July 2026
If this year has felt unsettling, you are reading the markets correctly. In six months, a war reset the price of oil and gasoline, a new chair took over the Federal Reserve, inflation reversed direction, and some of the market’s most trusted names swung hundreds of billions of dollars in value. None of it was on anyone’s list of worries in January. What follows is our read on what actually happened. More important is the point underneath it: your plan was not built to predict a year like this. It was built to carry you through one.
A New Fed, and a Very Different Inflation Story
Six months ago, nearly every forecaster on Wall Street had penciled in interest rate cuts for 2026. As recently as March, not a single Federal Reserve policymaker projected a rate hike this year; the median outlook called for one cut. That consensus has been upended. Since Israel and the United States struck Iran on Feb. 28, energy-driven inflation has pushed the Fed’s preferred inflation gauge to a three-year high near 4.2%, with core inflation running close to 3.3%. At its June meeting (the first for new Chair Kevin Warsh), the Fed held its policy rate steady at 3.5% to 3.75%, but the accompanying projections told a different story: nine of 19 policymakers now foresee at least one rate hike before year-end, six of them two increases. The Fed’s hands are, in effect, tied: elevated inflation rules out the rate cuts that would help two segments of the economy that could use them, a labor market where participation fell to 61.5% in June, its lowest level in 50 years outside the pandemic (Source: U.S. Bureau of Labor Statistics, Employment Situation, June 2026), and a housing market that has been effectively frozen for three years, with mortgage rates near 6.4% still nearly double their 2020-era lows and existing home sales stuck close to a 30-year low (Source: Freddie Mac; National Association of Realtors). Warsh, who campaigned for the job on a platform of lower rates and Fed “regime change,” instead delivered a shorter, more clipped policy statement stripped of forward guidance, along with five task forces to review how the Fed operates. In our assessment, the about-face illustrates just how quickly a single geopolitical shock can override a policy consensus that seemed settled at the start of the year, and why we continue to caution clients against building portfolios around any single forecast for where rates are headed next.
Oil’s Round Trip, and What It Revealed
Nowhere has this year’s volatility been more visible than in energy markets. West Texas Intermediate crude settled near $67 a barrel the day before the war began; within a week, prices had spiked above $119, a four-year high, on fears that Iran would close the Strait of Hormuz. By late June, with a fragile U.S.-Iran peace agreement in place and Gulf shipping flowing again, oil had round-tripped all the way back below its prewar level.
ExxonMobil’s stock traced the same arc in miniature: shares hit an all-time high above $176 in late March as the war premium peaked, then fell more than 20% over the following quarter as crude gave back its gains. A stock that led the market for one quarter became a laggard the next.
Consumers felt this directly at the pump — and are still feeling it. The national average price of a gallon of regular gasoline was $2.98 the day before the war began; it peaked at $4.56 on May 21, the highest level in four years, and has since eased back, though it remains well above where it started the year (Source: AAA). That round trip tracked almost exactly with the University of Michigan’s Consumer Sentiment Index, which fell to an all-time low in May before recovering modestly as pump prices came down. But notice the gap: crude has round-tripped all the way back below its prewar level, while gasoline has not. Refining capacity, seasonal driving demand, and the simple fact that retail prices fall more slowly than they rise all help explain the lag, and it is a reminder that oil market math and household budget math don’t move on the same clock.
The round trip in crude was, at its core, a story about the war itself: prices rose because Hormuz was at risk and fell back once a ceasefire took hold, however long and murky the underlying resolution may still prove to be. But two structural forces mattered enormously for how high prices climbed while the war was live, and in our view kept a bad shock from becoming a much worse one. Coordinated strategic reserve releases by the U.S. and 31 other countries (the largest in history, at 412 million barrels) put a ceiling on the spike even as the U.S. reserve itself entered the war only 60% full. China’s role was quieter, and in our assessment larger still: rather than rely solely on commercial inventories, Beijing appears to have drawn quietly on its own roughly 1.2 billion-barrel strategic reserve while curbing exports of refined products, absorbing pressure that would otherwise have hit the rest of the world directly. Without that combined buffer, we believe crude could plausibly have pushed well past $119, into territory that risks real damage to global growth rather than just a painful spike. Longer term, January’s change of government in Venezuela has begun drawing international oil majors back into a country whose production has collapsed for decades. It’s a slow-moving story that could eventually add a further buffer to Western Hemisphere supply, but not on a timeline that matters for this year’s markets.
Strong Headline, Fractured Foundation, and Our Playbook for Both
U.S. equity markets have had a solid first half, and earnings are the reason why: FactSet projects S&P 500 earnings per share will grow 24% in 2026, to roughly $340 from about $274 in 2025, with a further 17% increase to around $398 projected for 2027 (Source: FactSet). AI infrastructure spending is responsible for roughly half of that growth, according to Goldman Sachs Research. But the index-level number obscures enormous dispersion beneath the surface. Microsoft is the starkest example: the stock lost more than $500 billion in market value in June alone, its worst month since December 2000 and a decline of roughly 24% for the first half. Yet over the same stretch, analyst consensus for Microsoft’s own earnings kept rising, not falling: fiscal 2026 revenue is now projected at roughly $330 billion with earnings per share near $16.82, up from $281.7 billion and $13.64 in fiscal 2025, and fiscal 2027 estimates call for roughly $383 billion in revenue and $19.53 in earnings per share (Source: company reports; analyst consensus). What moved was not the earnings outlook but investor patience with a company committing roughly $190 billion to AI data centers in a single year, with nearly half its cloud backlog concentrated in one customer. Investors sold first and asked questions about the earnings later. We expect this pattern (sharp, sentiment-driven repricing around individual names, even as the aggregate earnings story stays intact) to continue defining this market.
Our approach for navigating it has not changed. First, we continue to use a portion of client portfolios to generate steady income from bonds. With government deficits elevated across nearly every developed economy, we see limited room for yields to fall far enough to generate meaningful price appreciation; bonds today are, in our assessment, a tool for income, not for capital gains. Second, we remain diversified across sectors within equities, but with a deliberate overweight to U.S. companies, because we believe the contest to build and monetize artificial intelligence will be won disproportionately by American firms. Third, we continue to counsel against chasing the latest hyped opportunity. SpaceX’s record IPO enriched insiders and underwriters; the average retail investor who chased the deal is, months later, sitting on a disappointing return relative to the hype. The same has been true of this year’s most talked-about alternative assets: silver finally broke above its 1980 Hunt Brothers-era high early this year, a level it had not revisited in 46 years, only to fall back by nearly half within months. Bitcoin is on pace for its worst first half since 2022, down roughly 30%. Neither offered the ballast some investors expected from them this year. It has been, by any measure, an unsettling six months to watch markets swing this hard, this fast, on headlines few could have predicted in January. What has not changed is the discipline underneath our approach: income from bonds, broad diversification with a strong focus on U.S. equities, and a refusal to chase whatever the market is most excited about in a given month. That discipline exists for one reason. It is what keeps the next headline, whatever it turns out to be, from getting a vote over your retirement or the goals you have already set. Markets will keep surprising us. The plan is built so they do not have to surprise you.