June, Second Quarter 2026 Review and Outlook

Executive Summary 

• The SOX Index posts its best quarter (+89%) since inception in 1994
• S&P 500 and Nasdaq 100 record best quarter in six years
• Hawkish June FOMC drives bullish reversal in the greenback
• Rates volatile amid bull steepening
• Crude oil fully reverses Iran war rally
• Investors anticipate robust Q2 earnings and revenue growth

Following a turbulent Q1 characterized by elevated volatility and corrective price action stemming from the U.S.- Iran conflict and concerns over global trade, U.S. equity markets delivered a powerful advance in Q2 2026 ending in one of the strongest quarterly periods of this century. Both the S&P 500 and Nasdaq-100 recorded their best quarter since Q2 2020, while the Nasdaq-100 notched its second-best quarterly performance in the last 25 years. The initial gains off the March lows were driven by large-cap growth and hyperscalers; however, by quarter’s end, the breadth of the advance was widespread, with small, microcap, equal weight, and value benchmarks all reaching new record highs. The quarter was headlined by robust momentum in technology and AI‑driven themes, strong corporate earnings and revenue growth, expanding margins, an easing of the U.S.-Iran conflict, rate volatility amid bull steepening, and a bullish reversal in the U.S. dollar.

The cap-weighted S&P 500 peaked back on June 2, while the S&P 500 Equal Weight is breaking out to new highs as of July 1.

AI and semiconductors remained the core theme, driven by strong capex and robust demand for memory chips. While select pockets of the technology space underwent profit taking late in Q2, semiconductor and memory chip companies soared. The Philadelphia Semiconductor Index (SOX Index) rocketed higher and recorded double-digit gains in all three months for its best quarterly performance (87.8%) since inception in 1994.

Growth & Value

Growth outperformed over the course of the second quarter, continuing to drive overall market returns and reinforcing its position as the dominant leadership factor within the broader uptrend. Performance in this category was anchored by technology-oriented themes, which benefited from strong earnings momentum and sustained investor positioning. That leadership began to shift in June as market dynamics evolved. Within large caps, value outperformed as investors rotated out of extended growth positions and into sectors more sensitive to economic resilience and higher rates. This marked an inflection point characterized by broadening participation. 

Large-cap sector performance was widely positive in Q2, with nine of 11 sectors finishing higher. However, June marked a clear shift in leadership giving way to outperformance in more cyclical and defensive areas of the market. Industrials financials and healthcare outperformed, while communications and technology lagged from near-term profit taking. Energy underperformed for the second consecutive month as oil prices returned to pre-crisis levels. While the technology sector capturedthe majority of media coverage, industrials are the top performing sector YTD with a 20.1% total return.

Small-Cap Sectors

After lagging in Q1, small caps charged back in Q2 with 10 of 11 sectors higher, led by strong double-digit gains in technology, industrials, healthcare, discretionary, and financials underscoring increased investor confidence in underlying growth conditions.

In the first week of April, the small-cap Russell 2000 Index was trading marginally below its prior cycle highs from November 2021 before rebounding more than 26% into quarter’s end. 

Rates, Commodities, and the Dollar

In his first meeting as Chairman of the Federal Reserve, Kevin Warsh struck a surprisingly hawkish tone at the June FOMC, expressing greater inflation concerns than what markets expected. Markets started the year pricing lower rates until the April surge in energy prices from the Iran war changed those expectations. The most recent reading of the Fed’s preferred inflation gauge (core PCE) rose for the third consecutive month to 3.4% (May). Markets are now pricing in 33bps of rate hikes by year end.

The hawkish FOMC resulted in a flattening of spreads which drove the 10s, 2s UST spread to its lowest level since March 2025. 

The long end of the Treasury curve was pressured by the sharp reversal in energy prices as the U.S. and Iran halted military operations and moved toward a negotiated peace. After rising more than 64% in the early stages of the conflict, Brent crude oil declined 19.3% and 20.8% in April and May, respectively, leaving it virtually unchanged from pre-war levels. 

The hawkish tone of the June FOMC had a more pronounced impact on the U.S. Dollar. Back in the 1H of 2025, the US Dollar Index (DXY) had one of its steepest 6M declines on record. It then transitioned into a sideways, trading range over the ensuing 12 months. Immediately following the June FOMC, the greenback made a “bullish breakout,” potentially signaling a longer-term uptrend is at hand.

Looking Ahead  

The S&P 500 is expected to deliver strong results on both the top- and bottom-line for Q2 2026. Q2 earnings growth (YoY) expectations have risen from +18.8% at the end of Q1 to 23.1%, according to FactSet. Revenue expectations have also trended higher throughout the quarter, with Q2 revenue growth forecasts rising from 9.5% at the end of Q1 to currently 12.3%. This would mark the highest revenue growth rate since Q2 2022. The combination of accelerating revenue growth and a larger increase in EPS growth implies continued margin expansion, consistent with the broader trend observed over the past several quarters. From a valuation perspective, the S&P 500 is trading at a forward 12-month P/E of ~20.1x, modestly above both its 5-year (19.9x) and 10-year (19.0x) averages.

The information contained herein is provided for informational and educational purposes only, and nothing contained herein should be construed as investment advice, either with respect to a particular security or an overall investment strategy. All information contained herein is obtained by Nasdaq from sources believed by Nasdaq to be accurate and reliable. However, all information is provided “as is” without warranty of any kind. Advice from a securities professional is strongly advised.