These 3 forces fueled the best quarter for the US stock market in years

One of the wildest first halves for stocks in recent memory is ending on a very high note.

US stocks are barreling toward quarter-end with their best gains in years, thanks to a fresh rally driven by tailwinds ranging from ebbing US-Iran tensions to relentless enthusiasm for tech and AI.

The major indexes traded mostly flat on Tuesday, but the Dow Jones Industrial Average remained on track to post a 8% gain for the first half of the year, which would mark the index’s best first-half since 2021, when the pandemic stock rally took off.

The Nasdaq 100, meanwhile, was on track to end the quarter with an 18% gain, its best three-month stretch since the pandemic. It would also mark the index’s second-best quarter in about 25 years.

The S&P 500 is poised for an 8% gain in the half, while the small-cap Russell 2000 is on track to post a 21% increase, its best first-half since 1991.

Here’s where US indexes stood shortly around 10:15 a.m. ET on Tuesday:

It’s been a rollercoaster first half for markets. Stocks were rocked by geopolitical concerns and bursts of profit taking as the tech rally raged on. The US-Iran war, the headline event for markets in 2026, caused major indexes to drop around 10% by late March, before they embarked on a record-breaking rally.

“Having got off to a poor start to 2026, which saw markets hit their lows of the year, after the break-out of hostilities in the Middle East and the closure of the Straits of Hormuz, we’ve seen a complete reversal,” Michael Hewson, a senior market analyst at iForex Europe, wrote in a note on Tuesday.

Here are the three things that drove stocks to these new heights:

Waning US-Iran tensions

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Markets have steadily grown more hopeful that the US-Iran war will soon to come to an end. Investors finally got a preliminary peace deal with Iran this month — the top item on their wish list — and have shrugged off ongoing tensions and uncertainties surrounding the peaceful.

After launching fresh attacks over the weekend, the US and Iran said they would stop strikes and allow commercial ships to pass through the Strait of Hormuz safely on Sunday. Both sides will continue “technical talks” to reach a final peace agreement, one US official told CNBC this week.

Investors have been pricing in a resolution between the US and Iran for weeks, but remain wary of the situation surrounding the Strait and whether oil prices will come down, a key concern that has hung over the market this year.

A searing rally in chips and memory stocks

Chips and memory stocks have come out on top so far this year while investors punished software firms and big spenders in the AI trade. The market’s focus has intensified on AI hardware, leading chip and memory companies to populate the market’s list of top winners.

The Philadelphia Semiconductor Index is on track to log its best-ever quarter, soaring 80% since the end of March.

Here are some of the market’s biggest gainers in the first-half:

Many chip names also received a helping hand from the Trump administration, which granted billions to tech companies and added key players to its portfolio, like Intel.

The remarkable gains in tech have come even as the market’s biggest stocks have lagged. Where the Magnificent Seven were once the primary engine of broader stock gains, the cohort has struggled this year.

“The turnaround in sentiment has been quite something to behold,” Hewson said. “As you would expect the rebound has been driven primarily by tech names, however contrary to popular belief it’s not been driven by the ones you might think.”

The Roundhill Magnificent Seven ETF is down about 4% year-to-date.

Here are some of the market’s big losers in the first-half:

A stellar earnings season

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US companies posted robust earnings in the quarter, blowing past Wall Street’s expectations to help fuel the rally into quarter-end.

As of early June, around 85% of S&P 500 firms beat earnings estimates, the highest percentage for the second quarter in five years, according to FactSet. For the current quarter, earnings are expected to grow by 23% year over year.

Analysts expect a 21% price increase in the S&P 500 over the next 12 months, with every sector of the benchmark index gaining at least 10%, FactSet said.