Q2 2026 Market Commentary
BY ETHAN GILBERT, CFA, CFP, PARTNER AT RIALTO WEALTH
The war with Iran was the main subject of headlines throughout the quarter. A fragile “cease-fire” was agreed to, then not, then a two-month blockade of the Strait of Hormuz (in both directions), and now we have an agreement in principle with negotiations ongoing. As we’re growing accustomed to, the forward-looking market recovered rapidly, hitting new highs by April 15th. From a fundamentals standpoint, the
biggest news was how well corporate earnings came in for the quarter. More than 80% of S&P 500 companies beat estimates for both revenue and profits. U.S. companies are tracking 2026 earnings growth of 24%, far above their long-term average of 6%.
Price Action
In the second quarter technology stocks performed best, gaining 29%, with no other sector doing better than 13%. In just three months, 4 different technology stocks in the S&P 500 gained more than 200% (SanDisk, Micron, Marvell, and Intel), and another 11 stocks returned more than 100%. Energy was the worst performer, dropping 13% as the decline in oil prices reversed some of their first quarter gains. Emerging Market stocks gained 20% for the quarter while international developed stocks were up by 8%. Commodities and stores of value suffered across the board with gold, bitcoin, and oil all seeing significant declines. Core inflation (excluding food & energy) has remained persistently high, above 3%, causing the market to adjust expectations. Futures now indicate a rate hike at the September meeting, which has caused short-term interest rates to rise. Longer-term rates stayed pretty flat for the quarter and credit spreads tightened a bit.
• US Stocks hit record highs in early June on the back of
strong tech performance.
• The disparity in technology stocks continued with
semiconductors broadly gaining 47% in Q2 whereas
software companies only appreciated 7%.
• US Small Cap stocks did well, gaining 21% for the
quarter with small-growth stocks up 26%.
• REITs produced another solid quarter, trailing the
general market slightly, but still outperforming for
the year.
• Residential home values appreciated 0.9% for the last
three months we have data.
• Short-term interest rates rose (2yr UST up 0.33%),
while longer-term interest rates were closer to flat
(10yr up 0.11% and 30yr flat).
• Treasury market implied inflation ticked down this
quarter for the 5yr term (decline of 0.29%) but stayed
flat for longer terms. The current expected inflation
figures are right around 2.25% for 5, 10, 20, and 30
year periods.
• Emerging Markets have been the strongest performer
this year, up 23%. The biggest catalyst is East Asian
semiconductor stocks which have led to South Korea
and Taiwan gaining 108% and 71% respectively in 2026.
• Speculators in Cryptocurrencies were again
disappointed, as their flagship holding declined 13% in
Q2. In the last 9 months, Bitcoin is down 47% while the
global stock market is up 13%.
Looking Forward
The market seems to have priced the war with Iran as being resolved, but missiles still seem to be flying every few days and reignition of the conflict would be a meaningful negative for markets. That said, never underestimate human ingenuity and the longer the Strait of Hormuz is a pain point, the more effort will go into circumventing it. Semiconductors have had a meteoric run in the last year. Whether the demand can continue to materialize for these products remains to be seen and will drive market valuations in the future. Finally, inflation has remained stubbornly high, annualizing 3.3% over the past 3 years, and 4.5% over the last 6. The Federal Reserve is committed to seeing these numbers decline and asset prices may not react positively to the actions required to get inflation back to desired levels.