We have now passed the halfway point of 2026. The first six months of the year were shaped by geopolitical tensions, elevated energy prices, and persistent inflationary pressures, creating a challenging backdrop for lower-quality and energy-sensitive assets.
Despite these headwinds, equity markets demonstrated remarkable resilience. Performance was supported by strength in energy-related sectors, continued corporate earnings growth, and sustained investor interest in long-term structural themes such as artificial intelligence, automation, and infrastructure investment. Importantly, market gains have not been driven solely by optimism or speculation. Corporate earnings have generally remained resilient throughout 2026, which many market participants view as supportive of current equity valuations. Future market performance remains subject to changing economic and market conditions. As always, remember that past performance is no guarantee of future results.
Market performance as of June 30, 2026. Source: RBC GAM
Looking ahead, investors continue to navigate a range of uncertainties. Ongoing trade negotiations, including the anticipated review of the USMCA, have impacted business confidence and contributed to a more cautious corporate decision-making environment.
In this mid-year review, we examine three key themes shaping markets in 2026:
- Increasing index concentration
- The impact of AI on corporate performance and investment
- Periods of heightened intra-year market volatility
This edition explores how these dynamics have influenced market returns so far and what they may mean for investors in the second half of the year and beyond.
Index concentration – How many companies are actually driving market performance?
One of the most persistent market themes in recent years has been the increasing concentration of equity benchmark returns.
The S&P 500 remains the most widely followed measure of U.S. equity market performance. While the index contains 500 companies, it is not equally weighted. Instead, constituents are weighted by market capitalization, meaning larger companies exert a greater influence on overall index returns. Today, the 10 largest companies—predominantly technology-related businesses—represent nearly 40% of the index, a level of concentration not seen since the mid-1960s. Semiconductor-related companies alone now account for almost one-fifth of the S&P 500.
These figures represent the index concentration of the top 10 companies by market capitalization. Standard deviation is a statistical measure of how much values vary from their average. A higher number indicates greater variation. Data shown is monthly, from January 31, 1996, through June 30, 2026. Sources: Capital Group, FactSet, S&P Global
Supported by continued AI infrastructure investment and strong earnings growth from mega-cap technology companies, market leadership has remained highly concentrated. As of mid-year, the 10 largest S&P 500 constituents have delivered returns of approximately 12%, compared with roughly 7% for the remaining 490 companies.
The trend is even more pronounced in emerging markets. Three semiconductor companies alone account for 29% of the MSCI Emerging Markets Index and have significantly outperformed the broader benchmark, contributing disproportionately to overall index performance.
Canada’s equity market exhibits a similar dynamic. Within the S&P/TSX Composite Index, the six largest Canadian banks represent nearly one-quarter of the benchmark. Through mid-July, the “Big Six” banks generated returns of approximately 33%, while the remainder of the index returned roughly 6%.
What This Means for Investors
The common thread across many major equity markets is increasingly narrow market leadership. While a typical portfolio or index fund may hold hundreds of individual securities, a relatively small number of companies are responsible for a significant portion of overall returns.
For investors, this underscores the importance of understanding what lies beneath the surface of benchmark-based investments. Many portfolios include funds designed to track broad market indexes such as the S&P 500, S&P/TSX Composite, MSCI Emerging Markets, or MSCI EAFE. While these funds provide broad exposure, their return characteristics may be increasingly influenced by a small group of dominant companies or sectors.
Investors seeking to reduce concentration risk have a variety of alternatives available within the mutual fund and ETF universe. Actively managed strategies, value-oriented mandates, low-volatility funds, dividend-focused portfolios, and alternative investment solutions can provide exposures that differ meaningfully from traditional market-capitalization-weighted benchmarks. The appropriate approach will depend on an investor’s objectives, risk tolerance, and desired level of diversification.
Key Takeaway
Although market indexes may appear broadly diversified, a growing share of returns is being driven by a relatively small number of companies. Understanding this concentration – and whether it aligns with your investment objectives – has become increasingly important in today’s market environment.
Artificial Intelligence – The dominant market theme
A defining market theme today is the accelerating AI capital expenditure cycle. What began as a concentrated technology investment trend has evolved into a broad-based industrial buildout spanning semiconductors, data centres, power generation, and grid infrastructure. AI-related investment is projected to approach $800 billion in 2026, with spending expected to accelerate further in 2027.
Equity markets have responded accordingly. Technology companies have been the dominant drivers of global equity performance, accounting for 19 of the 20 largest contributors to index returns. Current valuations increasingly reflect expectations of a meaningful increase in future corporate profitability.
Year-to-Date sector performance ending June 30, 2026. Source: Fidelity Investments
The more important debate, however, extends beyond near-term spending forecasts and technological milestones. Historically, major technological advances have enhanced worker productivity, with economic benefits shared between businesses and employees through higher output, wages, and profitability. The key question is whether AI will follow the same pattern or prove fundamentally different.
Unlike previous innovations, AI has the potential not only to augment labour but, in some cases, to replace it. If AI-driven automation allows a greater share of economic value creation to accrue to businesses rather than labour, the result could be a sustained shift in the balance between capital and labour, supporting higher corporate profit margins over time. Some of the major factors that will determine long-term AI growth and profitability include adoption & implementation uncertainty, impact on ROI, and regulatory uncertainty.
McKinsey’s 2025 Global Survey found that actual corporate AI implementation hasn’t kept pace with reported adoption rates (McKinsey & Company, “The state of AI in 2025: Agents, innovation, and transformation,” November 5, 2025), and PwC’s recent CEO survey shows that return on investment hasn’t yet been established at scale (PwC, “PwC 2026 Global CEO Survey,” January 19, 2026). The regulatory environment is constantly evolving and varies widely; for instance, USA’s regulatory approach is nearly the polar opposite to the EU & countries like South Korea (BISI, “Global Fragmentation of AI Governance and Regulation“, January 30, 2026).
Key Takeaway
Ultimately, long-term investment outcomes may depend less on the pace of AI adoption and more on whether AI alters the distribution of economic gains across the economy. Current equity valuations appear to be discounting a future in which corporate profits capture a larger share of those gains than in previous technological cycles.
A reminder of “intra-year” volatility
Earlier this year, at the onset of the U.S. – Iran conflict, the S&P 500 experienced a drawdown of about 9%.
S&P 500 index movement from December 2025 through June 16 2026. Source: Dynamic Funds
A S&P 500 sell-off of this magnitude in a given calendar year is quite normal. Since 1928, the S&P 500 has experienced a drawdown of 10% in 60% of all calendar years. The average intra-year peak-to-trough drawdown for the S&P 500 has been 16%.
Key Takeaway
Short-term market declines of 5-10% happen even in strong market years. These declines happen frequently and “go with the territory” of investing in equity markets. They cannot be avoided. Portfolio decisions should be proactive and be based on long-term risk tolerance and investment timelines, not as a reaction to these events.
Conclusion
The first half of 2026 demonstrated the resilience of equity markets in the face of geopolitical uncertainty, inflationary pressures, and higher energy prices. Strong corporate earnings and continued investment in transformative themes such as artificial intelligence helped support market returns, although much of that performance was driven by a relatively small number of companies. As a result, understanding benchmark concentration and the underlying drivers of portfolio returns has become increasingly important.
At the same time, this year served as another reminder that volatility is a normal and unavoidable feature of investing. Short-term market declines can occur even during strong market years and should not distract investors from their long-term objectives. While the headlines and market leaders may change, successful investing continues to be built on maintaining a disciplined strategy aligned with one’s risk tolerance, diversification goals, and investment time horizon.