The benchmark S&P 500 index is chugging along in mid-2026, returning 12.8% year to date by market price. The U.S. stock market has seemingly done yeoman’s work churning through the chaos that has defined the year, with an on-and-off-again war with Iran, resumed tariff turmoil, a potential energy crisis centered on skyrocketing AI power center demand, and looming U.S. midterm elections that could shift the levers of power in a highly divided Washington, D.C.
Even with those headwinds, the stock market remains resilient, though as the saying goes, recent performance is no guarantee of future results.
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“We’ve completed a big correction, and I think we’re going to have a great end to the year,” says Kyle Reidhead, head of research at Milk Road, a technology, finance and markets newsletter publisher. “We’re in the best earnings season we’ve had in years. This is all about earnings, and how much these companies implement and adopt AI. If that really takes off, it’ll matter more to the market than anything, because AI can be that revolutionary.”
These five issues may keep investors awake at night, though, possibly through the end of 2026:
— Oil prices and the “light switch” war with Iran.
— Tariffs, earnings and interest rates.
— AI’s power grab.
— AI bubble potential.
— Inflation and Fed red flags.
Oil Prices and the “Light Switch” War With Iran
The back-and-forth conflict between the U.S. and Iran has roiled both the oil market and financial markets since it began in late February, when President Donald Trump authorized military action against Iran, also known as Operation Epic Fury.
“Investor sentiment to the stock market has been rocked when oil prices have spiked, and triggering concerns about inflation as well,” says Tim Holland, chief investment officer at Orion. “Bond yields have tended to move higher and stocks lower. When oil prices have fallen, concerns about inflation have as well, and bond yields have tended to move lower and stock prices higher.”
Brent oil prices crested $126 after joint U.S.-Israel strikes on Iran began, driven by angst over a 15-million-barrel-per-day disruption. Subsequent flare-ups have pushed prices back over $100, while periodic de-escalation has pushed oil as low as $70 per barrel.
Iran-related geopolitical risk has been a case study in how financial markets process external shocks. “As concerns over potential disruptions to global oil supplies increased, higher energy prices quickly reshaped investor expectations,” says Ilya Margolin, founder and capital markets analyst at Margolin Consult. “When tensions eased, oil prices retreated, and U.S. equity indices recovered. Markets are pricing the cost of energy because it directly affects inflation, corporate margins and the cost of capital.”
Tariffs, Earnings and Interest Rates
Wall Street is intensely focused on earnings in the dog days of summer and likely well beyond. “Investors are wondering if the S&P 500 delivers the 20%-plus full-year earnings growth that Wall Street expects,” Holland says. “They’re also weighing the Federal Reserve, and if it can keep rates unchanged through year-end.”
For now, Holland thinks the answer is yes on both counts, although he recognizes that bond traders expect a rate hike at the Fed’s September meeting and further trade turmoil.
“Tariffs are still a bit of a wild card, but we think what has been proposed by the Trump administration of late doesn’t represent a meaningful jump in tariff rates relative to what had been in place prior to the Supreme Court ruling against the administration,” Holland notes.
AI’s Power Grab
Texas made news this week by halting new data center development until all construction costs have been audited.
“Our top priority is to protect Texans’ safety and quality of life,” said Gov. Greg Abbott in an Aug. 4 statement. “Any project that fails to comply with the requirements set forth by the PUCT and ERCOT, and by state law, must be denied connection to the Texas grid. Simply put, Texans must come first.”
That’s a sign U.S. states are taking a harder line on Big Tech AI data center development. It also comes at a time when U.S. data center power demand is expected to double to 66 gigawatts in 2027 from 31 GW in 2025, “driven by an accelerating buildout of AI infrastructure,” according to Goldman Sachs Commodities Research.
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AI Bubble Potential
The stock market is currently close to all-time highs with AI-linked stocks leading the charge. “Semiconductor stocks alone account for 20% of the S&P 500, and if we add the Magnificent 7 stocks, that number would even be way higher,” says Philip van den Berge, founder and CEO of Intrinsiqq, an analytical financial data platform. “In other words, the current indexes are very concentrated into the AI play working out.”
That scenario could impose a massive stock market risk. “The situation right now is that we don’t know if the high capex from hyperscalers such as Microsoft, Google, Amazon and Meta will pay off in the long run,” van den Berge notes. “If the ROI isn’t there, we could see a massive drop in valuations and profit margins.”
But any comparison to the dot-com bubble doesn’t hold water, at least not yet. “Most current capex is being done with operating income, rather than the loans taken that led to the defaults of dozens of companies during the dot-com bubble,” van den Berge adds.
Inflation and Fed Red Flags
Alexei Morgado, a Florida-based real estate agent and founder of Lexawise, a real estate agent exam preparation company, says from his sector’s perspective, the risks that worry him most are inflation, federal policy, employment and consumer confidence, as each can potentially impact buyers’ behavior.
“Inflation remains a key risk factor, as the June CPI increased by 3.5% on a year-over-year basis,” Morgado says. “As a result, the Federal Reserve maintains its rate at a ‘higher for longer’ level and remains concerned about economic conditions. This puts borrowing rates at the forefront of risk factors and makes it harder for buyers to spend their money on expensive purchases.”
Employment numbers are also an indicator for the economy and markets. With unemployment at 4.2% and 57,000 jobs added in June, the labor market appears to be stable but slowing.
“Therefore, buyers will be worried about future jobs and will not spend money on expensive products,” Morgado states. “Higher tariffs should be considered due to potential effects on home repair costs and prices of consumer goods. Consumer confidence is important because people often delay large purchases when feeling pressured. They’ll avoid buying a house, car, investing and remodeling.”
Other market experts note the Fed held rates at 3.5% to 3.75% on July 29, but three voters preferred a quarter-point increase. “That’s not a recessionary setup; it’s now a market with a narrow margin for error,” says Christopher Uhl, chief marketing officer and host of the “How to Trade Stocks and Options Podcast.”
Don’t Let Anxiety Drive Decision-Making
Market experts say Main Street investors are wasting their time worrying about short-term market fluctuations in the second half of 2026, or for any trading timeframe.
“It’s all about managing your emotions,” Reidhead said. “When the market panics, that doesn’t mean you sell. Be calm, look at the data, zoom out, trade less and be a long-term thinker.”
Reidhead points to South Korea’s recent market volatility as a cautionary tale for U.S. investors. On Aug. 4, South Korean stocks plummeted for a second-straight session, deepening a sell-off that had already wiped out billions in equity value during late July.
“Korea is the lesson in real time,” Reidhead says. “Investors piled leverage into two names, and when it turned, margin calls forced them to sell at the bottom. Leverage doesn’t cause the crash; it accelerates it. The mistake is using short-term, leveraged tools as long-term bets.”
Reidhead says he sees opportunity in technology, particularly artificial intelligence.
“If the leverage is actually being unwound, this is a good time to be buying AI infrastructure,” he says. “What matters now isn’t macro, it’s adoption; we’re moving into an autonomy phase with agents, which uses far more compute, and I don’t think people go back to speculating in crypto when there’s this much growth in the stock market.”
The U.S. economy is mostly on solid ground, but “not completely healthy,” says David Russell, global head of market strategy at Chicago-based TradeStation. “Growth is dependent on tech investment and fiscal deficits, but we also have a tight labor market and few systemic debt problems in the private sector. Inflation is the wild card given uncertainty about energy.”
To protect your portfolio, check whether your investments match the level of risk that’s appropriate for your situation. “If you’re in 70% stocks for a goal with a two-year time horizon, you may want to rebalance,” says Michael Schramm, chartered financial analyst and founder of Emotional Finance, a money management advice platform. “For those who have the right mix of stocks, bonds and cash: Stay invested. We don’t know when a downturn will happen, so you can lose out on returns if the market keeps growing. Don’t make a permanent financial decision based on a temporary emotional state.”
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Will the Stock Market Crash in 2026? 5 Risks to Consider originally appeared on usnews.com
Update 08/06/26: This story was published at an earlier date and has been updated with new information.
