With another quarter of price action in the books, the first half of 2026 is now behind us. The S&P 500 clocked its strongest quarterly return in six years, when stocks were coming off the bear market low in the COVID-19 pandemic. Despite a return of 14.9%, sentiment seems tepid at best. In the latest American Association of Individual Investors Investor (AAII) Sentiment Survey, there were more bears than bulls. Meanwhile, the last NY Fed Survey just reported that expectations for 1-year forward gains in stocks are at the highest level since 2021.
From our seats, we believe there’s more to go for this current bull market.
Memory stocks, pioneered by SK hynix (000660 KS), Samsung Electronics (005960 KS) and Micron (MU), captivated global equity markets with impressive price behavior. On the back of buoyant earnings, revenue and margin estimates outlook for the following calendar years, all three stocks now respectively trade above $1 trillion in market capitalization.
More recently, the memory trade has come under pressure with the pullback raising the question of whether the move is overextended. This is where we believe context is crucial. Corrections are a normal part of market price behavior, especially after the impressive upside from the memory stocks over recent months. In our opinion, memory stocks continue to have structural growth tailwinds. Have the fundamental underpinnings of the trade changed drastically? Judging by the chart showing rolling next-twelve-month (NTM) earnings per share and price trends, we’d argue that this is not the case and these stocks are being rewarded for their increasingly durable earnings potential.
Impressive upside tends to come with downside, and in a group being rapidly repriced on the strength of rising earnings, revenue and margin outlook, two-way volatility is part of the terrain rather than a sign that the thesis has broken. In short, the road ahead may be bumpier, but the fundamentals back up the gains
In contrast, another group of megacap stocks have been mostly out of favor: the Magnificent Seven. The “market generals” have struggled due to anxiety around elevated capital expenditure expectations and its ongoing impact not only on free cash flow, but shareholder return. In a sign of their recent resurgence, the Magnificent Seven recently experienced a 4-day stretch that rivaled May 2025.
The group can hardly be considered full throated market leaders yet, but we are wondering if the recent price action is a sign that so much bad news has been priced in lately that the Magnificent Seven could be the pain trade higher over coming weeks and months. In the aggregate, these stocks still contribute roughly 25% to the S&P 500’s profits while trading their cheapest relative valuations to the S&P 500 in about three years.
After a turbulent June, the Magnificent Seven are moving in the right direction to have a better July.
The past few paragraphs have focused on megacap stocks, and that's intentional. We believe investors' focus on their recent struggles may be exactly why sentiment feels sour despite a strong index return. The S&P 500 Equal Weight Index is at all-time record price highs. Said differently, the average S&P 500 stock is trading at record levels despite volatility among the megacap darlings. In our view, this is one of the more critical data points to consider when gauging the health of this ongoing bull market.
Seasonality offers a near-term tailwind here, contrary to the popular saying of “Sell in May and go away.” Whole average returns for May and June are not the best months historically, both offer a positive average return before the summer. Meanwhile, July has historically been one of the stronger months for the S&P 500 (1.29%), especially in recent years. Seasonality does not turn into a headwind until August.
That said, it's worth keeping in mind that 2026 is a midterm election year, and midterm years have historically been associated with choppier price action as investors position around shifting political outcomes.
None of this guarantees a smooth path between now and November, but it does suggest that near-term volatility tied to the political calendar is more likely to be noise than a signal that the broader bull market is in jeopardy. With another earnings season on the horizon, we’d continue to lean into using volatility as an opportunity amid an ongoing bull market.
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