2Q26 Quarterly Market Review
Quarterly Market Review
The second quarter felt like markets changed the subject before most investors were ready.
There were real reasons for caution coming into April. Conflict between the U.S. and Iran had oil prices elevated and shipping through the Strait of Hormuz in question, inflation remained stubborn, and the Fed wasn’t signaling relief. And yet, by the end of June, stocks delivered one of their strongest quarters in years.
None of those issues went away. Inflation was still elevated. Interest rates were still high. Investors just became a little more optimistic about what those risks might mean going forward. That’s also a reminder that successful investing isn’t about predicting every twist and turn. It’s about having a plan that can withstand them.
Key Takeaways
U.S. stocks posted their best quarter since 2020 as concerns that weighed on markets earlier in the year began to ease.
The rally broadened well beyond the largest technology companies. Small-cap stocks, international stocks, and emerging markets all participated.
A new Federal Reserve Chair took office, but inflation remains above target and interest rates may stay higher than many investors had hoped.
The biggest lesson from the first half of the year wasn’t about predicting markets. It was about avoiding the temptation to react to every headline.
What the Headlines Don't Show
MSCI All Country World Index with selected headlines from 2Q26
These headlines aren't offered to explain market returns. Instead, they serve as a reminder that investors should view daily events from a long-term perspective and avoid making investment decisions based solely on the news.
How Markets Performed
Returns as of June 30, 2026
A Strong Quarter With Loose Ends
If you only looked at the headline returns, it would’ve been easy to assume this was another quarter where a handful of technology companies carried the market higher.
That wasn’t really the story.
U.S. large companies had an excellent quarter, but the strength came from many more places than we’ve seen recently. Small cap stocks had their best first half since 1991. International stocks moved higher, and emerging markets finished ahead of the broader U.S. stock market. That’s encouraging because it means the rally wasn’t being carried by just a handful of companies.
We also saw leadership change inside the U.S. market. Energy was one of the strongest sectors just a few months ago. This quarter it became one of the weakest as oil prices pulled back. It’s a good reminder of why we diversify in the first place. Leadership changes all the time, and usually before investors expect it to. The goal isn’t to predict where returns will come from next. It’s to own a portfolio that’s prepared regardless of where they come from.
The Federal Reserve also got a new leader this quarter, but the issues facing the Fed looked very familiar. Kevin Warsh took over as Chair in May, inheriting an economy where inflation remains well above the Fed’s long-term target. At his first meeting, the Fed left interest rates unchanged, bond yields moved higher, and mortgage rates followed.
A new Fed Chair makes for an interesting headline, but it doesn’t change the issues the Fed is dealing with. Inflation, borrowing costs, and government deficits are still part of the equation, regardless of who’s leading the meetings.
Higher interest rates have also changed the role bonds play in a portfolio. They provide income again while continuing to do what they’ve always done: help reduce volatility and give retirees and near-retirees a place to draw spending without selling stocks during a difficult market.
As encouraging as the quarter was, it doesn’t erase the reasons investors have been cautious. Stock valuations remain above historical averages, which means expectations are already fairly high. That doesn’t mean stocks have to fall from here. It does mean future returns become harder to predict when a lot of optimism is already reflected in prices.
Reaction Is Still the Risk
Last quarter we wrote that the biggest risk wasn’t volatility. It was reacting to it. The second quarter made the same point from the opposite direction.
Some investors reduced their stock exposure earlier this year because the headlines made waiting seem like the safer choice. The problem is markets rarely wait until the outlook feels comfortable again. By the time the news improves, much of the recovery has already happened.
The opposite temptation shows up after quarters like this. Strong returns make investors wonder if they should own more of whatever just worked, skip rebalancing because the winners keep winning, or question whether their diversified portfolio is keeping up.
Those decisions deserve just as much caution as selling during a downturn. A good investment plan isn’t designed for bad markets alone. It’s designed to help us make better decisions, regardless of what the last three months looked like.
Looking Ahead
The second half of the year will bring plenty to watch. Inflation is still elevated. Interest rates remain high. The new Fed Chair is beginning to put his stamp on monetary policy. Corporate earnings will have to support today’s prices, and geopolitical events can always change the conversation.
We’ll continue paying attention to all of it, but we’re looking for information that actually changes decisions, not just headlines that fill the news cycle. Sometimes that means rebalancing after a strong run. Sometimes it means harvesting gains. Sometimes it means making no changes at all.
Good investing isn’t about making more decisions. It’s about making better ones.
What Actually Matters
Sometimes markets fall when the economy looks healthy. Sometimes they’ll rally while the headlines suggest they shouldn’t. Most of the time, they’ll only make complete sense after we’ve had the benefit of looking back.
That’s why we don’t build investment strategies around predicting the next quarter. We diversify, keep enough cash for near-term spending, rebalance when portfolios drift from their targets, and look for tax opportunities throughout the year. Those aren’t exciting decisions, but they’re often the ones that make the biggest difference over time.
Markets are always going to surprise us. Our job isn’t to predict every surprise. It’s to build a portfolio that’s prepared for more than one outcome.
Disclosures
All expressions of opinion reflect the judgment of the author(s) as of the date of publication and are subject to change. The content on this blog is for informational and educational purposes only and should not be construed as personalized financial advice, tax advice, legal advice, an offer or solicitation to buy or sell any security, or a recommendation to pursue any specific investment strategy. The information provided is general in nature and may not be suitable for your individual circumstances.
Olio Financial Planning, LLC (“OLIO”) is a registered investment adviser with the United States Securities and Exchange Commission, domiciled in Virginia. Investment advisory services are only provided to investors who become OLIO clients under a written agreement. Past performance does not guarantee future results, and all investments involve risk, including the potential loss of principal.
Nothing contained herein should be interpreted as a guarantee of any specific outcome. Forward-looking statements or projections are based on assumptions and current market conditions, which are subject to change without notice. Actual results may differ materially.
You should consult your own financial, legal, tax, or other professional advisors before making any financial decisions. OLIO does not guarantee that the information presented is current, accurate, or complete, and assumes no responsibility for any errors or omissions.