2026 Q2 market review
Your Q2 2026 wrapped.
Markets rose. Sentiment sank. Diversification finally got its turn. Here’s the signal worth keeping from a quarter filled with noise.
This was one of the more interesting quarters in recent memory. Between geopolitical conflict, stubborn inflation, historically low consumer sentiment, and surprisingly strong market returns, the whole thing felt a little confounding.
Thankfully, investors who stayed the course benefited along the way. Funny how often that ends up being the case.
Below, we’ll look at consumers, the companies we invest in, what’s happening across markets, and two reasons for big-picture optimism. Let’s dive in.
01
First, the returns
Markets rebounded in a big way.
In a world filled exclusively with “breaking news,” it can be difficult to maintain the long-term perspective required to be a successful investor.
Here are the total returns through the second quarter, as of June 30, 2026.
Stock indexes
- S&P 500
- +10.09%
- Dow Jones Industrials
- +9.52%
- U.S. small cap
- +22.56%
- International, developed
- +9.88%
- International, emerging markets
- +25.67%
Bond indexes
- U.S. Aggregate Bond Index
- +0.74%
- U.S. Treasuries, 7–10 year
- −0.05%
The short version
Staying invested mattered more than predicting the headlines.Source: Market Return Data. Total returns through June 30, 2026. For additional market context, see the June 30 market summary.
02
The state of the consumer
People feel worse than the markets look.
Prices
Gas and inflation dominated the quarter.
During the second quarter, driven primarily by the conflict with Iran, gas prices rose above $4 per gallon. Personal Consumption Expenditures, the Federal Reserve’s preferred inflation gauge, rose to 4.1%.
Excluding food and energy, core PCE came in at 3.4%. Still not great. No victory parade needed.
If the conflict continues to ease and oil prices decline, there is reason to hope that the headline inflation spike will prove temporary.
Sources: AAA, Bureau of Economic Analysis
Sentiment
Consumer sentiment hit an all-time low.
In May, consumer sentiment fell to the lowest level in the history of a survey that dates back to 1952.
That means people felt less hopeful about the economy than during the Vietnam War, the stagflation of the 1970s, the period after 9/11, the tech crash, the Great Financial Crisis, and the global shutdown of 2020.
Sentiment has recovered somewhat, but the contrast between how people feel and what markets have done remains pretty wild.
Sources: University of Michigan, Reuters
Household balance sheets
Investors are holding a lot of cash.
Even as asset prices climbed, cash on hand reached a record high. Cash also grew to more than 8% of total household financial assets, the highest percentage in more than three decades.
That does not tell us where markets go next. It does suggest that, in aggregate, households may be better positioned to handle a downturn than they have been in quite some time.
Sources: Federal Reserve Financial Accounts, Federal Reserve Bank of St. Louis
03
The state of the companies
Businesses kept doing what businesses do.
Trade-policy uncertainty is finally declining.
With the on-again, off-again, revised-on-the-fly nature of tariffs, companies have been forced to make import, export, and production decisions based on whatever the rules happen to be at that moment. Not exactly a dream scenario for long-term planning.
It is encouraging to see trade-policy uncertainty decline. More clarity should allow businesses to plan production and control costs more effectively in the months ahead.
Corporate profits continue to impress.
Despite the economic uncertainty of the first half of the year, corporate America’s ability to generate profits remains remarkable.
After-tax corporate profits now represent 12.4% of U.S. gross domestic product. That is the second-highest quarterly reading in data going back to 1947.
If you want to understand why markets have continued to rise, earnings remain a good place to start.
Source: Bureau of Economic Analysis
Companies are investing in their future.
As profits have risen, companies have also increased the money they are investing back into their businesses. Capital expenditures are sitting near all-time highs.
That matters because capital spending can serve as a leading indicator. In plain English, businesses invest today because they expect opportunities tomorrow.
04
The state of investing
Diversification is doing its job.
Market leadership
The tide turned.
From the Great Financial Crisis through 2024, large-cap U.S. stocks, particularly technology companies, dominated the investing landscape.
The trend that began shifting last year continued through the first half of 2026. Small caps and emerging markets more than doubled the return of the S&P 500, while the Magnificent Seven trailed the other 493 companies in the index.
This, my friends, is why we diversify. We never know when the tide will turn.
Interest rates
Do not expect rate cuts anytime soon.
Federal Reserve Chair Kevin Warsh emphasized price stability in his first press conference. With inflation still elevated, rate cuts appear unlikely in the near term. Further hikes may even be possible if inflation remains stubborn.
Time will tell, because it always does.
Source: Federal Reserve
Safe havens
“Safe” does not mean stable.
Gold is often treated as a safe-haven asset because investors tend to buy it during uncertain periods. It has not provided much stability this year. After peaking in January, gold fell roughly 25% from its high even as several other asset classes rose.
That does not mean gold can never play a role in a portfolio. It is simply a reminder that the label “safe haven” can hide plenty of volatility.
Sources: Reuters, Dow Jones Market Data
05
Two reasons for optimism
Progress rarely arrives as breaking news.
Dementia rates are falling.
One of the greatest fears for retirees and their families is the possibility of developing dementia. While the risk remains, it is encouraging that age-adjusted dementia rates have been declining.
Better blood-pressure and cholesterol treatment, lower smoking rates, and improvements in heart-disease and stroke management appear to be contributing.
Researchers also found that patients who received the shingles vaccine were 20% less likely to develop dementia during the study period. More research is still needed, but it is a hopeful result against a devastating diagnosis.
Sources: Nature, Stanford Medicine
Low- and zero-carbon power is growing.
As global wealth and technology have expanded, so has the need for more power. That is accelerating investment in low- and zero-carbon energy.
More than 400 nuclear reactors are operating worldwide, with dozens more under construction. Research into smaller reactor designs could also make future projects faster to build and more geographically flexible.
Solar technology continues to advance at the same time. Current projections suggest solar could become the world’s largest source of electricity as soon as 2032.
Incredible human progress continues without much media fanfare. Shocking, I know.
Sources: IAEA Power Reactor Information System, Fraunhofer ISE, BloombergNEF projection
Keep the big picture in view
Optimism is not the same thing as prediction.
Nobody knows what happens next. Inflation may remain stubborn. Interest rates may stay higher than investors would prefer. The next market downturn may be right around the corner.
Or inflation may cool, rates may eventually fall, and markets may continue surprising everyone, especially the bears.
Regardless of what markets do next, I believe they will ultimately follow the path of human progress, just as they always have.
What matters most is not the latest headline. It is that companies, scientists, doctors, engineers, and entrepreneurs keep working to solve difficult problems every day.
That is why I remain optimistic. Not because uncertainty will ever fully disappear. That would be far too convenient. I remain optimistic because our desire for more and better is what drives progress and, ultimately, markets.
We should never lose sight of that.
It’s my pleasure to help you keep your perspective on point.
Ben
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