Relief, Rallies and Rotation

The second quarter of 2026 was a story of relief turning into rallies, and despite some bumpiness along the way, it was a positive quarter for equity markets.

April brought a sharp turnaround as Middle East tensions began to ease, and investors rotated back into growth and technology shares. That momentum built through May, before a fresh US-Iran agreement and the reopening of the Strait of Hormuz in June eased one of the market's biggest worries and pushed energy prices sharply lower. Later in the month, though, investors took profits on the technology and AI-related shares that had run hardest, meaning June itself ended broadly flat for global markets.

Global shares returned 14.2% over the quarter, with almost every major market making gains, though two regions led the way: the US and emerging markets, both driven by a single theme, artificial intelligence. So it was no surprise that technology was the standout sector in the US, with the overall market powering to 14.5% returns in the quarter.

The US market was only outperformed by emerging markets, up 23.3%, led by Korea and Taiwan, home to chipmakers Samsung, SK Hynix and TSMC, all central to the global AI supply chain. With earnings and future prospects remaining exceptionally strong across technology and the broader market alike, the outlook continues to look bright.

Japan had a strong quarter as falling oil eased pressure on its economy and its new prime minister promised growth-boosting policies, while Europe also performed well, benefiting as a major importer of energy. UK shares lagged behind, rising only modestly, as its heavy weighting in oil and mining companies (a support through the earlier energy shock) turned into a drag as commodity prices fell. China was the one major market to fall, weighed down by soft consumer spending and ongoing troubles in its property sector.

Bonds had a better quarter, with central banks' differing approaches showing just how complicated the inflation and growth picture has become. The Bank of England kept rates on hold, with markets paying little attention to the resignation announcement from Prime Minister Starmer. The Federal Reserve also held steady, though a more cautious tone from new chair Kevin Warsh raised the prospect of rate cuts being delayed for longer. The Bank of Japan, meanwhile, raised rates again due to a weak yen and lingering inflation.

Commodities were the clearest casualty of the calmer mood, falling 11.9% overall, with oil down 30.3% as the Hormuz reopening eased supply worries. Gold, silver and Bitcoin all fell back over the quarter too, down 11.6%, 21.0% and 14.2% respectively.

Markets head into the third quarter in decent shape, helped by solid earnings and easing tensions, though a lasting Middle East resolution isn't guaranteed and uncertainty remains.

Rates could also stay higher for longer than hoped, should inflation prove a little stickier than expected.

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