2026 3rd Quarter Investment Bulletin
Executive Summary
Markets demonstrated remarkable resilience during the second quarter, with stocks rebounding sharply from the modest pullback experienced earlier in the year.
While technology and semiconductor companies continued to benefit from significant investment in artificial intelligence, market leadership broadened as mid-cap and small-cap stocks also delivered strong returns.
Fixed income markets remained relatively stable as the Federal Reserve left interest rates unchanged throughout the quarter.
Market Overview
The first half of 2026 has been another reminder that markets can change direction quickly.
After a modest decline during the first quarter, investors were rewarded with a strong recovery in the second quarter. Early in the year, markets were challenged by heightened geopolitical tensions in the Middle East, rising oil prices, inflation concerns, and uncertainty surrounding the Federal Reserve’s interest rate policy. As the quarter progressed, many of those concerns began to ease, allowing investors to refocus on strong economic fundamentals and corporate earnings.
As shown in the chart above, stocks responded by recovering their earlier losses and reaching new highs.
The recovery was supported by several positive developments. Strong corporate earnings, resilient economic growth, historically low unemployment, and healthy consumer spending continued to provide support for financial markets. Although technology companies, particularly those benefiting from continued investment in artificial intelligence, continued to be important drivers of performance, one of the most encouraging developments was the broadening of market participation. Mid-cap and small-cap stocks produced strong returns, demonstrating that market gains were becoming less dependent on just a handful of large technology companies.
The chart below compares the price of the S&P 500 with the underlying earnings of the companies that comprise the index. The first quarter pullback brought market prices more closely in line with corporate earnings, helping to improve overall valuations. While valuation is only one component of long-term market performance, sustainable earnings growth remains an important foundation for higher stock prices. Despite the impressive market gains over the past four years, corporate earnings have continued to grow, providing an important fundamental foundation for current market valuations.
Portfolio Positioning
Your portfolio’s broad diversification continued to play an important role in navigating the market volatility experienced during the first half of the year.
We have been encouraged not only by the market’s recovery, but also by the expanding number of companies participating in those gains. While the S&P 500 remains highly concentrated in a small number of very large companies, the first half of 2026 demonstrated that positive market returns do not depend solely on the performance of the so-called “Magnificent Seven.”
As illustrated in the chart below, returns among the “Magnificent Seven” were mixed during the first half of the year. Only Google outperformed the S&P 500, while three of the seven companies posted negative returns. Meanwhile, many companies outside of this group delivered solid performance, reinforcing the benefits of maintaining a diversified portfolio across sectors, industries, and market capitalizations.
This broadening of market leadership is a healthy development. It creates a more balanced investment environment and supports our long-standing philosophy of building diversified portfolios designed to participate in market growth, while helping manage risk over the long term.
Looking Ahead
While markets have recovered strongly, investors should continue to expect periods of volatility. Questions surrounding inflation, Federal Reserve policy, corporate earnings, fiscal policy, and geopolitical developments are likely to remain important themes during the second half of the year. Rather than attempting to predict short-term market movements, we remain focused on building well-diversified portfolios aligned with each client's long-term financial goals. History continues to demonstrate that disciplined investors are rewarded by remaining invested through changing market environments.