Weekly Recap

On this shortened trading week, all of the major market indexes moved higher. The Nasdaq and S&P 500 each gained a little under 2%. The Dow Jones Industrial Average rose roughly 0.7%, while the Russell 2000 fell about half a percent. Financials and Communication services were the leading sectors this week, each gaining over 3%. Rate-sensitive sectors were the main laggards, with Utilities and Real Estate each declining about 1%.

We received an updated unemployment report this week, with the unemployment rate coming in at 4.2%, below expectations of 4.3%. That marks a one-year low. So, who said AI was going to take everyone's jobs? So far, the labor market certainly hasn't shown any signs of that.

A few notable movers and news items from this week: AeroVironment (AVAV) surged more than 30% after delivering a blowout earnings report. This is a defense company I highlighted a few months ago as one to keep an eye on. We also saw solid gains across many software stocks, although there wasn't any major company-specific news. It may have simply been a relief rally after the recent pullback. Lastly, I want to point out that CrowdStrike completed a 4-for-1 stock split this week. That's why the stock is now trading around $200 per share. It didn't actually fall from $800 to $200 (a 75% decline), in case you were wondering, lol.

Hot Topic: "First Half of 2026"

Despite a pretty volatile first half of the year, markets were actually quite strong. Through all the media headlines and geopolitical tensions, the stock market continued to grind higher.

The S&P 500 finished the first half of the year up more than 9%, while the tech-heavy Nasdaq dominated the market, gaining more than 20%. The Dow Jones Industrial Average was up just over 8%, closely tracking the S&P 500, while small caps, as measured by the Russell 2000, also surged more than 20%.

The technology sector led the way, climbing nearly 30%, followed by energy, up 19%, and industrials, up more than 18%. All three sectors outperformed the broader market. Communication Services was the weakest-performing sector, down about 6%, followed by Consumer Discretionary, which was down less than 1%.

What the chart below illustrates is that when the S&P 500 finishes the first half of the year up between 5% and 10%, the second half has historically been quite strong. In fact, since 1950, the worst full-year outcome following this type of start was a flat year in 2011. In other words, for the market to experience a significant sell-off over the second half of the year and finish negative from here would be quite rare. In my opinion, that would likely require a major escalation in geopolitical tensions overseas. At least for now, it appears those tensions have been gradually easing.

The average full-year return when the S&P 500 is up between 5% and 10% at the midpoint of the year is 13.9%, implying roughly 4–5% upside from current levels over the next six months. Interestingly, the only other time on this chart that the S&P 500 was between 9% and 10% at midyear was 1963, when it was up 9.9%. That year, the index finished with a gain of nearly 19%. This year, the S&P 500 is up 9.6% through the first half. What if it has another 10% left in it over the next six months? I like the sound of that.

Of course, the move higher would not be in a straight line. I also look at it this way: if the S&P 500 gains another 10%, there will likely be individual stocks that rise 30%, 50%, or even 70% from here. That's why I remain optimistic heading into the second half of the year. In my opinion, a rate cut—or even the Federal Reserve signaling that rate cuts are back on the table—could provide the catalyst for the next leg higher.

Oh, and did I mention the S&P 500 currently sits around 7,500, just 9.3% below my year-end target of 8,200 that I made back in January? I think I might get pretty close for the second year in a row!

Quiet week next week. Nothing major to note, but always stay on your toes. We are just two weeks away from the start of earnings season, a new inflation report, and, at the end of the month, the Federal Reserve's next policy meeting.

Earnings to Watch:

• Thursday: PepsiCo

• Wednesday: Delta Airlines

PEP has pulled back meaningfully over the past few months, moving from $165 to around $140. At roughly 16x earnings, the stock does look cheap; however, with ongoing GLP-1 drug momentum, I remain skeptical about the name. I like the yield and the company’s defensive characteristics, but I do have some concerns. You all know how I feel about airlines—they are a trade, not a long-term investment. DAL is the most iteresting to me because, in my opinion, they are very effective at pricing. At $93, though, I would not touch the stock. Earnings should likely be influenced either by higher oil prices or strong summer travel demand; we’ll see which way it breaks. We’ll find out next Friday.

Reddit (RDT) - Clear as day—a breakout on the Reddit chart after the stock surged roughly 13% on Wednesday. The move came after the CEO announced that Reddit plans to change part of its revenue model when its contracts with Google and other hyperscalers come up for renewal in 2027. Currently, the company reportedly charges around $50–60 million for access to its content to train AI large language models (LLMs). Going forward, management is expected to implement a more dynamic pricing model based on usage. If that happens, I wouldn't be surprised to see Reddit generate three to five times more revenue per deal. Training today's LLMs requires massive amounts of authentic human conversations, opinions, and interactions, and Reddit is one of the best platforms for that type of data. Ironically, I'm not much of a fan of the platform as a consumer, but I loved the stock when it fell to around $150, where it was trading at roughly 20–21x forward earnings. It has since climbed steadily back to around $200. I still think this name has room to run during the second half of the year, and I'll be watching it closely. It remains one of the more exciting recent IPOs and software companies to keep an eye on. AI companies need Reddit's data to make their own models and products smarter and more capable. I continue to like the name, although I would prefer to buy it at lower levels if you haven't already established a position.

Axon Enterprise (AXON) - Please know I am smiling like the Grinch while writing this one... Man, does it feel good to see a beaten-down stock that the market had written off bounce back like this—especially after I was calling for investors to buy the dip near the bottom and doing so myself. The stock is up roughly 22% over the past month and over 40% the past three months, climbing from just under $400 to around $600. I honestly wouldn't be surprised to see a small pullback or period of consolidation before the next leg higher. Even after this impressive rally, the stock still remains well below its all-time high of nearly $900. This was another company grouped in with the broader software sell-off that I believed the market was unfairly punishing. If you spent just a little time digging into the business, you would quickly see that countless police departments, border patrol agencies, and government organizations rely on its technology and hardware every day. From software platforms and surveillance systems to drones, Tasers, body armor, and other public safety equipment, the company offers an incredibly broad suite of mission-critical products. In my opinion, it's about as close to a monopoly as you'll find. Its primary customer is the government—a customer with a substantial budget and one where spending on public safety and law enforcement is often relatively easy to justify and, in many cases, expand. Yes, the valuation is elevated, but for what I believe is a clear industry leader with strong growth prospects, I'm comfortable with where the stock trades. The risk-to-reward profile isn't quite as attractive after the recent rally, but this is absolutely a company that I believe investors should have on their radar.

Honeywell Aerospace (HONA) - I apologize for not discussing this sooner, but Honeywell recently spun off its aerospace division into a separate publicly traded company. As a result, you now have HON, which consists of Honeywell's traditional industrial businesses, and HONA, which houses its aerospace operations. HONA manufactures products such as cockpit displays, radar systems, flight management systems, navigation systems, sensors, and many other critical aerospace technologies. What intrigues me about this business is that it supplies essential equipment to the two major aircraft manufacturers, Boeing and Airbus. I like Boeing, but aircraft manufacturers bear a tremendous amount of risk. If something goes wrong with a Boeing or Airbus aircraft, they are the companies that end up in the spotlight and take the blame. HONA, on the other hand, provides mission-critical technology and equipment while largely staying out of the public eye. In many ways, I believe it is a "picks and shovels" business within the aerospace industry. The stock initially priced around $200, surged to nearly $300, and has since pulled back to around $240 after a nice move higher Thursday to end the week.. The company is expected to deliver steady revenue and earnings growth, and at roughly 26x earnings, I find it intriguing. I'll continue watching the stock closely.

* Disclaimer - It's important to highlight that, on occasion, I may have existing positions in the stocks I highlight in my newsletter. This disclosure aims to be transparent about potential conflicts of interest. Additionally, any stocks identified in this section are for informational purposes only and nothing in newsletter should be construed as a recommendation to buy or sell any security. Although I strive for unbiased analysis, my ownership of certain stocks may influence those that I highlight. Rest assured, my commitment to providing well-researched insights remains unchanged. 

I have talked about this before, but this chart puts into perspective the rapid earnings growth we are seeing across the S&P 500 as a result of the AI buildout and continued infrastructure investment. You can see that EPS expectations for 2024 and 2025, shown in the light blue boxes, were initially around 6% to 8%. However, actual earnings growth came in closer to 10% to 12%, significantly exceeding expectations.



Last quarter, analysts expected earnings growth of roughly 12%, but actual S&P 500 EPS growth came in at a whopping 27%. That is incredible and well above the 35-year average of approximately 8.5%—more than three times the historical norm. Now, with current estimates calling for 22% earnings growth this quarter, I wouldn't be surprised to see the final number come in closer to 28%–30%.

We are now about two weeks away from the start of earnings season. Did you know that over the past 20 years, July has delivered the strongest average monthly returns for the stock market? I think that's a combination of strong second-quarter earnings reports, increased summer travel and consumer spending, and investors positioning ahead of what have historically been the two weakest months of the year: August and September.

Two more points are worth mentioning. First, this surge in earnings growth is being driven primarily by the technology and industrial sectors. Those continue to be the areas of the market that are leading performance. Second, with earnings growth running well above historical averages, I continue to believe this environment can justify higher valuations for the S&P 500, certain sectors (such as industrials, which are already trading at above-average P/E multiples), and select individual companies.

In Weekend Favorites, I share my thoughts on events I'm attending, the new series I'm planning to marathon, the movie I'm dying to see, restaurant craving to taste, trend that ticks me off, or the big game I won't miss. 

July 4th falling on a Saturday is just set up to be a great day, am I right? To start, the markets—and basically the entire country—are closed on Friday in observance of the holiday, how nice! However, I'll still be in the office for a little while to get a few things done before the weekend officially kicks off. I don't know about all of you, but to me, the perfect Fourth of July includes your favorite drink in hand early in the day and soaking up some sun, preferably near the water—whether that's the beach, a lake, or, for us Arizona folks, the pool. Personally, my Fourth of July doesn't really involve grilling because I'm not much of a hot dog or hamburger guy. You can usually find me hanging out by the chip bowl instead, lol.

This year's Fourth of July is extra special—not only because it's America's 250th birthday and it falls on a Saturday, but also because we get World Cup soccer! Tired of me talking about this yet? The Saturday matchups aren't the strongest on paper, but the atmosphere and energy will be incredible. We get Canada vs. Morocco, a match I'm excited for, and I think Morocco wins 1–0. Later in the afternoon, I expect France to roll past Paraguay after Paraguay somehow pulled off the upset over Germany. These aren't my favorite Round of 16 matchups, though. That honor goes to either Norway vs. Brazil or Mexico vs. England which are two games you can't miss!

Have a safe and fun Fourth of July weekend, everybody! Next week I'll be reporting from the Sunshine State, one of my favorite destinations.

To read more of Jake's Analysis on Seeking Alpha where he shares his thoughts, opinions, stock ratings, and price targets on different stocks and ETFs, use the link below!