The second quarter of 2026 was characterized by high volatility followed by a strong recovery, as investors balanced geopolitical risks against resilient corporate earnings and continued enthusiasm for artificial intelligence. While markets experienced sharp swings, most major equity indices finished the quarter with solid gains.  

The U.S. remained the strongest major market.

• The S&P 500 recovered from early-quarter weakness to finish near record highs.
• The NASDAQ significantly outperformed thanks to continued strength in AI, semiconductor, and cloud-computing companies.
• Large-cap technology stocks remained the primary drivers of returns, although leadership broadened toward the end of the quarter.  

European equities delivered positive returns but lagged the U.S. Key themes included:

• Continued strength in defence and industrial companies.
• Moderating inflation across much of the eurozone.
• Expectations that monetary policy would become less restrictive.
• Ongoing concerns over energy security due to Middle East tensions.  

Asia produced some of the strongest gains globally. Highlights included:

• South Korea posted exceptional performance, driven by semiconductor manufacturers.
• Taiwan benefited from sustained global AI infrastructure demand.
• Japanese equities advanced more modestly as the stronger yen and slower export growth tempered gains.
• Chinese equities remained mixed as investors weighed government stimulus against continued weakness in the property sector.

Key drivers of Q2 global market’s performance:

Artificial Intelligence
AI remained the dominant investment theme. Companies involved in semiconductors, data centres, networking equipment and cloud infrastructure continued attracting substantial investor capital.  

Corporate Earnings
Corporate earnings generally exceeded expectations, supporting equity valuations despite elevated interest rates.  

Interest Rates
Markets became increasingly optimistic that inflation was moderating, leading investors to anticipate a more accommodative path for central banks later in the year. Bond markets also posted positive returns.  

Geopolitical Risks
Conflict in the Middle East caused periodic spikes in oil prices and market volatility, although these episodes proved temporary as investors focused on underlying economic resilience.  

In any investment environment, investor sentiment plays a key role in the short-term dynamics of markets. During the past quarter, investor sentiment improved substantially under the following key themes: risk appetite returned after early-quarter volatility, capital flowed back into U.S. equity funds, and global stock funds posted one of their strongest quarterly performances since 2020, helped by renewed confidence in earnings growth and AI-led investment.  

Looking Ahead to The Second Half (H2) of 2026

We enter the second half of 2026 with a constructive outlook on global stock markets, however the stories that incited volatility in the first half of 2026 will likely continue to influence market movements in the second half. Inflation and central-bank policy decisions, geopolitical developments affecting energy markets, and continued earnings growth have the power to move markets in either direction in the coming months. Let’s not forget the disruptive historical pattern of US mid-terms, which tend to pressure markets lower as we approach and then move higher once the outcome is determined.

Our base-case scenario sees inflation pressures subsiding at some point next year while economies continue to expand and support corporate profit growth. In this environment, we expect low-to-mid single-digit returns in bonds with slightly higher returns for stocks, the latter being limited by currently high valuations.

Best Regards,

Paul