After declining 4.3% in the first quarter, the S&P 500 returned 15.2% in the second quarter – its strongest quarter since 2020 – and finished near record highs.
Markets Stage a Powerful Rebound
After declining 4.3% in the first quarter, the S&P 500 returned 15.2% in the second quarter – its strongest quarter since 2020 – and finished near record highs. Gains broadened well beyond large caps, with small caps outperforming and emerging markets rising over 24%. Just as we noted last quarter, this recovery reinforces the importance of staying invested – short-term drawdowns are often embedded within longer-term uptrends.
Iran Conflict De-Escalates & Oil Prices Retreat
Diplomatic progress between the United States and Iran, including a ceasefire, meaningfully reduced geopolitical risk. Brent crude, which peaked near $127 per barrel this spring, ended the quarter near $73 – roughly pre-conflict levels – while gasoline prices fell back below $4.00 per gallon. The removal of this risk premium was a key catalyst for the market recovery that began in April.
Inflation & the Federal Reserve
Headline CPI peaked at 4.2% year-over-year in May before easing to 3.5% in June as energy prices fell – core CPI rose a more modest 2.6%. Kevin Warsh was sworn in as Federal Reserve Chairman in May and held rates steady at 3.50%–3.75% at his first meeting in June, while removing forward guidance and striking a more hawkish tone on price stability. Market expectations have shifted from rate cuts to a possible rate hike, and the 10-year Treasury yield ended the quarter at 4.47%.
AI Continues to Power Markets
The technology sector gained over 33% for the quarter, driven by record investment in artificial intelligence, and now represents roughly 35% of the U.S. equity market. Corporate earnings have grown more than 20% over the past year, and IPO activity has returned – highlighted by SpaceX’s landmark listing, with OpenAI and Anthropic expected to follow. With valuations above historical averages, we believe balance and diversification remain essential.
Looking Ahead
The second half of the year will bring its own uncertainties – the durability of the Middle East ceasefire, Fed policy under new leadership, AI monetization, and the midterm elections. History suggests markets can advance through such periods. Our focus remains on maintaining well-diversified portfolios, managing risk thoughtfully, and positioning clients to participate in long-term growth opportunities.