INSIGHTS

  • Market Outlook

Second Quarter 2026

After years of large companies’ dominance, earnings across large, mid, and small companies are rising.

US stocks rallied in the second quarter, supported by a US–Iran peace deal and continued investment into AI infrastructure. Despite ongoing inflation, strong company fundamentals and better-than-expected earnings growth drove stocks higher.

US sector leadership reversed in the second quarter. Energy, the best performer in Q1, was the worst S&P 500 sector in Q2. Meanwhile, Technology started the year down -9%, then surged over 30% to lead the second quarter. The S&P 500’s rally was so strong that 30% of stocks reached all-time highs, including 61% of Technology stocks.

Index Table 2026 Q2

Bond returns were muted as yields rose throughout the quarter, with the 10-year Treasury yield reaching a peak of 4.68% in late May after a low of 3.9% in early March. Oil prices also peaked in late May. With the de-escalation of the Iran conflict, yields and energy prices have stabilized, with the 10-year Treasury yield closing the quarter at 4.46% and crude oil falling below $70 per barrel.

A resurgence in AI optimism fueled Technology and Industrial sector returns. Additionally, after several muted years, IPO activity is expected to rebound in 2026, led by AI-related issuance. SpaceX completed the largest IPO on record in June, raising $75 billion.

Earnings strength in 2026 has not only been better than expected, but broad-based. After years of large companies’ dominance, earnings across large, mid, and small companies are rising. Tech-related companies have been huge profit drivers, yet profits are up across most sectors. This year’s rise in the S&P 500 index is solely attributed to its earnings growth, with its valuation or price-to-earnings (P/E) ratio drifting lower since the end of 2025. After climbing 13% last year, earnings are expected to grow nearly 24% in 2026 and 17% in 2027.

Market participants had widely expected rate cuts in 2026, until energy prices spiked and inflation remained persistent. Job growth has also picked up, and the economy has remained quite resilient. Consequently, the growing consensus is that the Fed may implement at least one rate increase this year.

Sector Returns 2026 Q2

New Fed Chairman Kevin Warsh used his debut press conference to signal that the Fed is serious about fighting inflation and committed to the institution’s independence. No forecasts were provided. The fall in the price of gold and the dollar’s bottom since Warsh’s confirmation point to financial market confidence in the Fed. Inflation has remained sticky due to tariffs, oil prices, and technology price increases. Labor remains stable, adding an average of 92,000 jobs per month in 2026 as job openings climbed to 7.6 million.

Looking through shorter-term influences that led to recent inflation, both the economy and stock returns are being driven by a revolution of innovation and trillions of dollars of investment in new technology and energy infrastructure. Increased productivity and deflationary pressure are benefits that are likely to follow. The risk remains that the return on invested capital (ROIC) will fall short of expectations. To date, investors have earned excellent stock returns due to the evolution of AI. We remain committed to participating in this growth while also providing a diversified portfolio to meet your long-term goals.

Disclosures

Tandem Wealth Advisors LLC (“Tandem”) is an SEC-registered investment adviser. The information published herein is provided for informational purposes only and does not constitute an offer of investment advisory services. All information is subject to change without notice. Nothing contained herein constitutes financial, legal, tax, or other advice. No investment process is free of risk, and investors may lose all their investments. Past performance is not indicative of current or future performance and is not a guarantee. The opinions expressed in this document may not fit your risk and return preferences. The information provided is obtained from sources believed to be reliable, but we cannot attest to its accuracy. Past performance is not necessarily indicative of future returns. Certain information contained herein constitutes “forward-looking statements,” which can be identified by the use of forward-looking terminology such as “may,” “will,” “should,” “expect,” “anticipate,” “project,” “estimate,” “intend,” “continue,” or “believe,” or the negatives thereof or other variations or comparable terminology. Due to various risks and uncertainties, actual events, results, or performance may differ materially from those reflected or contemplated in such forward-looking statements. Nothing contained herein may be relied upon as a guarantee, promise, assurance, or a representation of future events or conditions. Additional copies of Tandem’s ADV Part 2A and/or Privacy Policy are available upon request by phone at 602-297-8600 or by email at info@tandemwealth.com.

Index Definitions

The S&P 500 Index measures the performance of the large-cap segment of the U.S. equity market. The S&P MidCap 400 Index measures the performance of the mid-cap segment of the U.S. equity market. The S&P SmallCap 600 Index measures the performance of the small-cap segment of the U.S. equity market. The Nasdaq 100 is a basket of the 100 largest, most actively traded U.S. companies listed on the Nasdaq stock exchange. The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity market. The MSCI World Ex USA Index captures large- and mid-cap representation across 22 of 23 developed market countries, excluding the U.S. The MSCI Emerging Markets Index captures more than 1,400 large- and mid-cap securities in 24 countries spanning five regions. The Bloomberg Barclays U.S. Aggregate Bond Index is a broad-based benchmark that measures the investment-grade, U.S. dollar-denominated, fixed-rate taxable bond market. The Bloomberg Barclays Investment Grade Corporates Index measures the investment-grade, fixed-rate, taxable corporate bond market. The Bloomberg Barclays Corporate High Yield Index measures the U.S. dollar-denominated, high-yield, fixed-rate corporate bond market. The Bloomberg Barclays Investment Grade U.S. Convertibles Index tracks the performance of investment-grade, U.S. dollar-denominated convertible securities. S&P 500 Sectors measure segments of the U.S. stock market as defined by GICS®. All index performance data sourced from Bloomberg.

Scroll to Top