Q2 2026 Global Market Review and Perspective

Written by Shan Gao

The quarter in summary: A strong rebound amid easing uncertainty

After a challenging start to 2026, financial markets staged a remarkable recovery in the second quarter. The period began against a backdrop of heightened uncertainty following the disruption to global energy markets earlier in the year. However, as tensions in the Middle East gradually eased and oil prices retreated from earlier highs, investors became increasingly confident that the global economy could absorb the shock without falling into recession.

Global equities delivered robust returns during the quarter. The MSCI All Country World Index rose +14.9% in Q2, bringing year-to-date (YTD) gains to +11.3%. The recovery was supported not only by improving geopolitical conditions, but also by resilient economic data and stronger-than-expected corporate earnings. Fixed income markets also generated positive returns, while credit markets benefited from tightening spreads and healthy corporate fundamentals.

Global Macro: Energy, inflation and policy in focus

The dominant macroeconomic theme in the first half of 2026 has been the interaction between energy prices, inflation and economic growth.

At the start of Q2, investors were concerned that elevated oil prices and disruptions to shipping routes would lead to a prolonged global slowdown. As negotiations between the US and Iran progressed, concerns of sustained supply disruption began to ease. Oil prices declined to around USD 70 per barrel by the end of the quarter, helping to alleviate concerns about a renewed inflation surge.

There were also encouraging signs of improvement in global energy logistics during Q2. Oil and gas tanker traffic through the Strait of Hormuz began to recover, although volumes remained below pre-conflict levels and are likely to take time to fully normalise. Meanwhile, OPEC+ also announced a modest increase in production, with several member countries agreeing to raise output, helping to support energy supply and improve market stability. While geopolitical risks remain and some disruption persists, fears of a prolonged impact on the global economy had eased considerably by the end of the quarter.

Chart 1: Shipping Activity Recovering and Oil Prices Falling

Source: Bloomberg. Estimated number of vessels transiting key maritime chokepoints each day. The dotted orange line represents the weekly moving average. Data as of 30 June 2026. The shaded area highlights the period since the onset of the US-Iran conflict.

While headline inflation remained elevated in many economies, underlying inflation pressures were generally more stable. Central banks therefore maintained a cautious approach. The US Federal Reserve kept interest rates unchanged, reiterating its commitment to price stability, while the European Central Bank raised rates in response to persistent inflationary pressures. As a result, market expectations shifted towards a “higher-for-longer” interest-rate environment, with investors scaling back expectations for rapid policy easing.

Despite these challenges, economic activity remained broadly resilient. Labour markets stayed healthy, consumer spending held up better than expected, and corporate earnings continued to demonstrate underlying strength.

Equity Market: Strong gains with shifting leadership

One of the defining features of 2026 so far has been the continued strength of the artificial intelligence (AI) investment cycle. AI is no longer simply a technology-sector story. Investment linked to AI is increasingly supporting a broader range of industries, including semiconductors, data centres, cloud infrastructure, power generation and industrial automation. This helps explain why some of the strongest equity market performance this year has come not only from mega-cap technology companies, but also from markets such as Taiwan and South Korea, which play critical roles in the global semiconductor supply chain.

The evolving AI theme was clearly reflected in market leadership during the second quarter. Growth stocks regained momentum as strong earnings from technology companies reinforced investor confidence. The MSCI ACWI Growth Index rose +19.8% in Q2 (+10.6% YTD), outperforming the MSCI ACWI Value Index, which gained +10.6% in Q2 (+11.9% YTD). Large-cap stocks also outperformed during the quarter, with the MSCI ACWI Large Cap Index returning +15.5% and +11.2% YTD, compared with +14.9% and +16.1% YTD for the MSCI ACWI Small Cap Index.

The US equity market gained +15.2% during Q2, marking its strongest quarterly return since the spring of 2020. Strong earnings from technology companies, together with continued enthusiasm for AI-related investment, helped support the rally.

While the US remained a major contributor to global equity returns, performance was broad-based across regions. Developed markets outside the US also delivered solid gains, with MSCI World ex USA up +10.2% in Q2 and +9.2% YTD. Emerging Markets were once again the standout performers, extending the strong momentum seen in 2025, rising +24.1% in Q2 and +23.9% YTD.

Chart 2: Regional Equity Market Performance

Source: Bloomberg, MSCI. Global equities:  MSCI ACWI NR USD; US equities: MSCI USA NR USD; Developed Market ex US equities: MSCI World ex USA NR USD; EM equities: MSCI Emerging Markets NR USD. All indices are net return in US dollars. Past performance is not a reliable indicator of current and future results. Data as of 30 June 2026.

Year to date, value stocks, small-cap equities and emerging markets have all delivered competitive returns despite the resurgence of large-cap growth stocks during the second quarter. This highlights how quickly market leadership can shift and how attractive opportunities often emerge outside the most widely followed areas of the market. For long-term investors, the first half of 2026 has reinforced the benefits of maintaining diversified exposure across investment styles, market capitalisations and geographic regions, rather than concentrating portfolios in a single market or investment theme.

Fixed Income Market: Resilience amid policy uncertainty

Global bond markets delivered positive returns during Q2 2026, although volatility remained elevated throughout the period. Developments in the Middle East and fluctuations in energy prices were key drivers of market movements during the period. Concerns that higher oil prices could reignite inflation initially pushed government bond yields higher, but these moves largely reversed as geopolitical tensions eased and energy markets stabilised.

Fixed income markets nevertheless delivered positive returns and continued to provide valuable diversification benefits within portfolios. Expectations at the start of the year that the Federal Reserve would begin cutting interest rates gradually faded as inflation proved more persistent than anticipated and central banks maintained a cautious stance. This created a more challenging environment for government bonds, particularly during periods of rising yields.

Chart 3: US Federal Fund Rate Target Expectations for Dec 2026 FOMC Meeting

Source: CME FedWatch Tool. Data as of 30 June 2026.

Short-dated global government bonds, as measured by the FTSE World Government Bond 1–5 Year Index (Hedged USD), returned +0.9% in Q2 and +1.1% YTD. Credit markets were more resilient, supported by healthy corporate fundamentals and tighter credit spreads. Investment-grade corporate bonds, as measured by the Bloomberg USD Corporate 1–5 Year Index, returned +0.8% in Q2 and +0.9% YTD.

We continue to believe that high-quality bonds remain an important component of diversified portfolios, providing a combination of income, stability and potential downside protection during periods of market stress.

Summary, Outlook and Investment Considerations

The first half of 2026 has reminded investors of an important lesson: markets rarely wait for uncertainty to subside before moving higher. Geopolitical tensions, inflation concerns and shifting central bank expectations dominated headlines throughout the quarter, yet global equities delivered double-digit gains and corporate earnings remained resilient.

Looking ahead, we expect volatility to remain part of the investment landscape. Inflation remains above target in major economies, interest-rate expectations continue to evolve, and geopolitical risks remain present. At the same time, the long-term drivers of economic growth remain intact. Innovation, particularly in artificial intelligence and digital infrastructure, continues to support corporate investment and productivity growth.

For investors, the key lesson is not that risks can be avoided, but that portfolios should be built to withstand them. The strong performance of emerging markets, small-cap equities and value stocks at various points this year reinforces the importance of diversification. Staying invested through periods of uncertainty remains one of the most reliable ways to build lasting wealth across generations.

Source: All index data from Bloomberg as of 30 June 2026, unless otherwise stated. See end of report for further information. Please note any past performance mentioned is not a guide to future performance and may not be repeated.

Notes:

MSCI All Country World Index is a market capitalization weighted index that measures the performance of large and mid-cap stocks across 23 Developed Markets and 24 Emerging Markets (EM) countries.

FTSE World Government Bond 1-5 Year Index Hedged (WGBI) Is a broad index providing exposure to the global sovereign fixed income market. The index measures the performance of fixed-rate, local currency, and investment-grade sovereign bonds. It comprises sovereign debt from over 20 countries, denominated in a variety of currencies.

Bloomberg USD Corporate 1-5Yr TR USD Index is a measure of USD‑denominated, investment‑grade, fixed‑rate, taxable corporate bond market with remaining maturities from 1 to 5 years.

MSCI All Country World Value Index captures large and mid-cap securities exhibiting overall value style characteristics across 23 Developed Markets countries and 24 Emerging Markets countries.

MSCI All Country World Growth Index captures large and mid-cap securities exhibiting overall growth style characteristics across 23 Developed Markets countries and 24 Emerging Markets countries.

MSCI All Country World Large Cap Index captures large cap representation across 23 Developed Markets and 24 Emerging Markets countries.

MSCI All Country World Small Cap Index captures small cap representation across 23 Developed Markets and 24 Emerging Markets countries.

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