S&P 500 rises 9.3% in first half of 2026 – Small caps outpace tech stocks

The S&P 500 gained 9.3 percent through July 4, 2026, with small and microcaps taking market leadership. This shift marks a change from the previous dominance of technology and AI stocks, which nevertheless remain among the winners.

Small caps overtake previous tech favorites

The S&P 500's performance in the first half of 2026 shows a broadening of market breadth. While technology and AI stocks remain key drivers, small and microcaps are now leading performance. Additionally, oil stocks and international markets outside the US recorded gains, according to a market analysis from July 4, 2026.

Analysts view the broader market participation as a positive signal for the sustainability of the upward movement. Dependence on a few large-cap technology stocks is diminishing, which could reduce portfolio risk for many investors.

Bull market expected to continue through 2027 – despite warning signs

Multiple market observers expect the bull market to continue into 2027. Economic data shows resilient growth with declining inflation. This combination supports equity markets and dampens recession fears, which were still being discussed in early 2026.

However, risks are emerging. The high concentration in AI megacaps – the largest technology companies with strong AI exposure – poses dangers for the overall market. Analysts point out that extreme valuations in the AI segment make a correction more likely. Moreover, there are growing signs that AI enthusiasm is waning: OpenAI is struggling with operational challenges, and several technology companies are reconsidering their multi-billion dollar AI investments.

Earnings rise 60 percent in three years

Earnings of companies listed in the S&P 500 rose 60 percent over three years. This development draws comparisons to the dot-com bubble of the late 1990s, when rapid earnings growth was also recorded – followed by a sharp decline.

However, the current situation differs in important respects from the dot-com era. Companies have more stable cash flows and show greater discipline in capital expenditures (capex). Additionally, stricter accounting standards have made financial reporting more transparent, reducing the risk of accounting manipulation.

Valuation question remains central

Despite the fundamental differences from the dot-com era, the valuation question remains central. The high price-to-earnings ratios of individual tech giants assume that these companies can maintain their growth rates over many years. Should the AI revolution progress more slowly than expected, corrections could follow.

Oil and international markets gain importance

In addition to the shift toward smaller companies, there is also geographic and sectoral broadening. Oil stocks benefited in the first half of 2026 from stable energy prices, while markets outside the US also recorded gains. This development suggests that investors are diversifying their portfolios more broadly and no longer relying exclusively on US technology stocks.

For investors in the DACH region, this means that diversification across regions and sectors is becoming more important. The previous focus on the "Magnificent Seven" – the seven largest US technology companies – could prove too narrow if market leadership continues to shift.

Outlook: Growth with question marks

The combination of solid economic data, declining inflation, and broad market participation argues for a continuation of the upward trend. At the same time, analysts urge caution: extreme valuations in the AI sector, concentration in megacaps, and first signs of a decline in AI enthusiasm could trigger corrections.

Whether the bull market actually continues through 2027 depends largely on whether corporate earnings can keep pace with high expectations. The next quarterly earnings reports will likely receive special attention – particularly those of large technology companies, which account for most of the index gains.