U.S. — The S&P 500 gained nearly 10% during the first half of 2026, while the Dow Jones Industrial Average rose almost 9%, marking the strongest first-half performance for both indexes since 2021. The gains occurred even as broader economic indicators showed a marked slowdown in growth and softening labor market conditions.

Real gross domestic product growth slowed from roughly 3.3% in 2023 to about 1.9% in the first half of 2026. Federal Reserve officials projected in June 2026 that the U.S. economy would grow about 2.2% for the full year, in line with the view of most economists who expect growth to remain close to 2%. Consumer spending, which accounts for approximately 70% of U.S. gross domestic product, has become increasingly concentrated among high-income households. Households earning roughly $200,000 or more account for nearly 60% of all personal spending in the U.S., up from about half in the early 1990s. In the first quarter of 2026, inflation-adjusted spending among the top 20% of earners increased by about 4%, while spending by the remaining 80% was essentially flat.

Labor market indicators further underscore the economy’s uneven footing. U.S. employers are hiring at the slowest pace in more than a decade, excluding the pandemic period. U.S. labor force participation remains near its lowest level in nearly 50 years, excluding Covid-era disruptions, and long-term unemployment has continued to rise. Consumer sentiment, as measured by the University of Michigan survey, fell to a record low in May 2026 before rebounding modestly in June.

Mark Zandi, Chief Economist at Moody's Analytics, said, "We're growing." He added, "We're not in recession," but cautioned, "But we're not going anywhere quickly." Zandi warned, "If AI stocks hit a skid, the economy would be in big trouble because of how soft it is," and described the current position as one where "It's a very fragile, tenuous place to be."

Joe Seydl, senior markets economist at J.P. Morgan Private Bank, highlighted the divergence between market performance and economic data. "I think there's this widespread perception the two should be in sync," he said. "But, from a purely analytical perspective, they're two very different phenomena." He added, "We're talking about apples and oranges in many ways."

The stock market's strength has been heavily driven by technology firms, which account for roughly 35% of the U.S. stock market. When including Alphabet, Amazon, Meta, and Tesla, technology-related companies approach 50% of the market, even though the technology sector represents only about 10% to 15% of the broader U.S. economy. According to a July 1 research report, "The rise in earnings has been concentrated in the major 'big-tech' firms, especially the semiconductor companies and hyperscalers," Capital Economics stated. Microsoft, Amazon, and Oracle have benefited from surging demand for cloud services, while Intel, TSMC, and Samsung have seen growing demand for AI chips. Since OpenAI introduced ChatGPT in late 2022, the technology and semiconductor industries have generated nearly two-thirds of all S&P 500 earnings growth.

Why It Matters

The disconnect between strong stock market performance and slowing economic fundamentals raises questions about the sustainability of the rally and the breadth of economic participation. With gains concentrated in a narrow segment of the market and consumer spending increasingly reliant on high-income households, the economy may face heightened vulnerability to shifts in technology sector performance.