‘Hawkish Hold’ in Interest Rates, Iran Turmoil Prompt Advisors to Rethink Second Half of 2026

At the midway point of 2026, resilience has become the theme for both the financial markets and the economy. The question is how long that can last. 

Financial advisors are becoming increasingly concerned about the risks looming in the second half of the year. While the benchmark S&P 500 Index gained a respectable 9% over the first six months, many advisors are focused on the details behind those big-picture numbers. The mid-year report by JPMorgan Private Bank warned that investors should prepare for “stickier inflation” that “could collide with an energy price shock.” The stock market is also heavily concentrated in artificial intelligence, and that’s causing fears over a bubble to well … bubble up. Meanwhile, geopolitical unrest over the war in Iran could cause massive global disruptions.

Against that backdrop, advisors are tempering their optimism for the rest of the year with realism.

This Could Get Interest-ing

They’re watching the Federal Reserve closely to see how interest rates will shape the economy. Already, expectations of multiple rate cuts have transformed into a “hawkish hold” through the rest of 2026, said Sean Lovison, founder of the advisory firm Purpose Built. “We are looking at a perfect storm of geopolitical supply shocks and unyielding domestic fiscal policy,” he said. “The second half of this year isn’t about waiting for a soft landing, it’s about navigating stubbornly elevated inflation that could be increasing.”

Interest rates are also top of mind for Justin Greenhill, co-founder and chief investment officer at Sollinda Capital. His firm is adjusting fixed-income allocations accordingly. “Long-duration bond yields are just below multi-year highs, and a break above could cause cross-asset volatility,” he said. “On the flip side, this area of the yield curve is likely underowned if rates start trending lower, so we are currently short-duration in our fixed income exposure, but will act quickly based on this dynamic.”

Inflation and energy prices are among the topics being presented to clients by James Humphries, founder and managing partner at Mindset Wealth Management. “The theme we are watching most closely is persistent inflation; a reality that forced Fed Chair Kevin Warsh into a hawkish pivot,” he said. “While oil concerns have softened recently as the Strait of Hormuz tentatively reopens, it will take significant time for previous energy spikes to work their way out of headline inflation data.”

Huge F-AI-lure

Meanwhile, Humphries believes the biggest risk clients aren’t paying enough attention to is the lopsided performance of the tech sector and fledgling AI companies. “The credit risk AI companies are taking on will significantly outpace the actual productivity gains produced by adoption of the technology,” he said. “Cheap capital will not be available to bail these companies out of poor execution.”

Over the first six months of 2026, the strongest performing stocks have been concentrated in the semiconductor and specialized technology sectors:

• Micron Technology, riding the demand for high-bandwidth memory chips for AI accelerators, has gained more than 250% this year. 
• Planet Labs, a developer of technology for AI applications, is up 160%. 

Brian Boswell, wealth manager at Savvy Advisors, said the tech sector’s lopsided performance has prompted him to focus more on capital preservation.

“In January, client meetings were entirely dominated by the fear of missing out regarding AI because everyone wanted to know how to maximize their exposure to the tech rally,” he said. “Since May, the mood has shifted toward capital preservation and locking in those outsized gains.”

Boswell attributes the “psychological pivot” to heightened market volatility and a skeptical eye on 2027 earnings estimates. “Clients are now asking how to play defense without sacrificing growth entirely,” he added.

The Wild Card Goes to …

A couple of 2026 wild cards include the war in Iran, but also the upcoming midterm elections. “I don’t think many people went into the year thinking there would be a war with Iran,” said Bryan Byrer, founder of Millennial Financial Planning. He’s not confident the war will be resolved quickly or easily, and he thinks the financial markets have become “numb to President Trump’s declarations of success” that were anything but. “Oil prices could stay elevated and that will negatively affect the economy,” Byrer said. “I wouldn’t be surprised if there is some kind of retraction in the markets this year.”

When the Iran war started at the end of February, the stock market experienced a quick pullback, with the S&P 500 losing 8% over the next month. But the rebound was equally quick, and the S&P has gained nearly 17% from that late March low point. 

“The market dropped on the Iran news and recovered when earnings came back into focus,” said Jeff Judge, managing partner at Chesapeake Financial Planners. “That whipsaw is the cost of admission for returns, and trying to dodge it is how people turn a paper loss into a permanent one,” he added. “I’m reminding clients that a year with two or three scary headlines is a normal year, not a broken year.”

Midterm-inology. Chuck Failla, founder of Sovereign Financial Group, says the next scary headline could involve the upcoming midterm elections. “The midterms are normally bad for the incumbent, so you have to wonder what types of battles will be fought over the legitimacy of the elections,” he said. “The new normal with elections is to challenge the results, and the markets hate uncertainty.”

Failla said his best move for clients is to allocate assets into short-, medium- and long-term buckets to help take the focus off the increased stock market volatility. “Multifamily housing is what I’m key on right now in this environment, because it’s AI proof and an inflation hedge,” he added.

One thing most advisors agree on is that clients should brace for more market volatility over the coming months. “The second half of the year will likely bring plenty of headlines capable of moving markets,” said Andrew Fincher, a financial advisor at VLP Financial Advisors. “Our outlook has become somewhat more optimistic than it was at the beginning of the year, largely because the economy has remained more resilient than many expected,” he added. “That said, we’re reminding clients that a stronger outlook doesn’t eliminate volatility.”

Actively Optimistic. Humphries, of Mindset Wealth Management, said there is a stark contrast between the conversations he’s having with clients now and the conversations he was having at the start of the year.

“In January, client conversations were dominated by market euphoria and the expectation of aggressive rate cuts, but the dialogue is now driven by geopolitics and stubborn economic data,” he said. “Between the US and Iran fighting a war and tentatively agreeing to a peace deal, and the looming November midterms creeping into our daily discussions, clients are realizing that passive optimism may have to take a back seat to active management.”

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