US equity markets staged a powerful rebound in the second quarter, reversing March’s geopolitically driven losses as a blowout earnings season, a US-Iran ceasefire, and unrelenting AI enthusiasm sent stocks sharply higher. The S&P 500 gained +14.87%, and the Nasdaq +21.41%, while the small cap Russell 2000 nearly matched at +21.15% (S&P Dow Jones Indices, 6.30.26). Both the S&P 500 and Nasdaq logged their best quarter since 2020, briefly notching record highs in early June before easing off to finish just shy of those peaks.

The first pillar of the advance rested on earnings. First quarter S&P 500 profits grew roughly +28.6% year-over-year against the ~13% forecast for the fastest pace since late 2021 (FactSet, Earnings Insight) and the strength was broad. Still, AI led and the Philadelphia Semiconductor Index surged +87.8%, its best quarter since its 1993 inception. As noted, breadth also improved with eight of eleven sectors advancing, albeit still led by technology and industrials. Energy was the weakest as oil retreated on ceasefire news.
This raises the second pillar, a decisive shift in the global macro backdrop. An April US-Iran ceasefire eased the Strait of Hormuz standoff and sent WTI crude down over -30%, back below $70/BBL after Q1’s ~77% spike. Yet, inflation returned to the fore, with consumer prices up 4.2% year-over-year in May, though the core rate held at a tamer 2.9% (BLS, 6.10.26). The bigger surprise came from the Fed: new Chair Kevin Warsh, sworn in during May, struck a firmly hawkish tone in June — holding rates, but dropping the prior signal of 2026 cuts and hinting at possible hikes (Federal Reserve, 6.17.26). The US Dollar hit a fresh 40-year high against the Yen, gold fell -13.7% for its worst quarter since 2013, and Bitcoin slid -13.5% for a third straight post-election quarterly decline.

Finally, capital markets roared back. Initial Public Offering volume topped $250 billion year-to-date for a record pace headlined by SpaceX’s roughly $86 billion debut, the largest in history (CNBC, 6.12.26), and with AI darling Anthropic reportedly eyeing a fall listing.

Looking ahead, market foundations appear sound although valuations are historically high. Analysts now expect roughly +23% Q2 earnings growth, and the economy has been resilient (FactSet, 7.2.26). However, risks have shifted to a Fed that may tighten rather than ease, heavy dependence on sustained AI spending, and valuations that arguably leave little room for disappointment, all warranting attention. The last rate hike campaign in 2022, should it come to that, certainly made for a difficult year. Meanwhile, with fundamentals intact, staying diversified and anchored to long-term objectives remains the best course.

Source: Index proxies based on dividend adjusted ETF time-series data from Unicorn-Data-Services. Data considered dependable, but not guaranteed. Past performance is no guarantee of future performance or profitability. Statements herein do not constitute individual investment advice – please speak with your advisor about your particular situation.