S&P 500 up 9% in 2026 as tech rally cools before earnings

The tech rally that powered the S&P 500 to a 9.3% gain this year has stalled, with Wall Street turning to Q2 earnings for direction.

The S&P 500 closed at 7,483 on Thursday, up 9.3% year to date, as a cooling tech rally shifted investor focus to the Q2 earnings season beginning July 13.

"We have a healthy tortoise of an economy — a slow-hire, slow-fire and slow-growth economy," David Kelly, chief global strategist at J.P. Morgan Asset Management, said.

The Dow Jones Industrial Average notched its 20th record close of 2026, while the Nasdaq Composite lagged as semiconductor and memory stocks saw heightened volatility. The Philadelphia Semiconductor Index, which posted its best quarter on record, has since pulled back. The S&P 500's year-to-date advance puts a fourth year of double-digit returns in play if the index ends 2026 above 7,530, according to Goldman Sachs.

The Q2 earnings season will test whether corporate profits can justify elevated valuations. S&P 500 earnings are projected to grow 23.3% year over year, according to FactSet, with energy and technology expected to lead.

June's nonfarm payrolls report showed the economy added 57,000 jobs, below consensus estimates, while the unemployment rate fell to 4.2%. The data lowered the odds of a Federal Reserve rate hike later this year, though markets continue to price at least one increase in 2026. The policy-sensitive two-year Treasury yield stood at 4.13%, above the 3.75% upper limit of the Fed's policy range but off its recent high of 4.23%.

Oil's retreat below $70 a barrel has provided a tailwind for consumers and eased inflation concerns. The combination of modest wage growth and falling energy prices has Wall Street skeptical that the Fed will need to follow through on tightening. "There will be tightening noises," Kelly said, but with no pickup in wages, he expects the Fed to stay on hold.

Sector Rotation Tests the Magnificent Seven

The Magnificent Seven group of mega-cap technology stocks led the market higher last week, a reversal from the year-to-date trend where semiconductors had outperformed. But analysts caution that heavy capital spending on AI infrastructure is raising questions about free cash flow generation. The group's mixed performance on Thursday reflected growing scrutiny ahead of earnings.

Energy is expected to post the fastest earnings growth of any sector in Q2, boosted by elevated oil prices during the quarter, followed by technology. Healthcare is the only sector projected to report a year-over-year earnings decline, FactSet data show.

What to Watch Next Week

The economic calendar is relatively quiet, but the release of Fed meeting minutes on Wednesday will be closely watched as investors assess the likelihood of rate hikes. PepsiCo and Delta Air Lines are among the S&P 500 companies reporting earnings next week, offering an early read on consumer health and travel demand.

A weaker US dollar compared with a year ago should benefit companies with international exposure. The technology sector has the highest international sales exposure of any S&P 500 sector, according to FactSet, with 42% of S&P 500 sales coming from overseas. Goldman Sachs estimates that a 10% depreciation in the dollar increases S&P 500 earnings per share by 2% to 3%.

This article is for informational purposes only and does not constitute investment advice.