Broadening Trade Returns as Conflict Eases. Can It Outlast a Hawkish Fed and Fading Liquidity?

Broadening Trade Returns as Conflict Eases. Can It Outlast a Hawkish Fed and Fading Liquidity? Astoria Investment Management July 8, 2026 First Half of 2026 Sees a Shift in Leadership Despite conflict in the Middle East, sharp oil price swings, and resurging inflation concerns, equity markets posted positive returns in the first half of 2026 amid de-escalating geopolitical risk, strong corporate earnings led by the AI infrastructure buildout, and a still-resilient economy. The Nasdaq-100 Index and S&P 500 Index recovered sharply within the period, each rallying over 32% and 18%, respectively, since the March lows. Notably, US small-caps via the Russell 2000 Index saw their strongest first half since 1991, gaining over 22%. US mid-caps (+17.4%) and international developed equities (+15.1%) followed. Bonds mostly fared well as high yield credits rose 1.9%, municipal bonds gained 1.8%, and Treasury Inflation Protected Notes were up 1.2%. Aside from silver (-17.0%) and gold (-7.0%), commodities posted positive returns as crude oil surged 53.9% and broad-based commodities rose 14.4%. The Federal Reserve held the federal funds rate steady at the June FOMC meeting, keeping the target range at 3.50–3.75%. This marks the 4th consecutive hold in 2026 and was the first meeting chaired by Kevin Warsh, who succeeded Jerome Powell as Chair. While the decision to hold was widely expected, the accompanying communication shifted in a more hawkish direction. The policy statement was shortened to roughly 130 words from 341 in April, removed prior language signaling a bias toward future cuts, and emphasized that the Committee “will deliver price stability.” Consistent with his prior skepticism of forward guidance, Chair Warsh also declined to submit his own projection in the dot plot. The economic backdrop offered little reason to ease, as May PCE rose 4.1% year-over-year, its highest reading since April 2023, while Nonf...