2026 has been another eventful year for financial markets as the second quarter of the year saw a dramatic rebound in equity markets.
In the second quarter the S&P 500 saw its best quarterly gain since 2Q20 increasing 14.9% for the quarter and 9.6% year-to-date (YTD). The S&P 500 Equal Weighted (S&P EW) ended the quarter up 10.9% and up 11.1% YTD. The primary catalysts for this equity rally were a de-escalation of geopolitical tensions, strong corporate earnings, and a domestic economy that continues to demonstrate underlying resilience. International stocks also fared well in the quarter as the MSCI EAFE Index finished up 9.8% in Q2 and up 7.7% YTD.
Bonds, as measured by the Bloomberg US Intermediate Term Corporate Bond Index, were up 1.0% in Q2 and up 0.8% YTD. In Q2, shorter term interest rate markets reflected the realization that incoming Fed Chair Kevin Warsh is “hawkish” or not inclined to lower rates. As such, shorter term rates were sharply higher through the quarter. Longer term rates, albeit volatile, were closer to flat. These factors netted against each other resulting in the slightly positive bond index performance for the
quarter.
In equities the artificial intelligence (AI) and semiconductor themes, which have been doing the heavy lifting for several years, continued to act as the market's engine through the first half of the quarter. Early in the year we saw some anxiety from investors regarding AI disruption and questions on the return expectations of massive data center capital expenditures. Q2 earnings, however, largely validated the immediate fundamental strength of the largest technology companies. Although much of the strong equity performance for the second quarter was driven by technology hardware companies that had not previously participated in AI themed market rallies, such as memory chip and storage drive manufacturers.
A significant relief valve for the markets in Q2 was the stabilization of the geopolitical landscape. In late Q1, the sharp escalation of conflict in the Middle East and subsequent disruptions in the Strait of Hormuz pushed crude oil prices abruptly higher, causing ripple effects across global commodities.
Throughout the second quarter, we saw a meaningful de-escalation of these conflicts. As a result, crude oil prices reversed their late-winter spike, settling back to pre-conflict levels. The normalization of energy and broader commodity market prices helped relieve the acute inflationary pressures that had spooked investors just months prior,
paving the way for renewed risk appetite.
While energy prices cooled, the broader macroeconomic reality remained complex. Core inflation metrics, particularly Personal Consumption Expenditures (PCE), remained stubbornly sticky, yet the labor market and consumer spending continue to look resilient.
The second quarter of 2026 marked a pivotal transition for the Federal Reserve as Kevin Warsh officially took the oath of office as Chair on May 22. Building upon the persistently hawkish tone established earlier in the year, Warsh emphasized the central bank’s political independence and commitment to its 2% inflation mandate. During his inaugural post-FOMC press conference in mid-June, he introduced a simplified policy statement and signaled a sweeping, reform-minded agenda by announcing specialized task forces to evaluate the Fed's balance sheet policy, data-gathering methodologies, and long-term inflation framework. After digesting the results of a new Fed regime, markets began to price in the possibility that not only is the rate cutting cycle on pause, but a potential rate hike isn’t out of the question before the end of the year.
As always, if you have questions regarding your portfolio, please consult your financial advisor. We appreciate your continued trust in SG Long Financial and look forward to working with you in the future.
Rob Richardson,
CFA Chief Investment Office
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Important Disclosures
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