Kvarn X Market Review: H1 2026

In this market review, we examine the most significant market events of the first half of 2026 and look ahead to the beginning of the second half of the year.

Stock Market: From Energy Crisis to a Bull Market

The first half of 2026 in the stock market can perhaps best be described by the word polarized.

Looking at the S&P 500 index from the start of 2026, it has risen by roughly 10% in total. However, this climb has been anything but a smooth, steady ascent.

At the beginning of 2026, the stock market reached the end of an upward move that began in the spring of 2025, and during January and February, the major indices turned into a sideways chop. The outbreak of military operations in the Middle East in early March pushed the stock market into a sharp correction, which reached its bottom in late March.

In the first days of April, the stock market began to recover, and news of a ceasefire in the Middle East received just a few days later triggered an almost vertical rally.

The result was a historic stock rally in April and May. Rarely in the history of the stock market has such a shallow correction been followed by such a violent surge upward. In roughly two months, the S&P 500 index climbed by a staggering 20%, an increase equivalent to a very strong full-year gain.

While the overall direction of the stock market in 2026 has been upward, the ride has been anything but smooth.

Within the stock market, the highest percentage gains have been captured by typical "risk-on" segments: the technology sector (XLK) and smaller-cap companies. The Nasdaq 100 and Russell 2000 indices are both up roughly 15% year-to-date, significantly outperforming the broader S&P 500 index.

At the start of 2026, we saw the European stock market (VGK) clearly outperform the U.S. market (SPX). However, during the fierce, tech-driven rally this spring, Europe once again fell significantly behind the pace of the U.S. market.

Within the U.S. stock market, two winning sectors clearly stand out: technology (XLK) and energy (XLE). The energy sector began its strong climb back in late 2025 and truly stepped into the investment spotlight as the Middle East conflict caused a sudden spike in oil prices.

The trajectory of the technology sector has been almost a mirror image of energy sector. Technology fell behind the S&P 500 as early as February 2026. However, during March, as the Middle East conflict dragged the broader market down, the technology sector began showing surprising resilience, and following the ceasefire news, it exploded into a powerful upward rally.

Even within the technology sector, the winner has been clear. Semiconductors, which sit at the epicenter of the ongoing artificial intelligence boom, have been the hottest industry of the spring, with representative ETFs (SMH) surging 50–60% year-to-date.

Cryptocurrencies: Is the Four-Year Cycle Repeating?

In the cryptocurrency market, the first half of 2026 has been spent in a downward trend. The price of Bitcoin, the largest cryptocurrency by market capitalization, has fallen by roughly 30% since the start of the year.

This decline has brought Bitcoin’s price close to its 200-week moving average. Looking at historical charts, Bitcoin’s deepest cycle bottoms have typically settled near this moving average.

There is, of course, no guarantee that this will happen again. However, we can note that relative to its historical trend, Bitcoin currently appears quite modestly valued.

Intriguingly, Bitcoin’s price action in 2026 has closely mirrored the so-called "four-year cycle". In previous midterm election years (such as 2018 and 2022), the first halves of the year were likewise characterized by steep declines. In those earlier cycles, Bitcoin found its ultimate cycle bottom during the fourth quarter of the year, and it will be fascinating to see whether that pattern repeats this time around.

It should be made clear that the "four-year cycle" is strictly an inductive hypothesis drawn from Bitcoin’s three previous market cycles. There are no guarantees of its repetition, and in our view, it should never be used as the sole basis for investment decisions.

Nevertheless, the four-year cycle is a widely known theory among crypto investors and commands a loyal following. Because investing in a disruptive technology like Bitcoin often carries a strong psychological aspect, beliefs that influence mass market psychology should not be entirely ignored. The first half of 2026 has followed this four-year cycle very closely so far, and we will watch with interest to see if the second half of the year completes it with the formation of a market bottom.

Compared to the previous midterm election year of 2022, perhaps the biggest difference has been seen in the internal dynamics of the crypto market. In 2022, we saw extreme volatility in Bitcoin dominance (Bitcoin's share of the total cryptocurrency market capitalization), as capital first fled from altcoins into Bitcoin, only to rotate back into them during the second half of the year. This year, we have not seen such swings; instead, Bitcoin dominance has remained relatively stable around the 60% mark.

Gold: An Expected Correction

Like Bitcoin, the traditional safe-haven asset gold has also experienced a substantial decline during the spring of 2026. From its peak in January 2026, the price of gold has fallen by roughly 30%.

In the case of gold, however, it is helpful to zoom out and examine a slightly longer timeframe. Gold experienced a ferocious rally throughout 2025, with its price roughly doubling in just over a year. Around the turn of 2025–2026, the price of gold climbed almost vertically.

Such vertical price surges typically point to a severely overheated market, which is frequently followed by a substantial correction. The first half of 2026 has effectively been spent digesting this correction, as the most speculative investors have rotated their capital into other asset classes.

Despite the weak price action of recent months, it is important to remember that gold price is still in a clear long-term uptrend.

A neutral store of value like gold is fundamentally supported by both the world's growing fracturing into geopolitical blocs and mounting concerns over the ability of sovereign nations to manage their escalating debt burdens. Until we observe a structural shift in these underlying trajectories, we view the long-term outlook for gold as remaining potentially very bullish.

What Will H2 2026 Look Like?

How, then, might the second half of 2026 shape up for the stock market, as assessed here in mid-July?

As of mid-July, the stock market is experiencing a slight lull following months of wild gains. The price momentum of semiconductors, which had acted as the primary engine of the rally, has stalled for the time being, with representative ETFs pulling back roughly 20% from their peaks in just a month.

It is still too early to form a reliable view on whether this is simply a healthy consolidation following a sharp rally, or if we are hovering near a more significant market top.

From a technical analysis perspective, the S&P 500 index currently appears trapped in a sideways range between roughly 7,250 and 7,600 points. Within this range, assessing the market's direction relies on interpreting very subtle clues, and the next clear signal regarding the stock market's trajectory will likely only come once the S&P 500 breaks out of this range in one direction or the other.

As a simple rule of thumb, the key drivers for stock market performance in the second half of 2026 will be:

1. Development of the Middle East conflict
2. Explore the key stock, crypto and gold market developments of H1 2026 and the major risks and scenarios investors should watch in H2 2026.Federal Reserve's new policy

The conflict in the Middle East reflects upon the markets primarily through the price of oil. If oil prices were to resume a significant upward trend, it would begin to impact both global economic growth and inflation dynamics.

During the spring of 2026, markets demonstrated a willingness to “look past" oil price spikes, which were expected to be temporary. However, if we begin receiving signals that oil prices will remain significantly elevated for an extended period, we can expect investor pain tolerance to eventually reach its limit.

Alongside the Middle East conflict, the second major question mark surrounds what the Federal Reserve's new policy will actually look like. The central bank's new Chair, Kevin Warsh, has so far communicated a rather hawkish attitude, emphasizing price stability as the Fed's top priority. The burning question for the coming quarters is whether this strict stance will hold in reality, or if Warsh will prove to be a "dove in hawk's clothing."

In our view, the questions of "oil prices up or down" and "Warsh: hawk or dove" represent two major, identifiable uncertainties (so-called "known unknowns") for the second half of 2026.

As a thought experiment, the answers to these two questions form a matrix of four distinct scenarios, offering very different paths for investment markets. Depending on the trajectory of oil prices and the stance of the Warsh-led Fed, one could easily justify the next 10% market move being just as likely upward as it is downward.

In addition to these two already complex questions, room must naturally be left for various "black swans", of which the 2020s have had no shortage.

Therefore, we will not attempt to gaze into a crystal ball for predictions this time either. Instead, we believe an investor's best recipe is to closely monitor developments in the Middle East, the actions of the Federal Reserve, and, naturally, the market's price action itself.

We have a fascinating autumn season ahead of us. Wherever the market heads in the autumn of 2026, we will continue to keep you up to date in our Kvarn Pulse newsletter, so stay tuned!