Quarterly Market Perspectives

Summary

• The S&P 500 advanced 15.2% in the second quarter of 2026 after an unsettled start to the year.
• Federal Reserve Chair Kevin Warsh prioritized price stability, shifted away from forward guidance, and held the target rate range at 3.5% to 3.75% during the June 17 meeting.
• The United States and Iran signed a 14-point memorandum of understanding in mid-June that ended military operations, reopened the Strait of Hormuz, and waived sanctions on Iranian oil for 60 days.
• Core PCE inflation rose to 3.4% year over year in May, the highest reading since late 2023, while headline PCE reached 4.1%.
• Real GDP grew at a 2.1% annualized rate in the first quarter, with the full-year forecast maintained between 1.75% and 2.5%.
• The labor market added 172,000 jobs in May, keeping the unemployment rate steady at 4.3%.
• S&P 500 earnings grew 29% year over year on revenue growth of roughly 10%, driven by corporate earnings rather than multiple expansion.
• The Nikkei 225 returned 37.3% for the quarter, supported by domestic reflation, corporate governance reform, and rising shareholder returns.
• The MSCI Emerging Markets Index rose 24.1% for the quarter, supported by attractive valuations and exposure to AI supply chains.
• Treasury yields drifted higher, with the two-year near 4.2%, the 10-year near 4.5%, and the 30-year approaching 5.0%.
• Investment-grade credit spreads closed the quarter at 26 basis points, while high-yield spreads closed at 277 basis points.
• Brent crude oil fell to near pre-conflict levels after the U.S.-Iran agreement eased concerns about the Strait of Hormuz.
• Gold traded near $4,000 an ounce, acting as a partial hedge while trading range-bound due to higher real yields and a firmer dollar.
• The U.S. dollar strengthened to a 13-month high against a basket of currencies as geopolitical fears receded.
• The outlook for the second half of 2026 includes a raised inflation forecast, an expectation that the Fed will hold rates steady, and a view that equity returns will be earnings-driven.
• Asset allocation views include an overweight position in Japan and emerging markets, an underweight position on Treasuries, and an overweight position on investment-grade credit and mortgage-backed securities.