggesting a more balanced allocation at this time.

We’re here for you

With the second half of 2026 underway following a period of uneven market performance, now may be an opportune time for a portfolio review with your financial advisor. Our updated portfolio guidance is intended to help position you for the remainder of the year, reflecting our global outlook while staying aligned with your financial goals and comfort with risk—and may help guide your discussion.

If you don't have a financial advisor, we invite you to meet with an Edward Jones financial advisor for a mid-year portfolio check-up, exploring how you might update the positioning of your portfolio to set up for the year's second half.

Strategic portfolio guidance

Defining your strategic investment allocations helps keep your portfolio aligned with your risk and return objectives, and we recommend taking a diversified approach. Our long-term strategic asset allocation guidance represents our view of balanced diversification for the fixed-income and equity portions of a well-diversified portfolio, based on our outlook for the economy and markets over the next 30 years. The exact weightings (neutral weights) to each asset class will depend on the broad allocation to equity and fixed-income investments that most closely aligns with your comfort with risk and financial goals.

Diversification does not ensure a profit or protect against loss in a declining market.

Opportunistic portfolio guidance

Our opportunistic portfolio guidance represents our timely investment advice based on current market conditions and a shorter-term outlook. We believe incorporating this guidance into a well-diversified portfolio may enhance your potential for greater returns without taking on unintentional risks, helping keep your portfolio aligned with your risk and return objectives. We recommend first considering our opportunistic asset allocation guidance to capture opportunities across asset classes. We then recommend considering opportunistic equity style, U.S. equity sector and U.S. investment-grade bond guidance for more supplemental portfolio positioning, if appropriate.