Investments

Q2 2026: Market Commentary and Outlook

Anthony O'Brien, Head of Market Strategy, shares his market commentary and outlook for the second quarter of 2026.

By Anthony O'Brien

July 22, 2026

5 minutes

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For many risk assets, the second quarter of 2026 was yet another strong one. While geopolitical tensions like the war in Iran and continuing trade uncertainty loomed large, markets – seemingly unimpeded – continued to advance. Nor did shifting rate expectations obstruct their progress, as investors focused more on growth and corporate earnings than short-term bumps in the road. The drivers of equity market buoyancy are, it seems, evolving.

Naturally, technology remains central to the investment case, but now investors are increasingly rewarding a broader range of sectors and markets benefiting from long-term growth themes. Looking beneath the headline returns reveals a more nuanced picture of the forces that shaped markets over the three months.

At a glance

The outcome was familiar, but the drivers were different.
Opportunities broadened beyond the traditional market leaders.
Inflation, growth and monetary policy continued to shape investor thinking across asset classes.

Client conversations

Despite ongoing geopolitical uncertainty, equity markets continued to perform strongly during the quarter. This could be a timely opportunity to discuss clients' long-term objectives and how their investment strategy supports them.

Market Commentary

The equity market rally evolves

Many global equity markets did well in the second quarter of 2026. While the gains were quite widespread, with several major markets producing double-digit returns, there were also some significant differences beneath the headlines. And while the pattern of returns remained the same as what we’ve been seeing over the past four years, the drivers of those returns did not.

During much of this recent rally, returns have been concentrated heavily among a handful of US technology companies – the so-called Magnificent Seven. Undoubtedly, these businesses remained important for market performance in the second quarter, but investors increasingly found opportunities elsewhere. Strong corporate earnings supported investor sentiment, while a broader range of companies, industries and regions began to share in the gains.

Capital expenditure was still an important market theme, but this time investors didn’t favour the companies undertaking it. Instead, they got behind those who benefited from the resulting wave of spending. As opportunities broadened beyond the established leaders – the Magnificent Seven – growing attention fell on the companies and industries providing the infrastructure that underpins long-term growth trends.

Regional performance reflected this broadening opportunity set. US equities remained among the strongest performers, with the S&P 500 Index climbing 15.2% in dollar terms. Gains for emerging markets and Asia ex-Japan were even more impressive, with indices for both regions recording dollar gains over 20%. While UK and European markets also delivered positive returns, they lagged other markets, with the FTSE All-Share recording a rise of 4.7% in sterling terms.

Beneath the surface – beyond the Magnificent Seven

Who are the biggest winners from the AI boom? Spoiler: it’s not necessarily the companies that are making the headlines.

Much conversation and media coverage focuses on developers of AI tools and applications. Yet, during the second quarter, investors increasingly looked less to software and more towards hardware. Demand for computing power, data storage and connectivity helped direct attention towards the companies providing the underlying infrastructure, from chipmakers to the wider supply chains that support them. Semiconductor and memory-chip producers were among the clearest beneficiaries.

This shift was particularly noticeable in parts of North Asia, where technology manufacturing remains deeply embedded in the global AI story. As a result, the next phase of the AI investment theme may be less about the companies developing AI tools and more about the infrastructure that makes them possible.

This transfer of leadership helped support equity returns, but it wasn’t the only force shaping markets during the quarter. For many asset classes, inflation, interest rates and monetary policy were important influences, too.

Client conversations

AI is creating opportunities beyond the companies making the headlines. This could be a good opportunity to discuss diversification and exposure to long-term growth themes.

Rates remain the question for fixed income

Fixed income also delivered positive returns between April and June, but the gains were more modest than those in equity markets. Credit – supported by healthy corporate fundamentals and risk appetite – generally outperformed government bonds. Meanwhile, bond investors spent a lot of the period reassessing the likely path of interest rates as shifting economic data and evolving inflation expectations altered perceptions of central bank policy.

Regardless of the uncertainty, yields on government bonds stayed relatively contained. Investors continued to debate the timing and extent of future rate moves, particularly as resilient economic data led several central banks to adopt a firmer tone than markets had anticipated. Markets remained focused on the balance between economic strength and persistent inflation, which together shaped returns across fixed-income markets.

Other markets – not all roads led higher

Performance elsewhere was a bit more mixed. For commodities, the quarter was a weaker one overall, with oil and gold both giving back some of their gains from earlier in 2026. Even so, developments in energy markets were an important influence on inflation expectations and interest-rate forecasts, reinforcing the links between different parts of the market.

Outlook

The next phase in the equity rally

Equity markets’ resilience in the first half of this year suggests that investors are willing to look through uncertainty, as long as the underlying growth story stays intact. However, the backdrop now seems a bit more demanding than it was just a few months ago. Corporate earnings are likely to continue to shore up markets, but investors will also be watching how companies respond to higher input costs, evolving trade policies and the possibility of a less accommodating interest-rate environment.

Artificial intelligence is still a compelling long-term theme, but the market’s focus continues to evolve. Rather than simply rewarding the companies that develop tools and applications, investors seem increasingly interested in the wider AI ecosystem that supports them. That trend could continue, although elevated valuations in some areas may leave less room for disappointment than in the past.

Client conversations

Investors are becoming more focused on earnings and the economic outlook. This could be a useful prompt for conversations about diversification and long-term goals.

Beneath the surface – the AI story grows up

For much of the recent rally, the AI investment story seemed pretty straightforward: identify the companies developing the most exciting technology and follow the money. Now markets are taking a more nuanced view.

The enormous sums being invested in artificial intelligence have created opportunities well beyond software developers and platform providers. Investors have increasingly focused on the businesses supplying the hardware, infrastructure and supply chains required to support that investment. Semiconductor manufacturers, memory-chip producers, networking specialists and providers of computing capacity have all attracted growing attention.

At the same time, this phase of the cycle could become more demanding. The AI theme remains powerful, but investors are ever-more selective about where they expect future returns to come from. In other words, the question is no longer whether AI matters, but which parts of its supporting ecosystem are best placed to benefit from its continued expansion.

No easy answers for fixed income

For fixed income investors, the key issue remains inflation and the outlook for interest rates. Higher oil prices have once again become an important influence on rates markets, while expectations that once centred on policy easing have given way to renewed debate about whether central banks may need to maintain a firmer stance for longer.

That uncertainty may create challenges, but it could also create opportunities. Bond markets are likely to remain sensitive to economic data, inflation readings and central-bank communication. The balance between resilient economic growth and persistent inflation therefore looks set to remain a key influence on fixed income performance over the months ahead.

The return of the oil story will be a focus for other markets

While oil prices fell sharply during the second quarter, developments in energy markets could remain a major influence on investor sentiment in the months ahead. Renewed tensions in the Middle East have raised the perceived floor for oil prices and increased the extent to which energy markets influence inflation expectations and interest-rate forecasts.

While the ultimate path of the conflict remains uncertain, investors may need to become more comfortable with a backdrop in which geopolitical developments have a more immediate impact on markets than they have become accustomed to in recent years.

Key takeaways

As markets move into the second half of the year, investors are likely to focus more closely on corporate earnings, inflation and interest-rate expectations. While the AI theme remains a powerful driver of growth, opportunities are broadening beyond the headline names, reinforcing the importance of diversification and a long-term investment perspective.

The information in this article should not be regarded as financial advice and is based on our understanding in July 2026.

Money invested is at risk.

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