Q2 2026 Market Recap: Optimism Returns as Markets Post Their Best Quarter Since 2020

Earlier this year, we concluded our first-quarter letter with words of optimism tempered by concern that sustained high oil prices, precipitated by the Iran conflict, could nudge inflation higher and generate increased volatility in equity markets. In the second quarter, the “fog of war” thinned, but didn’t lift, and that was enough to shift market sentiment to a consensus view that oil would eventually flow unimpeded through the Strait of Hormuz, core inflation would abate, and corporate profit growth would continue to surge on the back of AI-related infrastructure spending. That optimism helped drive a 15.2% quarterly return for the S&P 500 Index, its best quarterly return since the 2Q20 Covid rebound. The strong rebound from a soft first-quarter performance helped the Index generate a 10.2% total return for the first half of the year.

Technology Leads a Broad-Based Rally

Leading the second quarter’s advance was the S&P 500 Technology Sector Index, which generated a staggering 31.8% return. The S&P Industrials Sector Index also posted a double-digit return, gaining 14.9% in the quarter. Nine of the 11 S&P 500 sectors posted positive returns, with only Utilities and Energy falling into negative territory. But both sectors are up meaningfully for the year.

International Markets Join the Rally

International equity indices also performed well during the quarter, led by emerging market stocks, as measured by the MSCI EM Index, which advanced 24% and was driven by outsized performance from Korean equities. Meanwhile, the MSCI EAFE Index of developed countries generated a respectable 10.5% return.

Bonds and Commodities Lag

Bonds delivered a tepid performance on the back of modest moves in interest rates. The benchmark U.S. 10-Year Treasury Bond rose 14 basis points during the quarter to finish with a 4.44% yield. The result was a 0.7% return for the Bloomberg U.S. Aggregate Bond Index. Commodities reversed course during the quarter, driven by a sharp decline in oil and metal prices. The Bloomberg Commodity Index declined 8.1% in the quarter. Oil prices, as measured by West Texas Intermediate (NYM $/bbl), fell 31.5% while the S&P GSCI Precious Metals Index declined 14.3%.

Market-Moving Headlines

Major market events during the quarter included the draft of the now-voided Memorandum of Understanding (MOU) between the United States and Iran, the first FOMC meeting chaired by its new leader, Kevin Warsh, and the initial public offering of terrestrial pioneer SpaceX, Inc. Each of these occasions briefly drove the market narrative. Still, the underlying storyline continued to be propelled by advancements in artificial intelligence (AI) and the development of the AI ecosystem. Headline-driven volatility has become the norm as investors attempt to calibrate and recalibrate the magnitude and the timing of AI-related returns.

The AI Adoption Story: Widespread but Shallow

This volatility is likely to persist as sentiment vacillates between fears of overbuilding and enthusiasm for innovation. The consensus view amongst analysts is that we are still in the early innings of AI transformation and that the path forward will have many twists and turns, making forecasting challenging and complacency perilous. While AI beta testing among U.S. companies is proliferating, deep adoption is spotty. As described in a 2026 Gallup study (1), the state of AI adoption among U.S. companies is “widespread but shallow.”

But for the early adopters, who have incorporated artificial intelligence and artificial intelligence agents deep into their enterprise workflows, the benefits are starting to percolate. According to a November 2025 McKinsey study, 19% of C-suite respondents in mature rollouts reported AI-accelerated top-line revenue increases exceeding 5%. That is a promising sign that AI initiatives will shift from producing efficiency gains and cost savings to generating new revenue opportunities for users. The path to proliferation and meaningful returns is expected to be long and likely to sideline some incumbents and create new champions. Active managers will be put to the test!

Staying the Course

Meanwhile, the foundations of a healthy bull market remain intact: strong earnings growth, steady interest rates, and product innovation. But geopolitical tensions remain on the boil, inflationary concerns persist, and bubble fears will periodically challenge consensus. The uncertainty posed by this mix will likely curtail any broad index valuation expansion, leaving equity indices’ heavy lifting to earnings. For now, the outlook for corporate profit growth is reassuring.

Portfolio Update: Adding Bloom Energy

During the first quarter, we expanded our client portfolio exposure to the industrial sector by adding Bloom Energy (BE). While categorized as an industrial company, Bloom is a renewable energy provider that sits at the intersection of electricity demand, clean energy initiatives, and delivery timelines. The company designs and manufactures solid oxide fuel cells that limit emissions and independently produce electricity on-site for power generation in data centers, manufacturing, and other commercial uses. As demand for electricity surges, Bloom is well positioned to deliver clean, efficient, and time-sensitive electricity solutions to its customers.

Looking Ahead

New York is famously “the city that never sleeps,” and this year the markets have kept the same pace. Change has come quickly, and we remain vigilant, ready to act as new opportunities emerge. We’re grateful for the trust you’ve placed in us, and for the chance to navigate some of the most compelling opportunities we’ve seen in our careers together. As summer unfolds, we hope it brings you and your family some well-earned rest and time to recharge.

We look forward to speaking with you soon.

Source for performance data: FactSet Data Inc.

1. Gallup.com, April 12, 2026
2. McKinsey.com, November 5, 2025

C.J. Lawrence a division of Apollon Wealth Management, LLC (“CJL”) provides advice and makes recommendations based on the specific needs and circumstances of each client. For clients with managed accounts, CJL has discretionary authority over investment decisions. Investing involves risk and clients should carefully consider their own investment objectives and never rely on any single chart, graph, or marketing piece to make decisions. It should not be assumed that recommendations made in the future will be profitable or will equal the performance of the securities in this list. All indices represented are unmanaged, do not consider the effect of transaction costs or fees, do not represent an actual account and cannot be invested in directly. The information contained herein is intended for informational purposes only, is not a recommendation to buy or sell any security and should not be considered investment advice. Please contact your financial advisor with questions about your specific needs and circumstances. Please visit our website for other important disclosures.