The First Half Nobody Saw Coming

👋 ICYMI

Happy Fourth of July. What a first half it was.

The S&P 500 gained 9.6% in the first six months of 2026, closing the half at 7,483. The Dow climbed 8.9% — its best first half since 2021. The Nasdaq surged 12.8%. And the Russell 2000 rallied nearly 22%, its best first-half performance since 1991. All of this despite a war in the Middle East, a historic oil shock, record-low consumer sentiment, and the most hawkish Fed pivot in years.

This week wrapped up the first half with a strong rebound. The Dow hit a fresh intraday record of 52,742 on Wednesday and closed the week at 52,900 — up roughly 2%. The S&P 500 rose to 7,483 and the Nasdaq gained modestly. Markets were closed Friday for Independence Day, giving investors a shortened week to digest two major developments.

First, Meta $META ( ▼ 4.9% ) surged nearly 10% on Wednesday after Bloomberg reported the company is building a cloud infrastructure business — called "Meta Compute" — to sell excess AI computing power to outside customers, directly challenging AWS, Azure, and Google Cloud. The move addresses the biggest investor concern about Meta's $135 billion capex guidance for 2026 — by monetizing excess capacity rather than letting it sit idle.

Second, the June jobs report came in dramatically weaker than expected on Thursday. The economy added just 57,000 nonfarm payrolls — roughly half the 100,000+ consensus — while unemployment ticked down to 4.2%. The weak number is a relief for rate hike fears — a cooling labour market gives new Fed Chair Warsh room to hold rather than hike at the July meeting. The Dow gained over 1% on the report as investors rotated into defensive sectors.

Oil continued its remarkable decline, falling below $69 on WTI — down from $112 at the March peak, a 38% decline in under four months. Brent settled near $69 as well. The peace deal is holding, tankers are transiting the Strait, and the war premium has effectively been erased from energy markets.

The VIX fell to 15.81 — its lowest level since before the Iran war began — signalling that the market's fear gauge has fully normalized.

🔁 Market Movers

• 📊 H1 2026: The Scoreboard

  The first half of 2026 produced strong returns across every major index despite one of the most volatile macro backdrops in years: The Dow gained 8.9% (best first half since 2021). The S&P 500 rose 9.6% (10.2% total return with dividends — the third time in four years above 10% in H1). The Nasdaq climbed 12.8%. The Russell 2000 surged nearly 22% (best first half since 1991). S&P 500 earnings grew 27.9% on revenue growth of 11.7%. Notably, the Magnificent Seven underperformed the broader market — Meta fell 15% and Tesla $TSLA ( ▼ 7.49% ) dropped 7%. The real winners were chipmakers: SanDisk $SNDK ( ▼ 14.13% ) gained 736% and Micron $MU ( ▼ 5.5% ) 248% year to date.

• 📱 Meta Enters the Cloud Wars — Stock Surges 10%

  Meta announced plans for "Meta Compute" — a cloud infrastructure business that would sell AI computing power and hosted Llama models to outside developers. Shares surged nearly 10%. Stifel estimates that capturing just 5% of the AI cloud inference market by 2028 could add $8 billion in high-margin recurring revenue. Zuckerberg had signalled this in May, saying a cloud business was "definitely on the table." The move addresses the core investor concern about Meta's $135 billion capex plan — that the spending was going into a black hole with no direct revenue return.

• 💼 June Jobs: 57K vs 100K+ Expected — The Labour Market Is Cooling

  Nonfarm payrolls rose just 57,000 in June, well below the 100,000+ consensus. Unemployment ticked down to 4.2%. After May's surprise 172,000 report (inflated by World Cup hiring), June's miss confirms that the underlying labour market is gradually cooling. The Dow rallied over 1% on the data as investors bet the weak number reduces rate hike odds. Technology and growth stocks lagged while defensive sectors — utilities, healthcare, and consumer staples — each gained over 2%. South Korea's KOSPI fell nearly 8% overnight on semiconductor weakness.

• 🛢 Oil Below $69 — War Premium Fully Erased

  WTI crude settled at $68.78 on Wednesday — a 38% decline from the March peak of $112 and the lowest level since before the war began. Brent crude hit $73.74 midweek. Treasury yields fell alongside oil, with the 10-year dropping below 4.5%. The eurozone reported June inflation at 2.8%, below consensus and down from 3.2% in May — providing evidence that falling energy prices are already feeding through to consumer prices globally.

• 🏛 Warsh at ECB: "Prices Are Too High"

  Fed Chair Kevin Warsh delivered remarks at the European Central Bank conference in Sintra, Portugal. While he didn't signal specific policy changes, he noted that "we've seen that prices are too high" — reinforcing his hawkish credentials. The combination of a weak jobs report and falling oil may give Warsh more flexibility at the July FOMC meeting than the market expected even a week ago.

👀 Signals I'm Watching

• 📈 History Says the Second Half Could Be Even Better

  Since 1980, when the S&P 500 returned more than 10% in the first half, second-half returns were positive 89% of the time, with an average gain of 8.2%. In the 10 most recent instances, second-half returns were positive every single time, averaging 11%. History doesn't guarantee anything, but the precedent is clearly bullish.

• 🤖 Meta Compute Is a Turning Point for the AI Capex Narrative

  If the biggest investor complaint about hyperscaler AI spending was "who's paying for all this compute?" — Meta just answered it. Meta Compute turns capex from a cost center into a revenue stream. SpaceX's $SPCX ( ▲ 2.83% ) xAI did something similar in May by leasing compute from its Colossus data center to Anthropic and Google $GOOG ( ▼ 0.48% ) . If this model spreads to other hyperscalers, the entire conversation around AI infrastructure spending changes — from "how long until ROI?" to "the ROI is already here."

• 📉 The Weak Jobs Report May Have Killed the Rate Hike

  Two weeks ago, a 172,000 jobs report sent rate hike odds to 67%. This week, a 57,000 report may send them back toward zero. The three-month average is now running around 80,000 — modest enough to suggest the labour market is cooling without collapsing. If July's CPI report (due July 15) shows headline inflation declining as oil prices feed through, the case for a rate hike evaporates entirely.

• 🔄 Leadership Is Broadening — And That's Healthy

  The Russell 2000's 22% first-half gain — its best since 1991 — signals that the rally is no longer just about mega-cap tech. Small caps, industrials, and financials are all participating. Even within technology, leadership has shifted from the Magnificent Seven (Meta -15%, Tesla -7%) to chipmakers and infrastructure plays (SanDisk +736%, Micron +248%, Intel +100%). Broader markets are more durable markets.

⚠️ Red Flag to Note

The Second Half Won't Be as Easy as the First

The first half of 2026 benefited from a powerful combination of forces: a war that ended, oil that collapsed, earnings that exceeded expectations, and an AI trade that broadened into new sectors. All of those tailwinds delivered at once, producing the kind of rally that only happens when multiple macro uncertainties resolve simultaneously.

The second half faces a harder setup. Valuations are stretched — the S&P 500 trades at 21x forward earnings. The rate hike debate hasn't been fully resolved despite the weak June jobs number. Inflation is still above the Fed's 2% target. And the AI narrative has fractured — OpenAI is reportedly delaying its IPO, SpaceX has declined from its debut price, and Meta felt compelled to launch a cloud business to justify $135 billion in capex. The easy money from buying the war bottom has been made. From here, stock selection and timing matter more than simply being invested.

🔍 Insider Transactions I’m Watching

📬 Closing Note

Six months ago, we kicked off 2026 covering AI valuations and the infrastructure boom. Then came the Iran war — and with it, the most volatile macro stretch since 2022. Oil surged to $112. The S&P 500 entered correction. Consumer sentiment hit an all-time low. Gold crashed. And the question that dominated for weeks was whether the war would tip the economy into recession. It didn't.

Instead, the economy grew. Corporate earnings surged 28%. The AI infrastructure buildout accelerated. Intel $INTC ( ▼ 5.25% ) went from left-for-dead to an all-time high. Micron quadrupled its revenue. The peace deal held. Oil fell from $112 to $69. And the S&P 500 rallied 9.6% in six months despite everything the world threw at it.

The market didn't ignore the risks. It priced them, absorbed them, and moved forward. Not in a straight line — the March correction, the June tech rotation, and the bond market rout along the way tested every investor's conviction. But the trend was clear: earnings growth and AI demand outweighed geopolitical fear.

Now comes the second half. Warsh runs the Fed. The rate hike debate lingers. SpaceX trades publicly. Meta enters the cloud wars. And the AI trade is broadening from a handful of names into an entire ecosystem of chipmakers, infrastructure providers, and cloud platforms.

The first half rewarded patience. The second half will reward selectivity.

Stay patient. Stay selective. And let the data guide the story.

Until next Sunday —

George ☕