Q2 Market Update

Written By Rebecca Crespo

Market Summary¹:

Equities rebound in the Second Quarter: MSCI All Country World Index Excluding USA finished up 13.66% year to date while the Russell 3000 Total Return finished just under 11% year to date through June 30, 2026.

Small Cap stocks: Year to date, Small Cap stocks as measured by [Russell 2000 Total Return have generally outperformed Mid and Large Cap stocks as measured by [Russell Midcap Total Return and Russell 1000 Total Return indices respectively. This marks a reversal from the past several years, when mega-cap tech stocks dominated returns.

Value still in favor: While style leadership shifted toward growth stocks in Q2, leadership year to date still favors Value – particularly in the Mid Cap and Large Cap tiers. as measured by Russell Midcap Total Return and Russell 1000 Total Return indices respectively

Economic Summary

New Fed Chairman Kevin Warsh²:

  • Warsh reaffirmed support for the 2% inflation target

  • Fed removed explicit forward guidance from its statement signaling a move toward more a more data-dependent framework

  • Five New Fed Task forces studying: Fed Communications, Fed Balance Sheet, Data Collection and Analysis. Productivity and Jobs in the AI Era, and Inflation Frameworks.

Labor Market:

  • Unemployment down slightly, finishing the quarter at 4.2%

  • Employment conditions are stable, but inflation appears to be outpacing wages which could put pressure on consumer demand and savings rate

Inflation:

  • Inflation has remained above the Fed's 2% target for more than five years.

  • Recent inflation pressures partly reflect supply shocks and Middle East-related energy disruptions.

  • Short‑term inflation expectations have risen, largely due to surging energy prices tied to Middle East tensions.

Monetary Policy:

  • The Committee kept the federal funds rate unchanged at 3.50%–3.75%.

  • Rate cuts may occur, but timing and pace are uncertain and data-dependent

Outlook:

  • U.S. Economy slowing but not breaking

  • Inflation is improving, but remains above target

  • Lean into quality and Maintain discipline versus chasing winners

  • Prepare for higher volatility, lower return environment in equities

  • Intermediate-Term Bonds may serve as income and diversification tools

Sources:

[1] Source yCharts.com

[2] FOMC Press Conference Transcripts (June 17, 2026)

Rebecca Crespo
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