In the second quarter of 2026, financial markets reflected a sharp disconnect between rising valuations and underlying economic conditions. Geopolitical uncertainty, persistent inflation concerns, and strong enthusiasm for artificial intelligence-related investments shaped the quarter. After a volatile first quarter, investors entered Q2 facing the economic effects of conflict in the Middle East, higher energy prices, and uncertainty over the future path of monetary policy. Together, these factors contributed to significant market volatility.
Despite these challenges, U.S. equities delivered strong performance for much of the quarter. Major U.S. stock indices posted broad gains in the second quarter, more than offsetting losses from the prior three-month period. Mid- and small-cap stocks continued to lead large-cap companies year to date. The rally was driven primarily by technology and AI-related companies, as earnings growth and capital investment spending continued to attract investor interest. The S&P 500 rose 15.2% during the quarter, while the Nasdaq advanced more than 21%, reflecting strong confidence in the long-term growth potential of artificial intelligence and the semiconductor industry.
Resurgent inflation complicated monetary policy decisions across major economies. Central banks faced a difficult balance: growth was slowing, while energy-driven inflation pressures remained elevated. At its June meeting, the Federal Reserve left interest rates unchanged, reflecting uncertainty about the path of inflation and economic growth. New Chair Kevin Warsh emphasized price stability and signaled a more cautious, less predictable policy approach than investors had grown accustomed to in prior years.
The economy has absorbed several shocks from the Middle East conflict and its impact on energy markets. Looking ahead to the second half of 2026, both opportunities and risks remain. If oil prices decline, inflation expectations remain anchored, and labor-market data stays stable, markets could see a stronger second half supported by earnings growth, broader participation, and improving investor confidence. However, renewed tensions in the Middle East and additional pressure on energy markets could test the resilience shown in the first half and create a more challenging environment for both the economy and equities. Maintaining a focus on long-term objectives remains critical for investors.
NEW ROTH CATCH-UP CONTRIBUTION RULES FOR HIGH EARNERS – EFFECTIVE 2026
Under the SECURE 2.0 Act, if you earned more than $150,000 in FICA wages in 2025, all of your 2026 catch-up contributions to a 401(k), 403(b) or 457(b) must be made as Roth (after-tax) contributions effective as of January 1, 2026.
Who Is Affected – Employees age 50 or older who wish to make catch-up contributions and whose prior-year FICA wages, as reported on Form W-2, exceed $150,000, indexed annually.
What Changes – If your 2025 wages were over $150,000 then all catch-up contributions must be Roth. You cannot make pre-tax catch-up contributions. Regular (non-catch-up) contributions can still be pre-tax or Roth.
Now that we are in the second half of 2026, it is important to reach out to your payroll service to make certain that affected plan participants catch-up deferrals are treated properly.
HSA LIMITS: SLIGHT INCREASE FOR 2027
HSAs allow individuals to save for qualified health care expenses and can also support retirement planning. Account holders can keep their HSAs when they leave the employer through which the account was established and use the funds at any time for eligible health-related costs, including expenses in retirement. Using HSA funds for medical expenses can reduce the need to draw from retirement accounts, helping preserve balances and potentially allowing for greater compounding over time. In this way, an HSA can complement a retirement account, such as a 401(k), and help strengthen financial security in retirement.
For calendar year 2027, the annual limitation on deductions for an individual with self-only coverage under a high-deductible health plan (HDHP) is $4,500. And for calendar year 2027, the annual limitation for an individual with family coverage under an HDHP is $9,000.
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JULY 2026