If the first six months of the year were given a report-card grade, the market would earn a B trending toward a B+. The "plus" is awarded specifically for resiliency. Despite an extraordinary volume of news — it has felt like two years' worth of developments compressed into just six months — investors and the broader stock market have held up remarkably well in the face of relentless headlines and geopolitical uncertainty.

The numbers underscore the strength. The S&P 500 is up roughly 7.5% for the year, and the Dow has posted its best first half in five years. At the moment of this assessment, both the Dow and the small-cap Russell 2000 sit at record levels, while the Nasdaq has been the standout outperformer, topping the list. A healthy sector rotation is underway, and the most admirable feature of the period has been the steadiness of investors given everything they have had to absorb.

Cross-Currents: What's Working and What's Stumbling

Beneath the headline strength, some things have begun to wobble over the past month or so. The mega-cap stocks have started to stumble, which is a concern because market leadership from those names is generally needed to drive the market meaningfully higher. However, the equal-weight S&P 500 is sitting at an all-time high, signaling that the rest of the market is genuinely pulling its weight. That kind of participation — sector rotation away from a narrow set of leaders — is exactly the condition required for a real, durable bull market.

This bull market is now approaching four years in age. Historically, bull markets last about five years or a bit more, so this one still appears to have room to run, and it still seems to have legs. Breadth is broadening, which is precisely what you want to see in a sustainable advance. Stocks such as Caterpillar are at or near all-time highs, a sign of strength beyond the technology names.

Several other supportive conditions stand out:

- Strong consumer balance sheets. Even though people are complaining a great deal, household balance sheets are relatively healthy and delinquencies are relatively low.
- The wealth effect. A rising stock market boosts household wealth and supports continued spending.
- Broad-based earnings strength. Earnings have been strong not only for the hyperscalers and AI companies but across the board. Analysts keep raising their forecasts — though that persistent upward revision could itself be a troubling, contrarian signal worth watching.

The AI and Semiconductor Engine — and What Could Broaden It

The first half of the year remained, fundamentally, about AI. The top of the leaderboard reflects this: SanDisk led, accompanied by Micron, Western Digital, and Corning — the latter of which, on reflection, is very much an AI play. Even Caterpillar's strength fits into this broader theme. Semiconductors, in particular, have driven the rally over the past six months.

Will the AI theme continue to play out through the balance of the year, just in a different form? Yes, but it depends heavily on inflation, which in turn depends on oil prices. Oil is back around $70 per barrel, and gas with a "$3 handle" has appeared in the New York and New Jersey area, though it remains more expensive out west. If prices keep trending lower, they should eventually level off, especially given the summer season. With major events across the country — the World Cup, concerts, and festivals — there is substantial tourism and spending. Much also hinges on whether the job market holds up, with the June jobs report due Thursday offering fresh clues.

If consumers keep spending, the rotation will continue: discretionary stocks would come back into favor, and the market would no longer be a narrow, AI-led boom but a broader advance.

What Retail Investors Are Actually Doing

Retail traders still hold their favorite stocks dear, and there has been notable resilience against selling the mega caps. SpaceX was especially popular with retail investors over the past few weeks — but it was an outlier. Apart from SpaceX, retail buying of individual stocks has been relatively muted.

So what have individual investors been doing instead? They have been buying more ETFs across the board — sector-specific and factor-based funds have seen a great deal of action — and the biggest funds keep getting bigger. With the exception of the SpaceX enthusiasm, and pending any future IPOs, retail investors are largely holding what they already own, sticking with indexes and ETFs, and avoiding excessive risk.

Sentiment data reinforces this caution. The AAII sentiment survey is currently more bearish than bullish, and the Fear and Greed Index is showing readings near extreme fear. Investors appear afraid — likely because of stretched valuations and a sense that conditions are somewhat unstable — and are therefore not buying much beyond a few selective names.

Consumer Mood, Spending, and Market Direction

Consumer sentiment surveys show moods improving but still at fairly low levels. Will that weak-but-improving mood shape retail investing for the rest of the year? The effect is really more about the spending picture than about investing directly. If confidence improves and gas prices keep dropping so that people feel less pricing pressure than they did through the spring, more discretionary spending should follow. That would benefit companies such as Apple, which has a new iPhone coming this fall but also just raised prices on a range of new devices.

The travel sector deserves particularly close attention. So far, only the front of the planes — premium cabins — has truly been doing well. According to the airlines, there hasn't been much summer booking, because airfares have soared on the back of higher jet-fuel prices. That dynamic is worth watching carefully.

On overall market direction, momentum usually breeds more momentum. If geopolitical uncertainty eases — not a guarantee, but a possibility — and given the expectation that the Fed probably won't do much this year, the stock market is likely to trend higher, because that is the direction it wants to go. The equity risk premium currently favors stocks.

The Losers: AI Disruption as the Common Thread

Attention to the year's worst S&P 500 performers — including Intuit, Boston Scientific, and Accenture — raises the question of whether they share a pattern or are simply idiosyncratic stories. Is there a common thread? For the most part, the common thread is AI disruption.

- Intuit is an excellent software company with great tools, but much of the work it supports can potentially be disrupted by capable AI coding — if people can increasingly do it themselves.
- Boston Scientific is a health, pharma, and pipeline play, and stands somewhat apart as its own story.
- Accenture (consulting) and The Trade Desk (ad arbitrage on the internet) operate in industries that can easily be disrupted — and are being disrupted every single day.

Across these companies, the visible theme is software disruption driven by AI, reshaping which businesses thrive and which fall behind. The overarching takeaway of the mid-year review is a market defined by resilience and broadening strength on one side, and by AI's accelerating power to separate corporate winners from losers on the other.