The S&P 500 (SNPINDEX: ^GSPC) had added 9% year to date despite a plethora of headwinds, including economic uncertainty surrounding President Trump’s trade policies and elevated oil prices tied to the Iran conflict. High inflation has also taken interest rate cuts off the table, at least in the near term.
For context, the S&P 500 had added less than 2% at this point in 2025. So what’s driving the stock market higher this year? And will the market’s momentum carry into the second half of 2026?
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Here’s what investors need to know.
The stock market’s gains have been driven by exceptional financial results
The S&P 500 entered the year with a forward price-to-earnings ratio of 22, one of its most expensive valuations on record. In fact, the index has only exceeded that level during two other periods in the last four decades: the dot-com bubble and COVID-19 pandemic. Both incidents led to bear markets.
The situation got more complicated when the U.S. attacked Iran in late February, sending oil prices to their highest level since Russia invaded Ukraine in 2022. In turn, high energy prices drove inflation to a multi-year high, quashing any hope that the Federal Reserve would cut interest rates in the near future.
Yet, the S&P 500 has still advanced 9% this year, and the driving force behind those gains has been strong financial results. In the first quarter, S&P 500 companies reported revenue growth of 12%, the highest level since 2022. And they reported earnings growth of 29%, the highest level since 2021, according to FactSet Research.
Driving deeper, the technology and communication services sectors led the S&P 500 with earnings growth of 55% and 49%, respectively. And the top five contributors to the index’s earnings growth were companies at the heart of the artificial intelligence (AI) infrastructure build-out: Alphabet, Amazon, Meta Platforms, Micron Technology, and Nvidia.
Paul Quinsee at JPMorgan Chase writes:
The impact of AI is spreading, and separately the energy sector is delivering increased profits. But if we exclude these two market drivers, we project U.S. earnings will grow at a moderate 8% this year. This underscores the critical role the massive AI investment boom now plays in the outlook for equity returns.
