Q2 2026 Market Recap & Outlook: A Historic Rebound, an Uneasy Peace, and a New Regime at the Fed.
You're missing out if you don't have a complete investment plan.
Let's talk and make sure you're making every dollar work for you.
Q2 2026 Market Recap & Outlook
Your Weekly Market Compass – June 30, 2026
Three months ago, our first quarter review closed with a case for patience. The S&P 500 had just posted its worst start to a year since 2022, oil had surged toward $100 per barrel, and the Strait of Hormuz was closed. We argued then that the losses were concentrated, that diversification was doing its job, and that lower valuations are the raw material from which future returns are built. The second quarter delivered that rebuild faster than almost anyone expected. The S&P 500 returned 15.2% and the Nasdaq surged 21.4%, the largest quarterly gains for both since the second quarter of 2020. The Dow rose 12.9% and closed the period at a record 52,319. The Russell 2000 returned 21.5%, capping the best first half for small caps since 1991. An investor who capitulated in the depths of the March selloff missed one of the strongest quarters in a generation.
Two forces drove the recovery. The first was diplomacy. A halting, frequently interrupted series of ceasefires between the United States and Iran culminated in a memorandum of understanding signed on June 17, beginning the reopening of the Strait of Hormuz and sending oil down roughly 30% for the quarter, the largest quarterly decline in crude since 2020. The energy tax that defined the first quarter began refunding itself in the second. The second force was earnings. First quarter S&P 500 results, reported through April and May, showed earnings growth of roughly 29% on revenue growth of nearly 12%, led by semiconductor and AI infrastructure companies. The Philadelphia Semiconductor Index posted the best quarter in its history. Whatever one’s view of the AI capital spending cycle, the profits underneath it were real, and they arrived precisely when the market needed a reason to look past the war.
Beneath the celebratory quarter-end headlines, the picture is more complicated. Inflation climbed to its highest level in more than three years. A new Federal Reserve chairman, Kevin Warsh, used his first meeting to signal a genuine possibility of rate hikes. And the peace with Iran remains a framework rather than a treaty, tested by renewed exchanges of fire in the final days of June. Investors enter the second half with a market that has recovered its confidence but not yet resolved its two biggest questions: whether the peace holds, and whether the Fed’s next move is up.
Market Performance
The Scoreboard — Q2 and the First Half
Index | Q2 2026 | YTD 2026 |
|---|---|---|
Fixed Income — Total Return | ||
Bloomberg US Treasury Bills 1–3 Month | +0.9% | +1.8% |
Bloomberg US Government/Credit 1–3 Year | +0.5% | +0.8% |
Bloomberg US Aggregate | +0.7% | +0.6% |
Bloomberg Municipal 1–15 Year | +1.7% | +1.4% |
Bloomberg Municipal Bond High Yield | +3.4% | +4.1% |
Bloomberg US TIPS | +0.9% | +1.2% |
Bloomberg Global Aggregate | +0.9% | −0.2% |
Bloomberg US Corporate High Yield | +2.5% | +2.0% |
ICE US Treasury 20+ Year Total Return | +0.9% | +1.0% |
Global & Broad Equity — Total Return | ||
MSCI ACWI IMI Net Total Return | +14.9% | +11.8% |
MSCI ACWI Net Total Return | +14.9% | +11.2% |
Russell 3000 Total Return | +15.4% | +10.9% |
S&P 500 Total Return | +15.2% | +10.2% |
U.S. Equity Style & Size — Total Return | ||
Russell 1000 Value Total Return | +13.9% | +16.3% |
Russell 1000 Growth Total Return | +16.7% | +5.3% |
Russell Midcap Total Return | +13.8% | +15.3% |
Russell Midcap Value Total Return | +13.4% | +17.6% |
Russell Midcap Growth Total Return | +14.5% | +7.3% |
Russell 2000 Total Return | +21.5% | +22.6% |
Russell 2000 Value Total Return | +17.2% | +23.0% |
Russell 2000 Growth Total Return | +25.7% | +22.2% |
International Equity — Total Return | ||
MSCI EAFE Net Total Return | +10.8% | +9.4% |
MSCI Emerging Markets Net Total Return | +24.1% | +23.8% |
Other Asset Classes | ||
S&P/TSX North American Preferred Stock | +4.1% | +3.9% |
S&P 1500 Real Estate (Sector) | +9.6% | +11.9% |
Invesco DB US Dollar Index (UUP) | +2.3% | +5.1% |
Bitcoin (Spot) | −9.8% | −32.0% |
Gold: SPDR Gold Shares (GLD) | −14.4% | −7.0% |
Source: Goldstone Investment Research; YCharts; Bloomberg; S&P Dow Jones Indices; MSCI; Russell/FTSE; ICE. Index returns reflect total return in USD through the June 30, 2026 close unless otherwise noted. MSCI returns are net total return. ETF data (UUP, GLD) reflects fund net asset value performance. Bitcoin figures based on a spot price of $60,159.63 on June 30, 2026 versus $66,699.27 on March 31, 2026 and $88,414.63 on December 31, 2025. Past performance is not indicative of future results.
The bond market told a quieter story that masked considerable drama. The 10-year Treasury yield ended the quarter near 4.4%, essentially where it began, but the round trip in between was violent: yields climbed to nearly 4.6% by mid-May, with the 30-year briefly touching its highest level since 2007 above 5%, as inflation data surprised to the upside and rate-hike expectations built. Yields then retreated in late June as oil collapsed back toward pre-war levels. Core bonds returned 0.7% for the quarter and stand modestly positive for the year, high yield municipals lead the fixed income table at 4.1% year-to-date, and cash has added 1.8% through six months.
Performance Attribution
Leaders and Laggards: Style, Size, Sector, and Geography
The second quarter’s rally was broad, with every major equity category posting double-digit gains. But the composition of the quarter, and the year-to-date leadership it confirmed, was anything but the familiar playbook. Nearly every trade that dominated 2024 and 2025 sits at the bottom of the 2026 table, and nearly everything investors had written off sits at the top.
+21.5% U.S. Small Cap (Russell 2000) · Q2 Small caps outpaced the S&P 500 by more than six percentage points, lifting the year-to-date advance to 22.6%, the best first half for the asset class since 1991. Small Cap Growth was the quarter’s single strongest domestic category at 25.7%. The long-awaited small cap comeback arrived while most investors were watching something else. | +24.1% Emerging Markets (MSCI EM) · Q2 The quarter’s strongest major equity category, lifting the year-to-date gain to 23.8%, the best among core asset classes, on the heels of a 33.6% advance in 2025. Asia’s dominance of the AI hardware supply chain has effectively turned emerging markets into a technology trade. Developed international returned 10.8% for the quarter, roughly in line with the S&P 500. | +16.7% Large Cap Growth (R1000 Growth) · Q2 Growth staged the quarter’s sharpest style rebound, beating Large Cap Value’s 13.9% as the AI trade recovered from depressed first quarter levels. Year-to-date, however, value still leads growth 16.3% to 5.3%, a gap of nearly 11 points carved in the first quarter and defended in June, when the largest technology names shed a combined $2.3 trillion in market value. | -14.4% Gold (SPDR Gold Shares) · Q2 Gold’s worst quarter since 2013, leaving the metal down 7.0% for the year. The asset that protected portfolios during the first quarter shock gave back its gains as the crisis premium unwound, rate-hike expectations rose, and the dollar strengthened. Bitcoin fared worse: down 9.8% for the quarter and 32% for the year, with spot Bitcoin ETFs recording their largest monthly outflows on record in June. |
Sectors told the story of a quarter that inverted its predecessor. Energy, the first quarter’s runaway winner with a gain of more than 30%, stalled as oil collapsed; the sector’s earnings power remains elevated, but the momentum trade ended abruptly. Technology, the worst-hit large sector of the first quarter, staged the most powerful recovery: semiconductor indexes posted the best quarter in their history, with the AI memory complex leading. Micron has gained roughly 248% year-to-date as AI workloads consume an ever-larger share of global high-end memory production. Financials and industrials participated in the recovery, while the defensive sectors that sheltered investors in March, including utilities and consumer staples, lagged the rebound.
Size and geography both favored the overlooked. In the quarter itself, small caps beat large caps by more than six percentage points and emerging markets beat the S&P 500 by nearly nine. Through six months, those gaps widen to roughly 12 and 14 points respectively. Market breadth, the perennial complaint of the 2023 to 2025 bull market, has improved markedly: leadership has expanded well beyond the handful of megacap names that defined the prior three years, even as the Nasdaq’s June pullback showed how quickly sentiment toward the largest technology companies can turn.
A year ago, investors were chasing gold, silver, and the largest technology names. Six months into 2026, all of those trades trail small cap value, emerging markets, and diversified portfolios generally. Leadership rotated faster than almost anyone positioned for, which is precisely why we do not build portfolios that depend on predicting it.
— Goldstone Financial Group Investment Research .
Geopolitics & Energy
The Strait Reopens: An Uneasy Peace and a 30% Collapse in Oil
We wrote in April that everything in the outlook flowed from a single question: whether and when the Strait of Hormuz reopens. The second quarter answered that question the way diplomacy usually does, which is to say slowly, partially, and with repeated reversals. We continue to acknowledge, first and foremost, that this is a human conflict whose consequences extend well beyond capital markets.
 | April 7–8The United States and Iran agree to a temporary ceasefire intended to reopen the Strait. Direct talks in Islamabad follow, the highest-level U.S.-Iran engagement since 1979, but fail to produce an agreement. |
| | Mid-AprilThe U.S. Navy begins blockading Iranian ports, creating what observers called a dual blockade: the U.S. blockading Iran, and Iran blockading the Gulf. Roughly 230 loaded tankers sit trapped inside the Persian Gulf. Brent crude peaks at $120.88 on April 30, its high for the year. |
| | April 17–18Iran briefly declares the Strait open following an Israel-Lebanon ceasefire. Oil drops 11% on the announcement before the window closes again as the Lebanon ceasefire frays. |
| | MayA tense standoff persists. Inflation data reflecting the energy shock pushes Treasury yields to twelve-month highs and puts rate-hike expectations on the table for the first time since 2023. |
| | June 11–17Pakistani and Qatari mediation produces the breakthrough: a 60-day ceasefire framework announced June 14 and signed as a memorandum of understanding by both presidents on June 17. The MOU reopens the Strait toll-free, lifts the U.S. naval blockade, and sets a 60-day window to negotiate nuclear constraints, sanctions relief, and frozen assets. |
| | Late JuneImplementation proves bumpy. Iran briefly re-closes the Strait on June 20 citing Israeli strikes in Lebanon; the U.S. disputes the closure and tanker traffic continues to build. A widened transit route near Oman opens June 27. After a weekend exchange of strikes, the two sides again halt hostilities on June 29, and delegations convene in Doha as the quarter closes. |
For markets, the direction of travel mattered more than the setbacks. Iran reports shipping more than 40 million barrels of oil since the blockade lifted, Russian exports have surged to record levels, and analysts now warn of a looming supply glut rather than a shortage. WTI crude ended the quarter near $70 per barrel, down roughly 30% for the quarter, the steepest quarterly decline since 2020, and remarkably only about 5% above where it started the year. The energy shock that dominated the first quarter has, for now, fully round-tripped.
The Risks Have Changed Shape, Not Disappeared: Iranian officials insist they will impose transit fees once the 60-day MOU window expires in mid-August, and the nuclear questions the MOU deferred remain unresolved. The market variable to watch has shifted from whether tankers can move to what the Strait’s traffic will cost, and whether the Doha process can convert a ceasefire into something durable.
Monetary Policy
The Warsh Era Begins: A Shorter Statement and a Hawkish Dot Plot
The most consequential development of the quarter for long-term investors may not have been the ceasefire. It may have been the changing of the guard at the Federal Reserve. Jerome Powell’s term as chairman expired in mid-May, and Kevin Warsh, a former Fed governor and longtime critic of the institution’s communication practices, took the helm. In an unusual twist, Powell remains on the Board of Governors, where he voted with the majority at Warsh’s first meeting.
FOMC Meeting · June 16–17, 2026
Kevin Warsh’s first meeting as Federal Reserve Chair
3.50%–3.75% Unchanged · Unanimous Vote Federal Funds Rate | 4 Consecutive Meetings Rates Held Steady Since December 2025 | 9 of 18 Dot Plot Projects Hikes Policymakers Expect Higher Rates by Year-End | ~130 Statement Words Less Than Half the Previous Length |
The rate decision was unanimous and widely expected. Everything around it was not. The post-meeting statement shrank to roughly 130 words from more than 300, dropped the easing-leaning forward guidance entirely, and Warsh declined to submit his own rate projection, announcing instead five internal task forces to re-examine how the Fed communicates, what data it uses, and how it evaluates inflation. He has promised, in his own words, regime change. “We have the capability and commitment to deliver on our price stability objective of 2%,” Warsh said at his first press conference. “The commitment to deliver is strong, unanimous, and unambiguous.”
The substance was more striking than the style. The June dot plot showed nine of eighteen participating policymakers supporting higher rates by year-end, six of them penciling in two quarter-point increases. Eight supported holding, and only one projected a cut. In March, no policymaker had projected a hike and the median called for one cut. Markets responded accordingly: futures now price at least one rate increase by the end of 2026, and Minneapolis Fed President Neel Kashkari publicly backed a hike in late June. The question that framed the past two years, when will the Fed cut, has been replaced by a different one entirely: will the Fed hike?
9 Project Hikes Nine of eighteen see rates ending 2026 above the current range, with six projecting two quarter-point increases. | 8 Hold Steady Eight project the year-end rate at the current level, preferring to let the energy shock unwind before acting. | 1 Sees a Cut A single participant projects a cut by year-end. In March, the median projection still called for one. |
The quarter also delivered an institutional verdict of lasting importance. On June 29, the Supreme Court ruled 5 to 4 that the President cannot, for now, remove Federal Reserve Governor Lisa Cook, with Chief Justice Roberts writing that the Fed’s independence was designed by Congress and that any change must come from Congress, not the courts. The ruling is procedural and the underlying case continues, but the market read it as a meaningful affirmation of central bank independence at a moment when that independence is under unprecedented political pressure. Equities rallied on the final two sessions of the quarter with the ruling as part of the backdrop.
The Fed’s Dilemma, Under New Management
An energy-driven inflation spike is fading with oil prices, but the spike lifted headline inflation to multi-year highs, core measures have drifted upward, and the labor market has reaccelerated. Hiking into a supply shock that is already reversing risks unnecessary damage; ignoring an inflation rate above 4% risks the credibility Warsh has staked his chairmanship on restoring. His answer so far is deliberate silence: no forward guidance, no personal dot, and a promise to react to the data as it arrives.
Economic Activity & Inflation
Growth Held, Jobs Reaccelerated, and Inflation May Have Peaked
Growth proved sturdier than feared. First quarter GDP showed the economy expanding at a 2.0% annualized rate, later revised to 2.1%, a clear acceleration from the fourth quarter’s 0.5%. Investment, exports, consumer spending, and government spending all contributed, and the AI data center buildout continued to add measurably to growth. The Atlanta Fed’s GDPNow model tracked the second quarter at roughly 2.5% as June closed. The recession that forecasters assigned meaningful odds to in April has not arrived, and the probability estimates have receded with oil prices.
The labor market broke out of its slump. After February’s conflict-driven loss of 156,000 jobs, payrolls rebounded emphatically: 214,000 in March, 179,000 in April, and 172,000 in May, the strongest three-month advance in more than two years. The May report beat the consensus estimate by more than double. Unemployment held at 4.3% for a third consecutive month, wage growth ran a moderate 3.4% year-over-year, and job openings ticked up to 7.59 million in the final JOLTS report of the quarter. Whatever the war did to sentiment, it did not stop American hiring.
+2.1% Final · Up from Q4’s 0.5% Q1 2026 GDP | 172K Strongest 3-month run in 2+ years May Payrolls | 4.2% Highest in more than 3 years May CPI (YoY) | 3.4% Drifting upward May Core PCE (YoY) |
Inflation is the price of the resilience. Headline CPI reached 4.2% year-over-year in May, the highest in more than three years, driven overwhelmingly by the energy passthrough that began in March. The Fed’s preferred gauge told the same story: headline PCE inflation hit 4.1% in May, the highest since April 2023, with core PCE at 3.4%. The more encouraging detail sits beneath the headlines: core CPI rose just 0.2% month-over-month in May, and with crude now back near $70, the mechanical energy contribution to headline inflation should fade materially over the second half. Time will tell whether May marked the near-term peak. The open question, the one that will decide whether the Fed hikes, is how much of the energy spike leaked into broader prices before it reversed.
One further development deserves note for its long tail: the Supreme Court’s February ruling that certain tariffs imposed under the International Emergency Economic Powers Act were unlawful continued to work through the economy in the second quarter, with the government obligated to refund affected businesses. Several companies, including Nike, have already reported margin benefits from expected tariff refunds. The fiscal and pricing effects of that unwinding will remain a variable through the second half.
Forward Outlook
Three Ways the Second Half Could Go
The second half opens with two dominant variables rather than one: whether the Doha process converts the memorandum of understanding into a durable settlement, and whether the Federal Reserve’s next move is a hike. Everything else, including equity valuations that have re-expanded after a 15% quarter, flows from those two answers.
Scenario | Outlook |
|---|---|
▲ Constructive | Doha talks produce a framework agreement before the MOU’s mid-August expiration. Hormuz traffic normalizes without punitive tolls, oil settles in the $60s, and headline inflation falls quickly toward 3% as the energy spike washes out of the year-over-year math. The Fed holds all year, hike chatter fades, and the rate-cut conversation cautiously returns for 2027. Earnings, projected to grow 23% year-over-year in the second quarter, carry the market. Breadth continues to improve, and small caps, value, and international extend their leadership. |
◆ Base Case | The ceasefire holds in substance but frays in form, with periodic flare-ups and an unresolved toll dispute after the MOU window closes. Oil ranges between $65 and $80. Headline inflation recedes gradually while core measures stay near 3%, keeping the Fed on hold with a hawkish bias; markets continue to price roughly one hike, most likely September, without conviction. Equities consolidate the second quarter’s gains in a wide range, with leadership rotating between the AI complex and the cheaper, broader market. Volatility around the November midterm elections adds noise without changing the trend. |
▼ Tail Risk | Negotiations collapse over nuclear terms or transit fees, the Strait closes a third time, and oil reverses back above $100. Alternatively, or additionally, core inflation proves stickier than the energy math implies and the Fed hikes more than once into a decelerating consumer. Either path would test valuations that assume both peace and earnings delivery. After a 15% quarter, the margin for disappointment is thinner than it was in April. This is the scenario against which we hold diversifying assets. |
Long-Term -Perspective
What Q2 Means for the Decade Ahead
Each quarter we test the long-term return outlook against current conditions, and the second quarter moved the needle in the opposite direction from the first. Equity valuations are richer again. The S&P 500 entered the year trading near 25 times earnings, among the most expensive starting points in its modern history, and that starting point is the primary reason long-run return expectations for U.S. large caps sit well below their historical average. The first quarter’s selloff had modestly improved that math; the second quarter’s 15% rally took it back. Strong earnings growth is doing real work in support of prices, but investors should not confuse a great quarter for markets with an improvement in the decade-ahead return outlook for the most expensive corner of the market. If anything, the first half strengthened the case for the small cap, value, and non-U.S. allocations that valuation-based frameworks favor, and those are precisely the markets that led it.
Bond return prospects remain constructive. The starting yield of the Bloomberg US Aggregate has historically explained the overwhelming majority of the index’s subsequent ten-year returns, and with that yield in the mid-4% neighborhood and the 10-year Treasury near 4.4%, forward fixed income return expectations remain meaningfully better than anything available during the zero-rate era. A Federal Reserve that defends its inflation target, even at the cost of near-term discomfort, is ultimately good news for bond investors’ long-run real returns. On inflation itself, the market’s own forecast has behaved: long-run breakeven rates between nominal Treasuries and TIPS suggest investors still view the 2026 spike as an event rather than a regime. Whether that confidence survives the Fed’s next few decisions is, in our view, the single most important variable for long-term investors to watch.
Key Indicators · Second Half 2026
What We Are Watching
Period | Event & Description | Impact |
|---|---|---|
July 2 | June Nonfarm Payroll Report | High Impact |
Mid-July | June Consumer Price Index (CPI) | Most Critical |
Mid-July | Second Quarter Earnings Season | Moderate |
July 28–29 | Federal Reserve Meeting | High Impact |
Late July | Q2 GDP & June PCE Inflation | Moderate |
Mid-August | Expiration of the 60-Day Memorandum | Critical Watch |
Ongoing | Federal Reserve Rate Expectations | Positive Watch |
November | U.S. Midterm Elections | Moderate |
Weekly Summary
The Quarter's Real Lesson
In early April, with oil near $100, headlines dominated by war, and the S&P 500 coming off its worst quarter in four years, the most natural instinct in investing was to reduce risk and wait for clarity. Investors who acted on that instinct missed a 15% quarter in U.S. large caps, a 21% quarter in small caps, and the strongest three months for the Nasdaq since 2020. Clarity, as always, arrived only after the returns did.
We do not say this to celebrate a rebound. Markets do not owe anyone a repeat performance, and the second half carries genuine risks, from a fragile peace to a Federal Reserve openly debating rate hikes. We say it because the first half of 2026, taken as a whole, is as clean a demonstration as markets ever provide: diversification cushioned the drawdown in the first quarter, and discipline captured the recovery in the second. The portfolios that did both required no forecasts, only a plan and the patience to follow it.
GoldstoneBuilder™ is running continuous scenario analysis across the paths described above, and GoldstoneBalancer™ will rebalance portfolios deliberately as conditions evolve, trimming what the rally has extended and adding to what it has left behind. Please reach out to your Goldstone advisor if you would like to discuss how the first half and the current environment relate to your specific portfolio, goals, or long-term plan. That is always the right conversation to have.
— Goldstone Financial Group.
Disclaimer
Goldstone Financial Group, LLC (“GFG”) is a registered investment advisor with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or qualification. This material is provided for informational purposes only. Opinions expressed herein are solely those of GFG. None of the information presented in this material is intended to offer personalized investment advice and does not constitute an offer to sell or solicit any offer to buy a security or any insurance product, and is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation. You cannot invest directly in an index, and those do not reflect the deduction of various fees that would diminish results. Any index or benchmark performance figures are for comparison purposes only, and client or strategy holdings will not directly correspond to any such data. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will either be suitable or profitable for your portfolio. All investment strategies have the potential for profit or loss and past performance is no guarantee of future success. Historical performance results for investment indexes and/or categories, generally do not reflect the deduction of transaction and/or custodial charges or the deduction of an investment-management fee, the incurrence of which would have the effect of decreasing historical performance results. Economic factors, market conditions, and investment strategies will affect the performance of any portfolio and there are no assurances that it will match or outperform any particular benchmark.