Broadening Trade Returns as Conflict Eases

08.07.2026 · By Bernal Fintech Markets Desk

Equity markets posted positive returns in the first half of 2026 despite geopolitical tensions and oil price swings, driven by AI infrastructure and resilient corporate earnings. The shift in leadership among equities has been notable, with broadening trade returns emerging as conflict in the Middle East eased and corporate results exceeded expectations.

According to ETF Trends, the first half of 2026 saw a shift in market leadership despite ongoing tensions in the Middle East, sharp oil price swings, and resurging inflation concerns. Equity markets posted positive returns as geopolitical risk de-escalated, corporate earnings from the AI infrastructure buildout remained strong, and the U.S. economy showed resilience. This has led to a broadening of trade returns, with sectors beyond the traditional tech-heavy indices benefiting.

Market Dynamics and Sector Rotation

The AI infrastructure buildout has been a major driver of corporate earnings, with data-center construction and related industries seeing significant demand. WSJ reported that the boom in data-center construction has lifted airfreight demand, as bulky server racks and wafer-thin semiconductors now dominate cargo planes once occupied by low-price consumer goods. This has created a ripple effect across supply chains, with logistics and transportation sectors also seeing increased activity.

However, the market has seen a rotation in recent weeks, with investors shifting away from AI infrastructure stocks. Seeking Alpha noted that companies related to the data center buildout have been crushed over the last week as investors rotate away from AI infrastructure. This shift has been accompanied by a broader correction in the technology sector, marked by the sale of chip and hardware names, while hyperscalers like Microsoft, Amazon, Meta, and Google have remained resilient.

Meanwhile, small-cap stocks have shown signs of recovery, with Seeking Alpha reporting that small caps are outperforming in 2026, fueled by stronger earnings expectations and bargain valuations. AI-linked holdings and a resilient U.S. economy are adding momentum to the rally. However, the sector remains vulnerable to refinancing and margin risks, especially in highly levered small-cap ETFs.

What it means for markets

While the first half of 2026 has seen positive returns, the broader market faces challenges from a hawkish Federal Reserve and fading liquidity. Geopolitical tensions, particularly in the Middle East, have also contributed to volatility, with recent developments such as the resumption of U.S. sanctions on Iran sending oil prices higher and Bitcoin lower. Investors must remain cautious as these factors could impact the sustainability of current market trends.