2nd Quarter 2026 Market Update

The second quarter of 2026 was a much stronger period for investors, with global markets making good progress. Continued enthusiasm around artificial intelligence (AI), together with the investment going into the technology and infrastructure needed to support it, remained an important driver.

Asia and emerging markets were particularly strong, while the easing of tensions in the Middle East helped reduce concerns around energy supplies and inflation. Bond markets were more mixed, while commodities fell as oil prices dropped.

Global Shares

Global shares had a strong quarter, with the MSCI World Index rising 13.8% in US dollar terms.

AI continued to dominate investor interest, particularly in semiconductors, advanced electronics, and data infrastructure. Investors also became more confident in companies with strong long-term earnings potential.

Asia and emerging markets performed particularly well, although geopolitical tensions in the Middle East did cause some volatility before the announcement of a US – Iran ceasefire framework helped settle markets.

US Markets

US markets had an excellent quarter, with the S&P 500 rising 15.2% – its strongest quarterly gain since 2020.

The rise was supported by resilient company earnings, continued enthusiasm for AI and confidence in the wider economy.

Technology remained the strongest-performing sector, although market gains became broader during the quarter. Investors are also becoming more selective around AI, increasingly looking for companies that can turn the investment into genuine earnings growth.

Eurozone

European shares performed strongly, led by technology and financial companies. Technology benefited from continued optimism around AI, while financials also performed well. Energy and communication services were weaker as oil prices fell.

Inflation remained a concern, with eurozone inflation rising to 3.2% in May. The European Central Bank raised interest rates by 0.25% in June while also reducing its growth expectations.

UK

UK shares moved higher during the quarter, although large energy companies held back the overall market as oil prices fell.

Consumer discretionary, property and financial companies performed well. UK inflation remained at 2.8% in May, while the Bank of England kept interest rates at 3.75%.

There was also plenty of political activity during the quarter, although markets showed relatively little reaction – another reminder that markets can sometimes have a mind of their own when it comes to political headlines.

Japan

Japanese shares had a very strong quarter, with the Topix Total Return Index rising 14.4% and the Nikkei 225 gaining more than 37%.

Markets benefited from easing tensions in the Middle East and falling oil prices. AI and semiconductor-related companies performed particularly well, alongside financials.

The Bank of Japan increased its policy rate to 1.0%, while the weak yen continued to support Japanese exporters.

Emerging Markets

Emerging markets had an exceptional quarter, comfortably outperforming developed markets.

Technology was again the main story, with Korea and Taiwan leading the way thanks to strong demand for memory chips and semiconductors linked to AI.

Performance elsewhere was more mixed. India delivered positive returns but lagged, while China continued to face concerns around growth, property and domestic demand.

Asia (ex-Japan)

Asia ex-Japan was one of the strongest areas of the global market, with the MSCI Asia ex-Japan Index rising 27.7% in US dollar terms.

The region benefited from its central role in the global AI supply chain, particularly in semiconductors and advanced electronics.

Korea and Taiwan were the standouts, while India rose more modestly. China and Indonesia lagged the wider region.

Bonds

Global bonds had a positive quarter overall, although there was plenty of volatility. Bond yields were heavily influenced by developments in the Middle East and energy prices. As concerns increased, yields rose before falling back as the possibility of an agreement became clearer.

Central banks remained cautious because of renewed inflation concerns. In the UK, 10-year gilt yields reached their highest level since 2008 before easing back, while the Bank of England kept the base rate at 3.75%.

Corporate bonds performed well, with investment-grade bonds in both the US and Europe outperforming government bonds.

Commodities

Commodities had a difficult quarter, with the S&P GSCI Index falling 11.4%. Oil prices dropped significantly following the US–Iran ceasefire, easing concerns around global supply. Gold and other precious metals also fell, while industrial metals were broadly unchanged.

Looking Ahead

The second quarter has been a useful reminder of just how quickly market sentiment can change. The strong performance of global shares, particularly technology and AI-related areas, has been encouraging. At the same time, markets remain sensitive to inflation, interest rates and geopolitical events.

The AI investment cycle remains an important driver, although investors are becoming more selective and increasingly looking for genuine earnings growth.

As ever, markets will have periods of strength and uncertainty. Trying to predict every short-term move is unlikely to be helpful, so maintaining a well-diversified portfolio and keeping focused on the longer term remains, in our view, the sensible approach.