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Briefing.com Summary:
*The market is looking to open on a somewhat flattish note on the last day of the second quarter.
*Returns through the first half of the year have been impressive, with the Russell 2000 topping the charts.
*The hard part starts now, as expectations are sky-high going into the second half of the year.
The equity futures market has seen some seesaw action today, which perhaps shouldn't be regarded as unusual on this last day of the second quarter. Rebalancing efforts are part of the equation, generating some chop, but so is a lack of conviction as participants recognize the performance bar has been set higher for the second half of the year.
Currently, the S&P 500 futures are down two points and are trading 0.1% above fair value, the Nasdaq 100 futures are down 30 points and are trading 0.1% above fair value, and the Dow Jones Industrial Average futures are down 16 points and are trading 0.2% above fair value.
The bar has been raised because the second quarter was stellar in terms of the resilience that was exhibited in the face of spiking energy prices, consumer spending data that continued to surprise, animal spirits that gripped the semiconductor stocks and AI trade, and the impressive earnings growth.
It will be a tall order for the stock market to perform as well in the second half of the year as it did in the first half of the year. If it did, there would be many happy investors. That's because the first half of the year provided an all-inclusive option in terms of returns.
The Russell 2000 is up 21.3% year-to-date; the Nasdaq 100 is up 17.9%; the S&P Mid Cap 400 is up 15.8%; the equal-weighted S&P 500 is up 11.2%; and the market cap-weighted S&P 500 is up 8.7%.
That is a year in and of itself, which is to say many investors would have gladly accepted those returns had they been promised to them on December 31, 2025, and called it a day. But, now, everyone is hungry for more.
Strategists have been busy raising their price targets for the S&P 500, following suit with earnings estimates that continue to increase. The forward 12-month EPS estimate for the S&P 500 stands at $366.29 today versus $308.40 on December 31, according to FactSet.
So, even though the stock market has scored some nice gains through the first half of the year, the S&P 500 is less expensive than it was when the year began, trading at 20.3x forward 12-month earnings versus 22.2x when the crystal ball dropped in Times Square to usher in 2026.
The scope of the gains isn't the issue as we turn to the second half of the year. It is the pace at which they have occurred. To wit, each of the indices was negative for the year at the end of March.
The second quarter, which ends today, was a BIG quarter thanks to the run by the mega-cap stocks and semiconductor stocks and the ceasefire agreement between the U.S. and Iran.
Some can rightfully claim that the "easy money" has been made, which perhaps explains the sideways chop that has been prevalent since early May. The hard part, arguably, starts today—holding onto the gains or extending them into year-end with monetary policy leaning more restrictive due to sticky inflation, expectations for AI capex and growth rates running sky-high, and the mid-term election waiting in the wings.
It wasn't a beautiful first half of the year, but the returns for the stock market were nonetheless quite pretty.
