Second Quarter 2026: Reaching for Space — The Q2 Market Blast-Off
Global equity markets successfully achieved escape velocity in the second quarter of 2026, setting new highs despite geopolitical concerns. Large-cap U.S. stocks gained an exceptional 15%, marking their strongest quarterly performance since 2020. The surge left many investors asking a fundamental question: how was such a rally possible against the backdrop of an active conflict in the Middle East?
The answer lies in the reality that markets ultimately emphasize corporate earnings and potential political resolution over headline volatility. Throughout the quarter, asset markets swayed heavily with shifting sentiment around a path to peace. A mid-April drop in optimism and a corresponding spike in oil prices briefly drove up inflation expectations and sovereign fixed income yields across the globe. However, by mid-May, reasons for optimism reemerged. The breakthrough came with the signing of the U.S./Iran Memorandum of Understanding, which acted as a relief valve for macroeconomic uncertainty, stabilizing energy markets and clearing the atmosphere for a rally after the market selloff in March.
Large-cap U.S. earnings grew by an exceptional 25% over the past 12 months. Secular themes like artificial intelligence (“AI”), which were temporarily overwhelmed by macro shocks earlier in the year, reasserted themselves in the second quarter. Interestingly, the internal mechanics of the rally evolved; the market was no longer dependent on just the “Magnificent 7” to push the index higher. Instead, leadership rotated directly toward the specialized AI hardware supply chain, where chipmakers and memory manufacturers served as the primary rocket boosters propelling the market into orbit.