Q2 2026: Economic & Market Review

David Halseth
Jul 9
6 min read

For the quarter ending June30, 2026.

A Strong Quarter… But not a Free Lunch

The second quarter delivered a much healthier market backdrop than the first, though not without the usual fine print investors have come to know and tolerate. Equities rebounded strongly, led by technology, small caps, and emerging markets. The S&P 500 gained 15.2% for the quarter, while emerging markets surged 24.1%, reminding everyone that global diversification occasionally does more than sit quietly in the corner.

Fixed income also posted positive returns, though hardly the stuff of victory parades. The broad U.S. bond market gained 0.7% for the quarter and just 0.6% year-to-date. Longer- duration Treasuries outpaced shorter-duration bonds over both the quarter and one-year period, as falling rate expectations provided some relief. Still, real returns remain less than inspiring.

Real assets were mixed. REITs rallied sharply, hedge strategies quietly added value, and infrastructure remained positive year-to-date despite slipping modestly during the quarter. Commodities, however, gave back 8.1% in Q2 after a strong first quarter, proving once again that inflation hedges can be helpful – but they rarely arrive with smooth upholstery. Overall, the quarter rewarded diversified investors, but the message remains unchanged: inflation, interest rates, and geopolitical risk continue to matter.

Highlights

• Q1 GDP was revised upward to 2.1%, reflecting continued economic resilience.

• Inflation remains sticky, with energy and geopolitical risk complicating the Fed’s path.

• The Fed’s tone shifted from rate cuts toward “higher for longer” — or possibly higher, period.

• Labor markets remain healthy, with unemployment holding near 4.3%.

• The S&P 500 gained 15.2% in Q2 and is up 10.2% YTD.

• Emerging markets led the major equity categories, gaining 24.1% for the quarter.

• Technology surged 29.6% in Q2, while telecom declined 20.7%.

• The broad U.S. bond market gained 0.7% in Q2 and 0.6% YTD.

• Longer-duration Treasuries outpaced short-duration bonds over the quarter and past year.

• High yield led domestic fixed income, gaining 2.5% in Q2.

• Commodities declined 8.1% in Q2 but remain up 14.4% YTD.

• Global REITs rallied 10.8% for the quarter.

• Hedge multi-strategy gained 7.3% in Q2 and 9.2% YTD.

• Infrastructure slipped 0.5% in Q2 but remains up 10.5% YTD.

Bond Market Efficiency

Fixed income investing may appear straightforward, but consistently outperforming the bond market has proven anything but. Just like stock funds, the overwhelming majority of actively managed bond funds have underperformed their benchmarks. While skilled managers certainly exist, identifying them in advance is exceptionally difficult. For most investors, broad diversification, low costs, and disciplined portfolio construction remain far more reliable drivers of fixed-income success than attempting to predict tomorrow's winning manager.

Note: Data as of 31st December 2025. Sources: SPIVA scorecard, Apollo Chief Economist

Inflation Components

Just when investors thought inflation was finally behaving, it decided to remind everyone who's boss. Shelter costs continue their gradual descent, helping offset pressures elsewhere, but higher energy prices following the Iran conflict have complicated the path back toward the Federal Reserve's 2% target. The encouraging news is that long-term inflation expectations remain relatively well anchored. The less encouraging news? The "last mile“ may prove more stubborn.

Source: BLS, FactSet, J.P. Morgan Asset Management. Contributions mirror the BLS methodology on Table 7 of the CPI report. Values may not sum to headline CPI figures due to rounding and underlying calculations. “Shelter” includes owners’ equivalent rent, rent of primary residence and tenants’ and household insurance. “Food at home” includes alcoholic beverages. Headline and core PCE deflator inflation shown are based on seasonally adjusted data due to data availability. Official October 2025 data unavailable due to government shutdown and data shown are J.P. Morgan Asset Management estimates. Guide to the Markets – U.S. Data are as of July 6, 2026.

Yield Curve

The yield curve has spent nearly three years warning of recession, yet the economy continues refusing to cooperate. Growth remains positive, unemployment is low, and consumer spending has held together well despite elevated borrowing costs. While historically an inverted curve was an economic indicator, this cycle serves as a reminder that timing matters just as much as direction. Investors who positioned portfolios for a recession have spent considerable time waiting.

Source: FactSet, Federal Reserve, J.P. Morgan Asset Management. Guide to the Markets – U.S. Data are as of July 6, 2026.

U.S. Utility Inflation and Profitability

Utilities rarely capture headlines but offer a window into the long-term relationship between inflation and regulated infrastructure returns. While inflation has fluctuated dramatically over the past five decades, utility profitability has remained remarkably stable thanks to regulated rate structures. For investors, this consistency helps explain why the sector continues to provide dependable income during periods of elevated inflation.

Source: AEU, Bloomberg, BLS, SNL, J.P. Morgan Asset Management. (Right) Data represent average allowed return on equities (RoEs) for electricity and natural gas utilities and annual inflation from December 1970 through December of the indicated period. *Return on equity is lagged by 2 years. Past performance is not a reliable indicator of current and future results. Guide to Alternatives. Data are based on availability as of April 30, 2026.

U.S. Public vs. Private Equity

The investment landscape continues evolving as fewer companies choose to remain publicly traded while an increasing share of corporate value creation occurs in private markets. Larger companies are staying private longer, often delaying public offerings until much later in their growth cycle. The implication for investors is straightforward: portfolios relying exclusively on public markets may increasingly miss an important segment of long-term capital appreciation.

Source: Bain and Company, FactSet, Jay Ritter – University of Florida, S&P Capital IQ, World Federation of Exchanges, J.P. Morgan Asset Management. (Top left) *Number of listed U.S. companies is represented by the sum of the number of companies listed on the NYSE and the NASDAQ. (Bottom left) Average market value is calculated by dividing the total market value at first closing price by the total number of IPOs for each period. The sample is IPOs with an offer price of at least $5, excluding ADRs, unit offers, closed-end funds, REITs, natural resource limited partnerships, small best efforts offers, banks and S&Ls and stocks not listed on CRSP (CRSP includes Amex, NYSE and NASDAQ stocks). Guide to Alternatives. Data are based on availability as of April 30, 2026.

Public and Private Credit Yield Trends

Private credit continues doing what attracted investors in the first place - generating attractive income while maintaining relatively stable performance. Although headlines occasionally predict cracks in the market, default rates remain historically manageable and yields continue offering a meaningful premium over comparable public fixed-income securities. As always, manager selection and underwriting discipline matter, but the broader asset class continues demonstrating its value within diversified income portfolios.

Source: Bloomberg, FactSet, Federal Reserve Bank of New York, J.P. Morgan Credit Research, KBRA DLD, J.P. Morgan Asset Management. Private credit: yield to maturity from the KBRA DLD Index. Leveraged loans: yield-to-maturity from the J.P. Morgan Leveraged Loan Index. High yield bonds: yield to worst from the Bloomberg U.S. Corporate High Yield Index. SOFR: 90-day average Secured Overnight Financing Rate. Past performance is not a reliable indicator of current and future results. Guide to Alternatives. Data are based on availability as of April 30, 2026.

Performance - Equities

After stumbling through the first quarter, domestic stocks rebounded strongly as corporate earnings exceeded expectations and enthusiasm surrounding artificial intelligence continued supporting technology shares. International markets and small caps also contributed meaningfully, demonstrating that leadership is gradually broadening beyond the handful of mega-cap companies that dominated much of last year's returns.

Performance - Fixed-Income

Fixed income delivered positive returns during the second quarter, although the celebration should remain muted. The Bloomberg U.S. Agg gained 0.7% for the quarter and 0.6% year-to-date, while longer-duration Treasuries outperformed their shorter-duration counterparts. High-yield bonds once again led domestic fixed-income sectors, reflecting higher equity correlations. Bond investors are still waiting for the asset class to outpace inflation and provide real returns.

Performance - Real Assets

Real assets delivered a mixed second quarter. Public REITs rebounded strongly, posting gains of roughly 9%–10%, while infrastructure slipped modestly after a robust start to the year. Commodities declined 8.1%, surrendering a portion of their impressive first-quarter advance, yet remain solidly positive year-to-date. As a group, real assets continue demonstrating their value by providing differentiated return streams and diversification beyond traditional stocks and bonds.