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Beyond the Headlines: Market Rally Gains Liftoff  

Enthusiasm around artificial intelligence and the SpaceX (SPCX) initial public offering led a strong technology sector rally for the quarter. Technology was by far the best performing part of the market and led to a strong rally in the Nasdaq, which led U.S. index performance. However, broad market participation was evident as the small-cap Russell 2000 also rose morethan 20 percent. International stocks also delivered double-digits returns,with emerging markets up almost 25 percent.

Reduced geopolitical risks provided a market tailwind, but strong fundamentals drove stocks higher as well. Corporate America reported phenomenal first-quarter earnings growth of 28.6 percent for S&P 500 constituents, which was twice the consensus expectations for growth at the beginning of the quarter. In addition, 2026 full-year S&P 500 earnings estimates have moved up almost 9 percent since the end of February, prior to the start of military action in theMiddle East. Equally as encouraging for investors is that, according to FactSet, the 493 non-Magnificent Seven stocks in the index are forecasted togrow almost 16 percent for the full year. Improving fundamentals is a key to asustainable rally.  

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Fixed Income Update: Bond Investors Relieved by Progress in the Middle East  

Enthusiasm forthe MOU and lower oil prices outweighed a hawkish debut by new Federal Reserve (Fed) Chairman Kevin Warsh at the June Federal Open Market Committee meeting for fixed income investors. Bonds were higher across the board. Given the strong equity markets, it isn’t surprising that the higher-risk high-yieldindex led the way.

Despite the rally in bonds, yields did move higher as market participants now expect the Fed to raise rates by the end of the year. As a result, 2-year Treasury yields moved up 35 basis points while the 10-year yield moved up 15 basis points and closed the quarter at 4.47 percent. However, that was down from the peak yield in mid-May when it approached 4.70 percent.

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Geopolitical and Economic Update: Reopening the Strait of Hormuz Becomes the Key

Economic data over the quarter continued to be supportive of solid economic growth. The employment picture continued to improve after a challenging first quarter for job seekers. Despite consumer confidence indicating concerns persist about thefuture, retail sales showed consumers are still willing to spend.

The fly in the ointment remains inflation, which has moved higher due largely to increased oil prices flowing through the system. The most recent readings showed consumer price inflation and producer price inflation exceeded 4 percent and 6 percentannually, respectively.

Despite fits and starts in negotiations since the signing of the MOU, the market appears to have discounted a full reopening of the Strait of Hormuz. Oil prices closed out June at levels not seen since the war started in February.

While traffic through the Strait has increased recently, it remains well below the levels seen in February. If negotiations ultimately lead to a full reopening and return of oil supply to global markets, this would be a positive sign for inflation through the remainder of the year.

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The Takeaway

·      Economic data,from jobs growth to retail sales, continues to indicate a growing economy.

·      The outlier remains accelerating inflation data, but lower oil prices could lead toimprovement going forward.  

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Looking Ahead: Crosscurrents Worth Monitoring  

Moving forward,there are three stories to monitor:

·       Reopening the Strait over the next 30–60 days and allowing oil prices to stabilize at current levels would go a long way to reduce pressures on consumers and businesses. Any setbacks could push oil prices back up quickly.

·       Despite the recent drop in oil prices, Chairman Warsh made it clear that policymakers remain focused on inflation. Warsh reiterated the Fed’s commitment to its 2 percent inflation target and signaled little willingness to adjust policy based on declining oil prices alone. If rates do rise, it could pressure markets.

·       Attention will soon turn to second-quarter earnings. Analysts are projecting approximately 22 percent year-over-year growth for the S&P 500. While this raises the risk of disappointment, recent history suggests resilience. Over the past five quarters, companies have continued to deliver strong results despite policy and trade-related uncertainties. If earnings momentum continues, it should providea foundation for markets over the longer term.

Fundamentals drive markets over the long term, and they remain relatively solid for now. Solid jobs growth, continued consumer spending, and strong earnings growth should lead to economic growth and further market appreciation.

Uncertainty remains high and further short-term volatility is possible. However, a diversified portfolio that matches long-term goals and risk tolerance remains the best path forward.

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Equities

The S&P 500 fell 5 percent in March, leading to a 4.3 percent decline for the first quarter. The more value-oriented Dow dropped just over 5.2 percent in March and 3.2 percent to start the year. Finally, the growth heavy Nasdaq lost 4.5 percent in March, culminating into a dreary 7% tumble for thefirst three months of 2026.

The two main themes that moved the markets were a shift in sentiment around artificial intelligence and the concern over the war in Iran,specifically the closure of the Strait of Hormuz.

Like last year and the one prior, AI was top of mind for investors, but instead of the AI boom helping drive the overall market on theback of mega-cap tech stocks, the focus shifted to what companies could be hurt by AI as these technologies lower barriers to entry and threaten to upend long-dominant business models. The first sector to be impacted was software at the end oflast year, but that broadened into a wider array of industries including financial services, commercial real estate, and logistics.

As we all know, on February 28, the US and Isreal launched attacks on Iran which continued throughout the next month with limited abatement. Since then, the world’s attention has been drawn to the Strait of Hormuz, though which 20% of the world’s oil is transported, along with critical shipments of liquefied natural gas. At the outset, the markets hoped the conflict would be brief, but this essential transit way remains closed as tensions and military activities continue to mount. During this time, oil prices have nearly doubled. There’s the direct impact of the prices consumers will pay at the pump, as well as indirect costs, such as higher shipping expenditures.

Putting this all together, we started the year with continued robust growth projections and the possibility of more Fed rate cuts. Both tailwinds for stocks. But that quickly turned with persistent inflation and concerns over increased prices across the board from gasoline to food, souring investor sentiment.

International Equities

As the planet’s largest oil producer, the US is somewhat more insulated than the rest of the world by the spike in energy prices. This was the driver of performance in the international equity markets. Global developed and emerging market indices down 10% and 13% respectively for March, with both mostly flat on the year. The swings in foreign equity markets were in the same direction as domestic, however were much more pronounced.

Fixed Income

The Bloomberg US Aggregate Bond index ended flat for the quarter after dipping almost 2% in March on the back of rising interest rates and inflation concerns. The 10-year Treasury yield rose from 4% at the end of February to 4.3% by the end of March. The previous market consensus of 2 rate cuts shifted to the possibility of a hike, although unlikely to happen.

The rising interest rate environment in March was primarily driven by the ongoing war in Iran and concerns about the impact of these hostilities on global trade and inflation. Higher energy prices in March could persist for the foreseeable future, which in turn could lead to further inflationary pressure. Short-term interest rates increased during the month as traders pared back expectations for interest rate cuts from the Fed.

What We’re Watching

March was a month of shifting risks for investors, increasing uncertainty and market volatility. While always a latent concern, geopolitical risks have undoubtedly risen, and along with them the possibility of knock-on effects as well, including increased and unrelenting inflation, the possibility of military escalation, and domestically, the forthcoming mid-term elections. All these factors contribute to heightened market concerns.

That said, fundamentals remain relatively solid for now. Companies have shown impressive resilience over the past few years, and continued earnings growth is expected throughout 2026. While headlines can impact markets in the short term, over the long run, fundamentals ultimately drive performance. As long as companies continue to grow, further market appreciationis the most likely path forward.

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‍Market Performance

June was a good month for investors, continuing the upward trend that began in late April. All three major U.S. stock indices — the S&P 500, Dow Jones Industrial Average, and Nasdaq—finished the month and the quarter with gains. The S&P 500 gained 5.1% during the month and 10.9% for the quarter. The Dow Jones Industrial Average was up 4.5% in June and 5.5% in the second quarter. The Nasdaq led the way with a 6.6% rise for the month and an impressive 17.9% increase for the quarter. But that doesn’t tell the whole story.

From April 1^st through the 7^th, the S&P 500 retreated by 10% due to the tariffs suggested for major trading partners. On April 3^rd alone, the S&P fell by 5%, Nasdaq by 6%,and the Dow by 4%, the second, first, and fifth largest single day losses in the indices’ respective histories. A week later, the White House reversed course and announced a 90 day pause, sending the markets surging. The S&P 500 climbed almost 9.5% in a single day.

Looking behind the numbers, we see a lot of good news in the short run for the markets.  The latest earnings season (when companies report their profits) wrapped up, and the results were better than expected.

On average, companies in the S&P 500 reported earnings growth of 13.6% for the quarter. That’s more than double what analysts had predicted (6.6%). Even more impressive, all 11 major sectors of the market beat expectations. This shows that the strength wasn’t limited to just a few industries—it was widespread—and a good sign for the overall health of the market.

The solid performance wasn’t limited to large caps. Mid and small caps also fared better than the previous quarter. Both posted second quarter returns above 7% as the uncertainty around inflation and the economy waned. While on the year small caps are virtually flat, mid caps are up over 5%.

International equities continued their outstanding year aswell. With a continuing weaker dollar and concerns about tariffs abating (atleast temporarily), the global foreign equity index was up 3.5% in June and 12.3%for the quarter. On the year, non-US equities are up over 18%.

With interest rates falling during the month and the hope offuture Federal Reserve rate cuts on the horizon, bonds also rounded out thequarter strongly, up 1.5% for June, 1.2% for the quarter, and 4% for the year.

Overall, it was a very good quarter for all asset classes.

Risks Remain, Even in a Strong Market

Despite all the good news, there are still risks that could affect markets. Global tensions rose in June after Israel launched attacks on Iran. Although the situation was short-lived and didn’t have a major impact on markets, it was a reminder that unexpected events can happen at any time.

There’s also a lot of uncertainty coming from Washington, DC, especially around trade policies, government spending, and taxes. If there’s a lesson to be learned from the initial onslaught of tariffs, it’s to expect the unexpected. The president has reinstated a hard August 1^stdeadline for their re-introduction, but it remains to be seen if this too is a bargaining chip, or a hard and fast mandate.

As we move into the second half of the year, the overall picture remains positive. The economy is in decent shape, and company performance has been strong. While it’s important to stay aware of potential risks, the long-term outlook still points toward continued economic growth and rising markets.