What will matter most for markets in the second half?
The Sandbox Daily (6.3.2026)
Welcome, Sandbox friends.
Today’s Daily discusses:
looking ahead to the 2nd half
Let’s dig in.
Blake
Markets in review
EQUITIES: Nasdaq 100 -0.29% | S&P 500 -0.74% | Dow -1.21% | Russell 2000 -1.31%
FIXED INCOME: Barclays Agg Bond -0.21% | High Yield -0.28% | 2yr UST 4.082% | 10yr UST 4.991%
COMMODITIES: Brent Crude +0.88% to $88.18/barrel. Gold -1.29% to $4,461.4/oz.
BITCOIN: -2.76% to $65,009
US DOLLAR INDEX: +0.31% to 99.53
CBOE TOTAL PUT/CALL RATIO: 0.73
VIX: +1.84% to 16.06
Quote of the day
“I’ve had a lot of worries in my life, most of which never happened.”
- Mark Twain
What will matter most for markets in the second half?
Ask ten strategists what will drive markets in the second half of the year, and you’ll get ten different answers.
For many, the votes are fairly evenly split between:
inflation and monetary policy
AI/CapEx
earnings
While each deserves attention, the answer may ultimately be a combination of A and B: inflation and the Fed’s policy measures will determine the backdrop, while AI determines the winners.
At present, the Iran conflict and the inflationary pressures that ripple outwards have the bears foaming at the mouth. Even if geopolitical tensions ease, inflation is unlikely to quickly return to pre-conflict levels.
Higher energy prices, commodity costs, and lingering supply chain disruptions are already filtering through the economy. So far, inflation surprises have remained relatively benign, but investors will spend the second half debating a familiar question: how much is temporary and how much is becoming entrenched?
If inflation proves sticky, the Federal Reserve may be forced to maintain a tighter stance for longer, creating headwinds for both stocks and bonds.
Yet it remains difficult to escape the gravitational pull of AI and capital spending.
Massive investment by hyperscalers continues to reshape the market landscape. Unlike prior technology booms, today’s spending is mostly being funded largely by extraordinary cash flows rather than speculative financing.
The eventual IPOs of companies such as SpaceX, OpenAI, and Anthropic, could create significant volatility despite the public’s excitement and attract capital away from existing holdings. After all, the S&P and Nasdaq altered their index construction methodologies to allow for immediate inclusion of these stocks.
We may soon need to stop talking about the “Mag 7” and start talking about the “Mag 10.”
The bridge between these two themes is earnings.
S&P 500 profit growth is on pace for its strongest performance since 2022, an unusual outcome this late in an economic expansion.
The challenge for investors won’t be whether earnings are growing, but whether expectations have become too ambitious – particularly for AI-related companies carrying much of the market’s weight.
One final observation: investor sentiment remains remarkably pessimistic.
Historically, major bull markets have not ended when individual investors are this skeptical.
While risks are real, the combination of strong earnings, resilient economic activity, and persistent pessimism suggests this bull market may still have further to run.
In the end, inflation may determine the market’s direction, but AI will likely determine its leadership.
Chart source: Exhibit A
That’s all for today.
Blake
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Welcome to The Sandbox Daily, a daily curation of relevant research at the intersection of markets, economics, and lifestyle. We are committed to delivering high-quality and timely content to help investors make sense of capital markets.
Blake Millard is the Director of Investments at Sandbox Financial Partners, a Registered Investment Advisor. All opinions expressed here are solely his opinion and do not express or reflect the opinion of Sandbox Financial Partners. This Substack channel is for informational purposes only and should not be construed as investment advice. The information and opinions provided within should not be taken as specific advice on the merits of any investment decision by the reader. Investors should conduct their own due diligence regarding the prospects of any security discussed herein based on such investors’ own review of publicly available information. Clients of Sandbox Financial Partners may maintain positions in the markets, indexes, corporations, and/or securities discussed within The Sandbox Daily. Any projections, market outlooks, or estimates stated here are forward looking statements and are inherently unreliable; they are based upon certain assumptions and should not be construed to be indicative of the actual events that will occur.
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