Just as Buzz Lightyear confidently proclaimed: “To infinity and beyond,” so the U.S. equity markets ran with that directive at the start of the second quarter of 2026. On April 15th, the S&P 500 closed above 7,000 points for the first time, and the index has notched 23 all-time highs since the start of the year. The space theme is also apt, as Elon Musk launched the largest initial public offering (IPO) in June, raising a blockbuster $87 billion, shattering the 2019 previous record of $29 billion held by Saudia Arabia’s state-owned oil company.
Behind these, and other financial headlines, many linked to AI spending commitments and capital raising, the broader market and economic themes have been those of resilience so far this year. Markets have pushed through inflation pressures and an energy shock driven by geopolitical events, as well as heightened volatility in the Information Technology sector, which represents close to 40% of the total market capitalization of the S&P 500.
The S&P 500 closed on June 30th at 7,499, representing an outsized return of 15.20% for the second quarter after the index staged a sharp recovery from its March 20th year-to-date closing low. This delivered the best quarterly gain for the benchmark index since 2020 and brought the S&P 500 return to 10.21% for the first half of 2026. Following a similar, but less volatile trajectory over the past three months, the Dow Jones Industrial Average (DJIA) ended June at 52,319 for a quarterly return of 13.37% and a return of 9.76% for the first six months of the year.
The AI-driven technology boom, powered by explosive memory chip demand, has been the single biggest engine of gains year-to-date despite some sharp pullbacks in the investment theme several times since January. Late June, however, brought a marked rotation in markets towards cyclical and defensive stalwarts. We saw some notable selloffs in semiconductor and hardware names, while more defensive sectors held up comparatively well. This is illustrated by the S&P 500 reaching its latest all-time closing high of 7,610 on June 2nd, while the less tech-heavy DJIA advanced in June to end the month on a record closing high. We welcome this broadening of the market as potentially supportive of a more durable bull market.
At the end of the quarter, Industrials (+19.5% year-to-date) is the leader so far this year, just ahead of Information Technology (+19.4%). Energy (+18.0%) rounds out the top three, having retraced meaningfully since the end of March amid negotiations to end hostilities with Iran. At the other end of the spectrum, there are two sectors with negative returns over the same period: Financials (-2.1%) and Consumer Discretionary (-1.1%). Communication Services (+0.4%) is just above even. Focusing solely on the second quarter, Technology dominates, returning close to 35.1% since the beginning of April, while Energy is the laggard by far, dropping -15.7% in three months.
Technology names, however, have not moved as a homogeneous group. In June, investors wiped approximately $2.3 trillion off the value of the ‘Magnificent 7’, with some renaming the ‘Mag 7’ the ‘Lag 7’for now. Investors have expressed concern regarding the reported figure of up to $750 billion committed to AI infrastructure and data center builds in 2026 alone. There is the question of what the return on these investments will produce and, more broadly, a repricing based on companies moving from free cash flow juggernauts to balance sheet intensive operations.
On June 17th, the latest Federal Reserve meeting wrapped up, marking the first one led by new Fed Chair Kevin Warsh. The Federal Open Market Committee (FOMC) voted unanimously to hold the federal funds rate steady in a target range of 3.50% – 3.75%. Mr. Warsh curtailed his statement to just 130 words, declined to offer forward guidance, and delivered a decidedly hawkish message with a focus on inflation pressures. The dot plot, a chart illustrating individual policymaker rate forecasts, indicates that the median forecast has risen to 3.8%, implying a potential interest rate hike before the year concludes.
Leadership changes at the Federal Reserve are rare. Only seven individuals have served as Fed Chair since the 1970s, and Kevin Warsh is taking over from Jerome Powell during a challenging period. Mr. Powell served two full terms (2018-2026) and guided the economy through the shocks of a global pandemic, a regional banking crisis, geopolitical conflicts that spiked energy prices, and tariff levels not seen since the 1940s. Some may remember the Fed’s response to inflation figures that proved not to be “transitory” as a blemish on Mr. Powell’s tenure, but, on balance, he provided steady, consensus-driven leadership.
U.S. headline Consumer Price Index (CPI) inflation rose to 4.2% on an annual basis in May, the highest level since April 2023, and driven by a spike in energy costs. Month-over-month, the headline CPI increased by 0.5%. The Personal Consumption Expenditures (PCE) price index — the preferred inflation measure used by the Federal Reserve — came in at 4.1% in May, or more than 2% over the Fed’s long-term objective. In addition, labor markets are stabilizing, and the U.S. unemployment rate held steady at 4.3% in May.
Under such circumstances, with solid economic growth and inflation exceeding the Fed’s 2% target for over five years, Kevin Warsh’s hawkish pivot and emphasis on price stability are justified. He stated in a June letter to the central bank’s over 20,000 employees that he intends to foster “open, clear-eyed discussions of Fed strategies, policies, and operations.” He has also advocated for shrinking the Fed’s $6.8 trillion balance sheet, allowing bond price signals to contribute to an efficient market.
Mr. Warsh’s opening stance pushes back against skepticism voiced about the Federal Reserve maintaining its independence amid President Trump’s relentless demands for lower rates. Fixed income markets are taking signals of sticky inflation and the possibility of a rate hike seriously, with Treasury yields rising this year to multi-decade highs. The U.S. 2-year Treasury Note is at 4.14%, a 76 basis point (bp) rise from the February pre-war low of 3.38%. The U.S. 10-year Treasury stands at 4.42%, rising 53bp from its year-to-date low. Benchmarked off the 10-year Treasury yield, 30-year mortgage rates remain firmly around the 6.5% level.
Despite higher oil prices and inflationary pressures, the U.S. consumer has stayed strong so far this year, with retail sales in May rising at their fastest pace since January 2023. Sentiment, on the other hand, has fallen to a record low, and personal savings are at their lowest level since 2022.
Oil prices, and the accompanying effects on energy and gasoline costs, have fallen sharply from April’s peak, which saw WTI Crude trading close to $113/barrel. This should contribute to an easing of inflation while the Fed evaluates. Today WTI Crude is at $70/barrel, representing close to a 40% drop, spurred by steps taken to bring an end to the U.S.-Israel war with Iran. On June 18th, Iranian President Masoud Pezeshkian signed a 14-point Memorandum of Understanding (MoU) that had previously been signed by President Donald Trump.
The Strait of Hormuz is now technically open, but operating under disrupted conditions, and renewed fighting in Southern Lebanon is a contributing factor disrupting progress towards a durable final settlement. Meanwhile, Reuters has reported that stocks of crude oil in the U.S. Strategic Petroleum Reserve have fallen to 326 million barrels, the lowest level since May 1983, according to data from the Department of Energy.
President Trump was also front and center on the world diplomatic stage during his long-awaited May meeting in Beijing with China’s President Xi. According to reports, the meeting served mainly as a diplomatic gesture, rather than as a vehicle for substantive talks on key issues such as trade bargains or policies on Taiwan. They emphasized stability in maintaining the bilateral relationship.
Elsewhere abroad, Britain, the world’s fifth largest economy, is heading for its sixth prime minister in seven years, prolonging a period of unprecedented political turmoil. Keir Starmer announced in late June that he will step down as leader of the Labour party and prime minister by September at the latest, following a cratering of political support. Andy Burnham, a left-wing former mayor of Manchester, is the frontrunner to step into the role. The funding of the war in Ukraine, the aftermath of Brexit and the pandemic, as well as surging immigration and weak economic growth, caused voter sentiment to sour in the face of Stamer’s inability to effect change at a fast enough pace.
The Bank of England (BoE) held its benchmark interest rate at 3.75% for a fourth consecutive meeting in mid-June, as inflation pressures stemming from the Iran conflict proved less severe than feared. UK inflation held steady at 2.8% in May, below expectations of a rise to 3%, driven partly by easing food prices, though it remains above the BoE’s 2% target.
Earlier in June, the European Central Bank (ECB) became the first G7 central bank to hike interest rates. The ECB raised its deposit facility rate by 25 bp to 2.25%, reversing course after a prolonged easing cycle that had brought rates down to 2.0% earlier in 2026. The decision was driven primarily by a surge in Eurozone inflation to 3.1% in May, well above the ECB’s 2% target. ECB President Christine Lagarde defended the move, arguing that it was necessary to keep inflation under control, rejecting suggestions the increase was an “insurance hike.”
With U.S. equity indices at or near all-time highs, the question of overextended valuations is certainly in play. According to FactSet, the current forward 12-month P/E ratio for the S&P 500 is 20.1x, which is above the 5-year average (19.9x) as well as the 10-year average (19.0x). This suggests the market is not cheap, but not in obvious bubble territory either. For the first quarter of the year, corporate earnings significantly exceeded expectations, with S&P 500 earnings growing approximately 27% year-over-year compared to expectations of roughly 12% entering the reporting season. This suggests that strong earnings execution continues to provide support for elevated equity valuations.
Earnings growth expectations for 2026 remain at approximately 10–12% year-over-year, underpinning the relatively elevated multiple for the benchmark index. Sentiment heading into the second half of 2026 is cautiously constructive: the bull case rests on continued AI earnings delivery and return on equity (ROE) expansion, while the key risks are re-accelerating inflation, rising Treasury yields, rich valuations, and whether the Fed pivots toward rate hikes rather than cuts.
As always, here at Wealth Oklahoma, we predicate our investment decisions on a fundamental, bottom-up approach. We evaluate holdings and opportunities on their individual merit from a value orientation, seeking businesses we understand, that have a wide moat, a strong balance sheet, shareholder-friendly management, and are trading at a reasonable valuation. Such investments may fall in or out of favor from a market momentum perspective, and the market itself will experience periods of elevated volatility to the upside or downside. However, we take a long-term perspective with the belief that quality names will prevail and reward the patient investor. We are grateful to serve as your trusted financial advisor, and we wish you a wonderful summer as America celebrates the 250th anniversary of the United States Declaration of Independence!
The S&P 500 is an unmanaged index of 500 widely held companies and over 80% of the U.S. equities market. The Dow Jones Industrial Average (DJIA), commonly known as “The Dow”, is an index representing 30 companies maintained and reviewed by the editors of the Wall Street Journal. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of the investment adviser representatives of Wealth Oklahoma and not necessarily those of RJFS or Raymond James. Expressions of opinion are as of this date and are subject to change without notice. Investing involves risk and you can lose principal. There is no assurance any strategy will be successful. There is no guarantee that any forecasts made will come to pass. Past performance may not be indicative of future results. This information is not intended as a solicitation or an offer to buy or sell any security referred to herein. Dividends are not guaranteed and must be authorized by the company’s board of directors.
