Domestic and International Markets in Review
Market Snapshot — January – June 2026
Key index and asset movements over the six months to 30 June 2026 (price terms, unless noted):
| ASX 200 2.8% | S&P 500 9.6% | Nasdaq Composite +12% | Dow Jones +8.9% | RBA Cash Rate 4.35% | Gold (USD/oz) ~$4,016 |
Past performance is not a reliable indicator of future performance. Figures are approximate, sourced from public market data as at early July 2026, and are provided for general educational purposes only.
Executive Summary
The first half of 2026 was a story of two very different markets. Offshore, US equities powered through a bout of severe geopolitical shock to post one of the strongest first halves in years, with the S&P 500, Nasdaq and Dow all notching double-digit or near-double-digit gains and repeatedly setting fresh record highs.
At home, the picture was more subdued: the ASX 200 made modest headway but lagged its global peers, weighed down by a surprise return to interest rate hikes from the Reserve Bank of Australia and a narrower exposure to the technology and AI names that drove offshore returns.
The dominant global event of the half was the outbreak of conflict between Israel, the United States and Iran in late February, which triggered the effective closure of the Strait of Hormuz — a chokepoint for roughly a fifth of the world’s seaborne oil. Energy prices spiked sharply, gold surged to record levels above US$5,300/oz on safe-haven demand, and inflation expectations were pushed higher across major economies. By June, a de-escalation and reopening of the Strait materially unwound those moves, and markets regained their footing.Locally, inflation that re-accelerated through late 2025 and into 2026 forced the RBA to abandon its earlier easing bias, delivering three consecutive rate rises to take the cash rate to 4.35% by May. This makes Australia something of an outlier among developed markets and is a key theme for the second half of the
Domestic Market Review
Australian Equities
The S&P/ASX 200 traded in a broad range over the half, briefly testing the 9,000 level before consolidating in the high-8,000s. The index has been essentially range-bound and up only modestly for the calendar year to date, a subdued outcome relative to Wall Street. The gap largely reflects index composition: the ASX 200 carries a much lighter weighting to the technology and AI-adjacent names that have driven the bulk of the offshore rally, and a heavier weighting to financials and resources, which had a mixed half.
Sector leadership rotated through the period. Gold miners were the standout performer as bullion surged on Middle East safe-haven demand, with names such as Northern Star and Evolution Mining posting sharp gains. Defence and resources names linked to critical minerals and reshoring themes (Codan, Sandfire, Santos among the broader complex) also performed well. Financials and the big four banks had a firmer run through the first quarter before losing some momentum as rate-hike concerns weighed on the sector. Consumer discretionary and consumer staples names were resilient into quarter-end, while energy and utilities lagged as oil prices retraced from their crisis peak.
At a stock level, AI infrastructure and semiconductor-adjacent names again featured prominently among the market’s best performers for the half, echoing the theme seen offshore, alongside beneficiaries of the recovery in scrap steel and metals pricing.
Interest Rates and Inflation
The standout domestic policy development was the RBA’s pivot from cutting to hiking. After reducing the cash rate by a cumulative 75 basis points through 2025, the Reserve Bank raised rates three times in the first half of 2026 — in February, and again through to May, lifting the cash rate to 4.35%. The move was driven by inflation that picked up materially in the second half of 2025 and remained above target into 2026, compounded by the pass-through of higher fuel prices following the Middle East conflict.
The RBA has since signalled it has room to pause and assess the impact of tighter conditions, with most bank economists expecting rates to remain on hold through the remainder of 2026, though the Bank has kept the door open to a further rise if inflation does not moderate as expected. Borrowers on variable-rate mortgages have felt the impact of higher repayments through the half, while savers and retirees holding term deposits and cash have benefited from improved rates of return.
Australian Dollar and Commodities
The Australian dollar traded choppily against the US dollar, buffeted by swings in risk sentiment tied to the Middle East conflict, shifting Federal Reserve rate expectations, and the RBA’s own hiking cycle. As a risk-sensitive currency, the AUD came under periodic pressure whenever tensions around the Strait of Hormuz resurfaced, before stabilising as de-escalation progressed into June.
Commodity markets had an eventful half. Gold rallied strongly early in the year, briefly testing record highs above US$5,300/oz amid the conflict, before easing back into the low-US$4,000s as tensions cooled and a firmer US dollar and elevated interest rate expectations weighed on the non-yielding metal. Oil prices spiked sharply in the immediate aftermath of the conflict’s outbreak before giving back the bulk of those gains as the Strait of Hormuz reopened and OPEC+ supply increased, raising talk of a second-half supply glut.
International Market Review
United States
US equities delivered one of their strongest first halves in years despite and in some ways due to a volatile start to 2026. The S&P 500 gained 9.6%, the Dow Jones Industrial Average rose 8.9% for its best first half since 2021, and the Nasdaq Composite outperformed with a gain of more than 12%, its best quarterly showing since 2020 driven by a very strong second quarter. Smaller companies also joined the rally, with the Russell 2000 up almost 22% for its best first half since 1991.
The half began with significant volatility as the conflict between Israel, the US and Iran unsettled markets and drove oil and gold sharply higher, alongside ongoing questions about the sustainability of heavy AI-related capital expenditure. Sentiment improved materially through the second quarter as fears around both the conflict and the AI trade eased, allowing markets to push on to fresh record highs. Semiconductor and AI infrastructure names remained the key leadership group, though this cohort also proved a source of volatility, including a sharp pullback in early July on profit-taking in chip stocks.
Monetary policy was a recurring source of uncertainty. Kevin Warsh took office as the new Chair of the Federal Reserve in May 2026. His first meeting in that role unsettled markets somewhat, as the Fed’s updated projections showed half of voting members anticipating a further rate increase later in 2026 — a hawkish signal that briefly weighed on risk assets before markets stabilised. Coming into July, a weaker-than-expected June payrolls report cooled market expectations for near-term hikes, though a further move remains a live possibility later in the year.
Europe and the United Kingdom
European and UK markets faced a more complicated inflation picture than the US for much of the half, largely as a function of the energy shock. The Bank of England held its policy rate at 3.75% through the period, with Governor Andrew Bailey acknowledging that the Middle East conflict’s impact on energy costs had delayed progress back to the Bank’s 2% inflation target, with headline inflation running around 2.8% into May. The European Central Bank continued a more measured, data-dependent approach through the half, weighing the disruption to energy markets against its own inflation mandate.
Asia and China
China continued to navigate a structurally slower growth path, with authorities setting a lower official GDP growth target for 2026 than in prior years. A signal that is being watched closely by Australian resources exporters given the trade relationship. Regional markets broadly tracked the same conflict-driven volatility and subsequent recovery seen in Western markets, with Asian equity indices swinging alongside shifts in oil prices and Strait of Hormuz headlines through the half.
The Middle East Conflict and Its Market Impact
The single largest swing factor for global markets in H1 2026 was the outbreak of conflict between Israel, the United States and Iran in late February, which led to the near-total closure of the Strait of Hormuz — a waterway carrying roughly a fifth of the world’s seaborne oil. The disruption removed an estimated 14 million barrels of daily oil supply from normal shipping routes at its peak, sending crude prices sharply higher and gold to record levels as investors sought safe havens.
The mechanical chain was consistent through the period: higher oil prices fed into inflation expectations, which kept central banks including the RBA and the Fed on a more hawkish footing, which in turn supported the US dollar and, at times, weighed on non-yielding assets like gold even amid safe-haven demand. By mid-June, progress towards a ceasefire and an interim agreement to reopen the Strait allowed energy prices, freight and shipping conditions, and broader risk sentiment to normalise materially, removing one of the year’s biggest overhangs heading into the second half.
Key Themes for Investors
- Divergent central bank paths: the RBA has moved to a tightening bias while the Fed’s own path remains genuinely two-sided, creating cross-currents for currency and fixed income positioning.
- Geopolitical risk premium: the Middle East conflict was a reminder that energy-related shocks can move equities, currencies, and commodities simultaneously and quickly with that de-escalation can unwind those moves just as fast.
- AI and technology concentration: US market leadership remains heavily concentrated in AI infrastructure and semiconductor names, a source of both the market’s strength and its periodic bouts of volatility.
- Local underperformance: the ASX 200’s lag against global peers this half is a reminder of the importance of global diversification within a well-constructed portfolio.
- Cost of living and mortgage pressure: higher-for-longer domestic interest rates continue to affect household budgets, borrowing capacity, and spending patterns.
Looking Ahead to H2 2026
Markets enter the second half with the acute phase of the Middle East conflict behind them. However, several open questions, whether the RBA remains on hold for the balance of the year or delivers a further hike if inflation proves sticky; how the Federal Reserve under its new Chair balances a cooling US labour market against lingering inflation risk; and whether the AI-driven rally in US equities can broaden out or remains vulnerable to bouts of profit-taking in richly-valued technology names.
As always, our approach remains grounded in your individual goals, timeframe and risk tolerance rather than short-term market noise. We continue to monitor these developments closely and will be in touch regarding your portfolio and any adjustments that may be appropriate for your circumstances.
If you have any questions about this report or how these developments may affect your personal financial position, please don’t hesitate to contact our office.
IMPORTANT INFORMATION: This document has been prepared by Enhance Financial Partners, ABN 45 146 707 173 AFSL 515518, based on our understanding of the relevant legislation at the time of writing. While every care has been taken, Enhance Financial Partners makes no representations as to the accuracy or completeness of the contents. The information is of a general nature only and has been prepared without consideration of your individual objectives, financial situation or needs. Before making any decisions, you should consider the appropriateness for your personal investment objectives, financial situation or individual needs. We recommend you see a financial adviser, registered tax agent or legal adviser before making any decisions based on this information.