The shortened trading week brought the second quarter of 2026 to a positive close. Stocks ended slightly lower for month, but closed the quarter on a nice uptick. The US and Iran resumed peace talks, helping stocks push higher. The market also got a lift from Alphabet: the newly minted Dow constituent jumped five per cent on Monday, helping the Index close over 52,000 for the first time ever. It advanced further on Tuesday and gained 12.9 per cent for the quarter. The S&P 500 and the NASDAQ fared even better, jumping 14.9 per cent and 21.4 per cent respectively, for their largest quarterly gains since the second quarter of 2020. A strong day for chip stocks helped end their quarters on a high note, as Nvidia, Advanced Micro Devices, and Intel all jumped thanks to bullish analyst notes.1,2
Bonds, meanwhile, delivered only modest results for the quarter. The benchmark Bloomberg US Aggregate Bond Index returned just 0.75 per cent, as the economic outlook and inflation pushed and pulled at bond yields and prices. Inflation numbers remain elevated, which could lead new Fed Chair Kevin Warsh to raise interest rates, a negative for bond prices.3 The economy, however, has shown signs of weakness, most recently in a poor jobs report released on Thursday.4 That weakness argues for lower interest rates, which could lift bond prices, boost economic growth, and create new jobs. Overall, the competing forces kept the Fed idle during the quarter, and kept bond yields and prices in a somewhat narrow range.
See more: Third Quarter Commentary: Tailwinds Return as Energy Prices Ease
The road ahead is anything but smooth for stocks and bonds. Inflation concerns, uncertainty surrounding Iran, the possibility of an AI bubble, and elevated valuations could all dent the stock market’s healthy year-to-date returns. All those factors were present last quarter as well, but surprisingly strong first-quarter corporate earnings pushed them aside. And we could see a similar story play out this quarter. According to Factset, a record high number of S&P 500 technology companies issued positive guidance for Q2 earnings.5 And RBC argues that banks are likely to enjoy another strong quarter thanks to positive trends in wealth management growth and interest income.6 Bond holders won’t profit directly from corporate earnings, but could again earn positive returns if Chairman Warsh and the Fed refrain from raising interest rates at meetings in July and September.
