US stocks are concluding a remarkable quarter, with major indexes posting their best gains in years. The Nasdaq 100 is set to record an 18% gain, marking its strongest three-month period since the pandemic and its second-best quarter in about 25 years. The S&P 500 is poised for an 8% increase in the first half of the year, while the small-cap Russell 2000 is on track to achieve a 21% rise, its best first-half performance since 1991. The Dow Jones Industrial Average is also expected to post an 8% gain for the first half, its best since 2021. This rally follows a volatile start to 2026, where markets initially dropped about 10% due to Middle East hostilities.
Several factors have fueled this impressive turnaround. A significant tailwind has been the easing of US-Iran tensions, culminating in a preliminary peace deal that includes reopening the Strait of Hormuz for commercial shipping. This geopolitical improvement, which was a top wish-list item for investors, helped markets recover from their early-year lows. Robust corporate earnings have also played a crucial role, with approximately 85% of S&P 500 firms surpassing earnings estimates, the highest percentage for the second quarter in five years. Analysts anticipate a 23% year-over-year earnings growth for the current quarter.
The enthusiasm for artificial intelligence (AI) hardware has been a primary driver, with chip and memory stocks leading the market. The Philadelphia Semiconductor Index is on track for an unprecedented 80% surge since the end of March. Individual companies like Sandisk saw a 764% increase, Micron Technology a 301% increase, and Intel a 257% increase. This focus on AI hardware contrasts with the underperformance of software firms and, notably, the "Magnificent Seven" tech giants, whose ETF is down about 4% year-to-date. Analysts project a 21% price increase for the S&P 500 over the next 12 months, with all sectors expected to gain at least 10%.
