Overview
The markets held steady in June as signs of a potential U.S.–Iran resolution progressed with a memorandum of understanding being signed on the 17th, which established a 14 point framework and began a 60 day negotiation toward a permanent peace settlement. This reduced fears of a prolonged energy shock, pushing oil prices lower. Investors shifted their attention towards economic growth, inflation, and monetary policy.
Equity markets continued to advance, extending the strong momentum seen in previous months. Major U.S. indices reached all-time highs, powered by exceptional earnings results, centering around technology and AI-linked companies. Semiconductor, memory, software, and infrastructure-related firms benefited from ongoing AI capital expenditures, while broader corporate earnings resilience have reinforced the view that profit growth, rather than sentiment alone, has been the primary driver of equity performance in 2026. The strength was also reflected globally, as emerging markets showed strong earnings and developed international markets continuing to offer growth along with relatively attractive valuations.
Fixed income markets, by contrast, faced a more challenging backdrop. Treasury yields climbed as investors reassessed the balance between growth, inflation, and central bank rate policy. In the US, markets increasingly priced in the possibility of a rate hike by the end of the year, a dramatic shift in expectations.
Commodity returns remained muted. Oil prices pulled back from Middle East peace talks gaining ground. Precious metals continued to decline, with a more hawkish tone from central banks and speculators moving into semiconductors. The US market’s recalibration to hawkish interest rate expectations caused the US dollar to further appreciate sharply over the month.
Stocks and Commodities
As we finish the second quarter of 2026, Emerging Markets, especially Asia ex-Japan remained the standout equity region. Underperforming for the month of June at -1.2%, the MSCI Asia ex-Japan Index delivered a strong 28% gain over the quarter. Investors continued to direct capital toward companies central to the global semiconductor and electrical equipment supply chain, with Korea and Taiwan serving as the primary drivers of performance. Korean equities soared 88%, while Taiwanese markets rose 49% for the second quarter. The MSCI Emerging markets index followed closely, with a quarterly return of 24.1%, and a pullback in June of 1.4%.
The extraordinary appreciation of SK Hynix and Samsung Electronics, whose market capitalization surpassed USD $1 trillion during the quarter, reflected the strong demand for memory and logic chips from AI infrastructure spending. Despite these dramatic gains, both companies continued to trade at modest forward earnings multiple, with SK Hynix at 7x and Samsung at 6x. Highlighting how earnings growth has justified the price momentum.
In contrast, energy production-based sectors of emerging markets experienced weaker performance. Regions such as the Middle East and Latin America came under pressure, as falling oil prices weighed on returns. The MSCI China index lagged because of softness in consumer-oriented segments, such as retail and automobiles.
Japanese equities benefited from a combination of currency dynamics and shifting yield-curve conditions. A fundamentally undervalued yen supported exporters, while a steeper domestic yield curve helped financial institutions. Together, these factors helped the TOPIX perform relatively well for the month, advancing 1% and ending the quarter with a 14% total return, in local currency terms.
In the United States, the momentum of the second quarter continued off the back of one of the strongest earnings seasons in years. Approximately 85% of S&P 500 companies exceeded consensus expectations, with the long-term average being 73%, a level not seen since 2021. The ongoing build-out of AI infrastructure supported earnings across several sectors, from banks benefiting from increased capital markets activity to industrial firms seeing stronger demand for electrical equipment. U.S. equities rose 15% over the quarter.
June brought volatility, as treasury yields rose, geopolitical tensions were unstable, and we saw a temporary cooling of AI momentum. This resulted in the S&P 500 losing 1% over the month. Mega-cap technology stocks briefly retreated, as investors continued to scrutinize the high level of CAPEX spending for AI development.
Continental European equities rallied as geopolitical tensions in the Middle East eased and economic sentiment proved more durable than expected. Consumer confidence rebounded from earlier lows, and eurozone manufacturing activity remained in expansion territory, with the PMI holding above 50. The MSCI Europe ex-UK Index returned 14% in the second quarter, supported by improving risk sentiment and a rotation toward cyclically sensitive sectors. In June it was also the highest performing region, ending the month at 1.5%. In contrast, UK equities gained only 5% for the quarter and lost .8% in June. The region was held back by the index’s heavier exposure to energy and defensive sector composition.
Canadian equities were resilient, with the S&P/TSX gaining 0.5% in June and 7.0% in the second quarter, supported by a strong financial sector, which rose 8.8% in June and 25.6% over the quarter. The materials sector was the biggest drag on returns, with a decline of 12.1% for the month. The sector suffered from commodities weakening.
Commodities dropped sharply as energy tensions eased. In June, the broad GSCI Commodities Index fell 9.9%, WTI dropped 22.6%, and gold declined 12.1% as central banks took a more hawkish tone and speculators moved into semiconductors. Despite the pullback, commodities remained up 24.1% year-to-date, largely reflecting earlier strength in energy prices.
Bonds
Fixed income markets delivered mixed results in June and over the second quarter, as investors balanced slowing economic growth, persistent inflation pressures, and shifting expectations from central banks. While easing energy prices helped reduce inflation expectations in some regions, rising long-term yields and uncertainty around monetary policy kept returns muted.
In the United Kingdom, gilts rose 2.1% in the quarter and .7% over the month of June, in local currency, outperforming global bonds during the quarter and paring them for June, despite weak domestic indicators. The UK composite PMI fell to into contraction territory, at 49.7, and housing activity softened, pointing to slower growth. Inflation eased, with headline CPI at 2.8% in May, below expectations of 3%. Year over year Core inflation also fell in the quarter from 3.1% to 2.6%. This reduced the likelihood of near-term Bank of England tightening. Markets also had a calm reaction to Prime Minister Keir Starmer’s resignation and to expectations that Andy Burnham would take office in July.
Eurozone government bonds outperformed the global bond index over the quarter, even as the European Central Bank raised rates for the first time in 11 months, to 2.25%. Inflation remained moderate, with headline CPI at 3.2% in May and core CPI at 2.5%. German Bunds returned 1.5%, trailing Italy at 2.5% and Spain at 1.9%, as investors showed less appetite for safe havens in the wake of a potential resolution to the Middle East conflict.
In the United States, Treasury yields were relatively stable over the quarter, although inflation remained a concern. Consumer prices rose 0.5% in May, driven by a 7% increase in gasoline prices, though falling oil prices suggest future relief. Wage growth remained subdued at 3.5% year-over-year, even as the labor market stayed tight, with unemployment at 4.3% and job creation picking up. The Federal Reserve kept rates steady but had a hawkish tone.
In June, first quarter US GDP growth numbers were released showing just over 2%, spurred by strong AI-driven investment and fiscal support. However, higher gasoline prices and slow wage growth continued to pressure consumers. Core PCE inflation remained elevated due to AI-related demand, and with a tight labor market and hawkish Fed tone, markets priced in a possible rate hike by the end of the year.
Japan faced a difficult fixed income environment. The Bank of Japan raised rates to 1.0% in June, supported by strong wage growth of 3.6% and producer price inflation of 6.3%. Ten-year Japanese government bond yields climbed to 2.7%, contributing to a -1.3% return over the quarter, and a -0.4% return in June for the Japanese aggregate bond index, in local currency terms. They underperformed relative to global bonds. With Japan heavily dependent on energy imports, the Middle East conflict pushed term premiums higher over the quarter, as energy market and shipping disruptions added to broader inflation concerns.
In Canada, fixed income posted modest gains in June as the normalization of energy prices reduced inflation expectations and pushed bond yields lower. The ICE Canada Universe Bond Index gained 0.5% over the month, and 1.9% over the quarter. Longer-term bonds performed best over the quarter, gaining 3.3%. Federal government bonds rose 0.5% in June, while corporate bonds gained 0.3%, reflecting cautious optimism.
Credit spreads tightened across both high yield and investment grade bonds over the quarter. European high yield was the top performer. The improving inflation outlook helped a strong performance in emerging market debt, which returned 4% last quarter, in USD terms, according to the JP Morgan EM index.
Conclusion
Markets experienced a muted return in June but sentiment in the second quarter remained positive, despite a chaotic backdrop. Investors absorbed fragile Middle East de-escalation, persistent inflation, and a reassessment of Federal Reserve policy. Risk assets held firmly thanks to resilient global growth, continued strength in AI-driven capital expenditures, and normalizing energy prices. Commodities, including oil and gold, fell sharply as the U.S.–Iran reached a tentative agreement. Fixed income had muted gains and remained vulnerable due to hawkish sentiment. Markets continue to expect the economic effects of geopolitical tensions to be temporary, with the environment for continued growth likely to be fully restored by the end of the year.
