In our quarterly Economic & Market Update Newsletter, we separate the relevant from the noise, to bring you timely content that helps you on the path to and through retirement!
2nd Quarter 2026 Commentary
The second quarter was surprisingly strong, especially against the backdrop of the conflict in Iran, rising inflation and gas prices, and growing concerns that the Fed may shift from gradually lowering interest rates to raising them later this year.
Stock Market Update
Stocks posted their best quarterly gains since 2020, with all major market indexes delivering double-digit returns. The S&P 500 gained 15%, the Nasdaq rose 21%, and the Dow Jones Industrial Average advanced 13%. Strong corporate earnings, continued enthusiasm for AI, and easing tensions in Iran were the primary drivers of these gains.
Bond Market Update
The bond market also remained relatively stable. Yields moved modestly higher while prices held steady, suggesting investors expect inflation to remain stubbornly elevated but are not anticipating runaway inflation or a prolonged oil supply shock.
Geopolitical Impact
Last quarter, we wrote: “Geopolitical tensions are adding uncertainty to the path of interest rates and straining an economy already facing high valuations, a softening labor market, a housing slowdown, and persistent inflation. Offsetting this, a resilient consumer and continued AI-driven investment may help support continued growth.”
We believe these themes will continue into the second half of 2026. The two biggest factors to watch over the coming months are corporate earnings and inflation.
Looking Ahead
Earnings growth was exceptionally strong in the second quarter, but it’s unlikely to continue at the same pace. Stocks have benefited from strong earnings, but if companies begin missing expectations, markets could struggle in the second half of the year.
Inflation also remains well above the Fed’s 2% target and has moved higher as rising energy costs have filtered through to other goods and services. Even though oil prices have retreated to pre-conflict levels, some of the inflationary effects have already taken hold, making higher interest rates later this year increasingly likely. The Nasdaq, S&P 500, and the large technology companies that dominate both indexes remain especially vulnerable to higher interest rates.
Given this backdrop, we remain cautious about the market’s heavy concentration in technology stocks and continue to trim tech positions while reallocating to more defensive, value-oriented investments where appropriate. Many speculative asset classes, including bitcoin and precious metals, have already entered bear markets, and the Magnificent 7 stocks were down 2.5% for the year through the end of June.
Within bond portfolios, short- and intermediate-term CDs and investment-grade corporate bonds continue to offer attractive income and stability in a post-COVID environment characterized by more frequent supply shocks. In May, we also repositioned our model portfolios by reducing bond duration and increasing our allocation to Treasury Inflation-Protected Securities (TIPS).
Bottom Line:
The second quarter delivered strong market returns despite geopolitical tensions, persistent inflation, and rising interest rate concerns. We remain cautiously positioned, emphasizing defensive investments while closely monitoring inflation and corporate earnings.
