The second quarter of 2026 was marked by a steady stream of both positive and negative developments. On the negative side, geopolitical tensions in the Middle East intensified following the conflict involving Iran, while inflation readings remained elevated. On the positive side, labor market conditions remained generally resilient, SpaceX completed a historic initial public offering, and diplomatic efforts helped reduce tensions between the United States and Iran through a series of ceasefire agreements and ongoing negotiations. Despite the mixed backdrop, global equity markets rebounded strongly from the first-quarter decline and posted solid gains across most regions.
In the United States, the S&P 500 Index delivered its strongest quarterly return in six years. Much of the advance was driven by the information technology sector, which gained nearly 32% during the quarter. International developed markets trailed U.S. stocks but still generated returns of more than 10%, while emerging markets led all major regions. By quarter-end, emerging market equities had produced trailing one-year returns in excess of 43%.
Following the joint military actions undertaken by Israel and the United States against Iran earlier in the year, investors closely monitored efforts to de-escalate the conflict. Throughout the quarter, markets reacted to a series of ceasefire announcements, negotiations, and periodic setbacks as diplomatic discussions continued. By June, a broader framework for reducing hostilities had emerged, helping to ease concerns about a prolonged disruption to global energy supplies. Oil prices remained highly volatile during this period, with West Texas Intermediate crude reaching approximately $105 per barrel in May before retreating to roughly $70 by quarter-end.
Economic data during the quarter reflected a mixed but generally stable global backdrop. In the United States, inflation remained a central focus as policymakers and markets continued to monitor whether price pressures were easing sufficiently toward long-term targets. The closure of the Strait of Hormuz led to elevated oil prices, which put upward pressure on inflation. The trailing one-year inflation numbers were 3.8% in April and 4.2% in May, above the Fed’s desired 2% target. Labor market conditions were mixed but positive overall throughout the quarter. The US added over 100,000 jobs in April and May, but only 57,000 jobs in June, below forecasts. With inflation elevated and hiring relatively strong, the Fed decided to leave interest rates unchanged.
In June, Elon Musk’s SpaceX had a record IPO, raising $75 billion in capital. On the day of the IPO, June 12th, shares closed their first trading session up 19%, implying a market cap of roughly $2.2 trillion, catapulting the company to one of the most valuable in the world. For comparison, Saudi Aramco held the previous IPO record, raising $25.6 billion in 2019. Investor enthusiasm around the company reflects expectations that SpaceX’s core businesses, including Starlink, rocket launch services, and AI infrastructure services, will support future growth.
SECOND QUARTER EQUITY INDEX RETURNS
Global equity markets rallied after a relatively flat first quarter. Emerging markets led the way, returning over 24% for the quarter. US and international developed stocks also had strong performance. In the US, small cap stocks outperformed large cap stocks, and growth stocks outpaced value stocks, led by a charge in the information technology sector.
SECOND QUARTER ALTERNATIVE INDEX RETURNS
Global REITs had a strong second quarter, returning over 10%. This performance was led by US REITs, and their strong quarter has lifted the trailing one-year returns to over 22%. High yield bonds also posted a solid quarter, returning nearly 2.5%.
SECOND QUARTER FIXED INCOME INDEX RETURNS
Interest rates in the US rose slightly, however, bond indices still had positive performance. In the US, the aggregate bond index increased roughly 70 basis points. TIPS and short-term municipal bonds also posted positive returns, both above 80 basis points.
Markets around the globe have continued to show resilience despite headwinds, and disciplined investors have been rewarded for remaining invested in a globally diversified portfolio.
We hope you are enjoying a great summer with family and friends. As always, please feel free to reach out regarding updates on your portfolio or markets in general.