There’s a hill about 40 kilometres into one of my regular training loops that I’ve come to think of as an old adversary. You grind up it with your lungs on fire, convinced this is the day it finally breaks you, and then you crest the top, tuck in, and the road gives it all back on the descent. You finish at the same elevation you started at. Same legs—only more tired. And somehow the ride feels like it mattered. That, in a sentence, is the first half of 2026.

If you’d fallen asleep on New Year’s Eve and woken up on Canada Day, you’d glance at the scoreboard and conclude nothing much happened. The S&P 500 up around 9.5%. The TSX up nearly 10%. A world of equity markets grinding higher. “Nice, steady half,” you’d say, and pour a coffee. What you’d have missed is the hill—a genuine war in the Middle East, a second military operation in the Western Hemisphere, an oil price that nearly doubled and then gave it all back, a gold market that hit an all-time high and then fell out of bed, a brand-new Federal Reserve chair, and a bond market that spent six months bracing for rate hikes it was supposed to be celebrating cuts for. Ally and I have been telling clients for months now that the headline number and the lived experience of 2026 are two very different animals. So, let’s do what we normally do at the midpoint of the year: walk the course, hill and all, and figure out what the ride actually told us.

Let’s start with the equity tape, because it’s the friendliest part of the story. In the U.S., the Nasdaq Composite led the majors with a first-half gain of roughly 12.8%, the S&P 500 tacked on about 9.5%, and the Dow—the plodding, blue-chip Clydesdale of the group—managed 8.9%, its best first half since 2021. The second quarter alone was the strongest for U.S. indices since the second quarter of 2020—which, if you remember what was happening back then—tells you something about how an apparent train wreck can turn around. Here at home, the TSX quietly did something remarkable. Up close to 10% on the half, the index closed June near 34,860, putting together its longest run of consecutive quarterly gains since the stretch from early 1995 into late 1996.  

Cross the Atlantic and the surprise is that the “boring” markets showed up. The pan-European STOXX 600 gained around 8%, but the real standouts were in the south — Italy’s FTSE MIB up nearly 15%, Spain’s IBEX up 12.5%, Portugal up double digits. Germany’s DAX, of all things, was the laggard at under 2%. Asia was messier, and that’s where the smooth-half illusion breaks down entirely. China’s Shanghai Composite ground higher on improving factory data. But Japan’s Nikkei got whipsawed by a weakening yen and a Bank of Japan that finally started raising rates in earnest. Korea’s Kospi — home to the semiconductor names that were the best trade on the planet for five months — suffered a gut-wrenching June, at one point falling 10% in a single session and tripping circuit breakers. More on that in a moment, because the chip story is the whole ball game.

A Tale of Two Wars

Here’s the part of 2026 that I suspect will end up in the textbooks, and it’s a lesson in what markets choose to care about. We began the year with a war almost nobody outside the region saw coming. On January 3, U.S. forces launched “Operation Absolute Resolve,” captured Venezuelan president Nicolás Maduro in a raid that lasted under three hours, and flew him to New York to face charges. A sitting head of state of a major oil nation, gone by lunch. Venezuela sits on the largest proven oil reserves on Earth. And the market’s reaction? Oil fell. Brent slipped toward $60, WTI dropped below $58, and equity desks barely looked up from their coffee. Why? Because the world was swimming in oil, Venezuela’s production had already collapsed to a trickle after years of mismanagement, and OPEC+ was busy unwinding output cuts. As one analyst put it, markets can handle a few missing Venezuelan barrels. What they can’t easily price is prolonged political disorder. It was a geopolitical earthquake that registered as a tremor on the financial seismograph.

Then came the war that did matter. In late February, escalating conflict involving Iran led to the effective closure of the Strait of Hormuz — the waterway through which roughly 30% of the world’s seaborne crude and about 20% of its LNG passes. This time the market cared, and how. Brent crude, which started the year around $61 a barrel, blew through $100 in mid-March and kept climbing toward $118–120. The EIA later noted it was the largest quarterly increase in oil, on an inflation-adjusted basis, in data going back to 1988.

The contrast is the whole point. Two oil-producing nations, two U.S. military actions, six weeks apart — and the market’s reaction was almost perfectly inverse to what a naïve reading of the map would predict. It’s the single best illustration I can give a client of why “obvious” geopolitical trades so often lose money. The disruption that matters isn’t the one on the front page; it’s the one that touches the marginal barrel. Venezuela was a headline. Hormuz was a chokepoint. Markets know the difference even when the evening news doesn’t.

And then, in the truest round-trip fashion of the year, oil gave it all back. As tankers began threading the strait again and talk of a memorandum to reopen it took hold, crude deflated through the spring. By late June, WTI closed below $70 for the first time since February 27 — the day before the war began. Brent finished the half right back around $72, on track for its steepest quarterly decline since the pandemic. Up the hill and down the other side.

If you want a second lesson in markets confounding the obvious, look no further than gold. The pitch for gold is that it’s your insurance policy when the world catches fire. Well, the world caught fire — two military operations, a closed strait, an inflation scare — and gold spent the back half of the period falling. After rocketing to an all-time high near $5,600 an ounce on January 29 (capping a truly historic run out of 2025), bullion reversed and shed more than 20%, drifting back toward the $4,000 line by late June.

How does gold fall during a war? This is the paradox worth understanding. The same oil spike that “should” have sent frightened money into gold also lit a fire under inflation, which pushed the Fed toward hikes rather than cuts, which lifted real yields and the U.S. dollar — and higher real yields and a stronger dollar are gold’s two great enemies. The insurance policy got repriced because the thing it was insuring against ended up strengthening the very forces that weigh on it. It’s a beautiful, maddening bit of market plumbing, and it caught a lot of “safe haven” money flat-footed. For the record, it was the first time gold has genuinely eclipsed its 1980 peak in real, inflation-adjusted terms — and it did so on its way down.

The Fed Blinked—Just Not the Way Anyone Expected

Now to the plot twist that reshaped everything underneath the equity indices. Coming into 2026, the consensus was tidy: inflation was cooling, the Fed had cut three times to close out 2025, and the path of least resistance was more cuts. Then oil doubled, and the whole script flipped. The war-driven energy spike fed straight into inflation expectations, and a central bank that had been leaning toward easing suddenly found itself staring at the opposite problem. Into this walked a new Fed chair, Kevin Warsh, who wasted no time signaling a different style — most notably scrapping the “forward guidance” that markets had leaned on for a decade and hammering on price stability. By the June meeting, the Fed’s own dot plot had penciled in a quarter-point hike for 2026, a stunning reversal from the cuts projected only a few months earlier. By the end of the half, markets were pricing better-than-even odds of a rate increase as soon as September.

The bond market did exactly what you’d expect it to do when “lower for longer” becomes “higher, and maybe higher still.” The U.S. 10-year Treasury yield, which had drifted down to about 4.04% at the end of February, climbed toward 4.5% by late June. Core PCE — the Fed’s preferred inflation gauge — ticked up from 3.0% at the end of last year toward 3.3% by the spring, moving in the wrong direction at precisely the wrong moment.

The U.S. dollar, left for dead by half the strategists on the Street in January, quietly gained a couple of percent on the year on the back of the hawkish Fed. And the speculative end of the spectrum got taken to the woodshed: Bitcoin lost roughly a third of its value in six months, trading at less than half its late-2025 peak. When real yields rise, the assets that live on pure narrative are always the first to feel it.

The Parallel Worth Losing Sleep Over

Every cycle, I try to find the historical rhyme — not because history repeats, but because it hums a familiar tune, and the melody is usually a warning. This half’s rhyme is concentration. The ten largest companies in the S&P 500 now account for something like 40% of the entire index. To put that in perspective, at the peak of the dot-com mania in 1999–2000 — the episode we all invoke as the cautionary tale — the top ten topped out around 27%. We are, by that measure, in more concentrated territory today than we were at the height of the most famous bubble of my career.

Now, before you start to get overly concerned, here’s the crucial difference, and it’s the reason Ally and I aren’t ringing the fire alarm. In 2000, that top handful traded near 45–50 times forward earnings while generating well under 20% of the market’s profits. Today’s giants trade closer to 30 times and throw off something like 30% of the index’s earnings. In other words, 1999 was a story about price; 2026 is, at least so far, a story about earnings. The concentration is real and the risk is real, but the foundation underneath it is made of cash flow.

As I have commented in recent weeks, the concern is whether that cash flow machine can keep running and the fact that we have more corporate debt deals out of the tech sector than you can shake a stick at, suggests the machine might be running out of fuel. In its late-June annual report, Oracle set out risks to its forecast, from data centres taking longer to build to higher energy costs to possible regulations that could slow the AI boom. Days later, Blackstone’s QTS announced that it was walking away from a 2100-acre data centre campus in Virginia’s Prince William County after a fierce battle put forward by citizens against the project.

And this is where the contrarian in me can’t help himself — watch the mood. The AAII investor sentiment survey, one of my favourite fade-the-crowd gauges, saw bullishness leap back above its long-run average in mid-June, right around the time the biggest technology names started to wobble. The S&P slipped nearly 3% and the Nasdaq 100 nearly 4% from their early-June highs, with the pain concentrated in exactly the AI darlings everyone had crowded into. Microsoft, remarkably, fell almost 23% over the half even as the index it anchors rose. The Magnificent Seven as a group actually underperformed the broad market — the first genuine sign in three years that the generals are tiring and the troops are picking up the slack. That broadening is healthy. It’s also, historically, the kind of thing that shows up right before the crowd’s confidence gets tested.

So, we crest the hill. What’s on the descent?

First, Hormuz and the Iran off-ramp. The ceasefire is fragile and the reopening of the strait is more handshake than treaty. If it holds, oil stays subdued and the inflation scare fades — bullish for bonds and for the Fed’s patience. If it cracks, we do the whole oil round trip again, and this time the Fed has far less room to be forgiving.

Second, September and the new Fed chair. A rate hike into a still-expanding economy would be the first this cycle and the policy could change how we price everything from mortgages to megacaps. Warsh has told us who he is and it doesn’t sound like the guy who Trump thought would be doing his bidding. Could he change? Absolutely, and it’s not uncommon for incoming Fed chairs to lean more hawkishly in the opening innings in order to establish market credibility. Yet, with 60-day subprime consumer delinquency rates the highest in 34 years, according to Fitch data, and auto loan delinquencies the highest since the year after the crisis, higher rates are a risk to reckon with.

Third, breadth versus concentration. I want to see the recent broadening continue — more of the other 490 companies participating, small caps like the Russell 2000 (which hit new milestones in June) carrying their weight. A market that widens out is a market that can absorb a stumble in a single name. A market that stays lashed to seven ships is one squall away from trouble.

Fourth, the IPO parade. SpaceX is set to join the Nasdaq-100 in July, with OpenAI and others rumoured to follow. A wave of enormous new listings would, paradoxically, help by diluting concentration and broadening the index — but it will also test just how much appetite this market really has.

Fifth, and bringing it home, Canada. As I was putting the finishing touches on this letter, Ottawa and Alberta unveiled the route for a new million-barrel-a-day oil pipeline from Alberta to the B.C. coast. Trans Mountain and Pembina will do the building, a federal decision due by October 1, with shovels possibly in the ground by late 2027. There are still real hurdles ahead, but after a first half in which the Iran war reminded the world what a chokepoint costs, a country that can add a second route to tidewater is holding better cards than it did in January.

With energy and financials already powering the TSX’s best quarterly streak in three decades, and a soft Loonie giving our exporters a tailwind, we still see a high probability that the TSX can continue to punch above its weight in the back half. Part of this outperformance, mind you, isn’t purely homegrown. As global equity funds trim their US concentration and reallocate toward other regions, even a modest shift lands with outsized force in a market Canada’s size – a small boat rises fast when the tide turns its way.

In summary, the first half of 2026 gave us a war that mattered and a war that didn’t, an oil price that doubled and un-doubled, gold that broke its promise, and a Fed that turned the wheel hard in the opposite direction from where everyone was leaning. And through all of it, the patient, diversified investor who stayed on the bike ended up right about where they started—a little higher, a little wiser, and a lot more tired. Same hill. Same legs. And the ride still mattered.

On behalf of the Pyle Wealth Advisory team, have a wonderful weekend.     

Andrew Pyle