The bull market has been under attack at the start of the second half of 2026 — jitters over the artificial-intelligence buildout, geopolitical flare-ups and rising longer-term interest rates have all ganged up on investors.
But the total potential damage looks more like a stress test than a breaking point: The S&P 500 and technology stocks may have just 5% to 8% more to drop before this bull market finds its footing again, according to strategists at Truist Wealth.
Although the second half of the year kicked off with a brutal selloff in semiconductor names, the tech-heavy Nasdaq Composite closed Thursday just 7.2% below its June 2 record close, well above the bear-market threshold of a 20% decline. The S&P 500 was just a little over 2% below its June 2 record close and the Dow Jones Industrial Average was 1.6% off its July 6 record, according to FactSet data.
“The bull market remains intact, but the bumpier second-half path we’ve anticipated is unfolding as AI/tech uncertainty, geopolitical tensions and higher interest rates converge,” said a team of Truist Wealth strategists led by Keith Lerner, chief investment officer and chief market strategist. “The current pullback appears more consistent with a reset than a change in the broader bull-market trend.”
The selloff in the stock market came as investors grew increasingly anxious over the massive AI infrastructure buildout, questioning whether the eye-watering capital expenditures from hyperscalers will eventually pay for itself. Compounding the tech sector’s woes was a violent jolt from the energy market, with oil prices swinging wildly as the U.S. and Iran have traded escalating military strikes that threatened to draw more Middle Eastern countries into the conflict.
Then came the Federal Reserve’s latest decision to hold interest rates steady earlier this week, which did little to calm nerves in financial markets, sending longer-duration Treasury yields surging asinvestors grew skepticalthat inflation will fall back to the 2% target anytime soon.
In the view of Lerner and his team, the S&P 500 and technology stocks could still see some near-term volatility, but not enough to derail the longer-term bull market, based on their analysis of historical patterns, valuations and technical indicators.
From a historical perspective, the recent weakness in the S&P 500 is simply a normal pullback within the broader bull trend in the stock market. After climbing nearly 20% from March lows to its early June peak, the large-cap benchmark index has reached the point where a period of “consolidation” would be widely expected, Truist Wealth strategists said in a Thursday client note.
“Since the current bull market began [around four years ago], tech has experienced four corrections averaging roughly 18% over three months, compared to the current pullback of approximately 14% over two months,” Lerner and his team said. “History suggests the current tech correction may not be complete, but it is becoming increasingly mature.”
Solid earnings are another reason to support further upside in stocks after a modest drawdown from current levels. The recent pullback has been driven by concerns over market valuations rather than deteriorating earnings expectations. A decline of 5% to 8% would bring overall stock valuations back to the support levels established during the start of the oil shock in March, while valuations for the technology sector would compress to roughly 20x from 20.8x, according to data compiled by Truist Wealth (see chart below).
Photo: SOURCE: TRUIST IAG, FACTSET, MACROBOND, S&P DOW JONES
Moreover, the technical picture suggests that both the S&P 500 and tech sector remain within broader long-term uptrends, said Lerner and his team (see chart below). The recent weakness appears more consistent with a cooling off in a market that became overheated than a breakdown in the primary trend.
“Technical indicators, such as support levels, retracement analysis and the 200-day moving average align well with the previously discussed fundamental support levels, also suggesting a broad band of support roughly 5% to 8% below current levels,” they added.
SOURCE: TRUIST IAG, FACTSET, MACROBOND, S&P DOW JONES
U.S. stocks rebounded Thursday from the selloff in the previous session after strong earnings from Microsoft Corp.
MSFT
+15.51%
. The Nasdaq advanced 2.8%, while the S&P 500 was up 1.7% and the Dow rose 1.2%, according to FactSet data.
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