Q2 Recap: Markets Get Back on Track

• Technology sector rebounded strongly in Q2 after posting nearly 10% losses in Q1, driven by AI spending and efficiency gains, leading all US sectors by a wide margin
• Emerging markets led global returns with South Korea and Taiwan each posting over 50% quarterly gains, offsetting China's second consecutive negative quarter
• Energy sector lagged as oil prices fell from Q1 peaks above $100 per barrel; dollar strengthening pressured yen and Canadian dollar, creating headwinds for US-based international investors

Q2 2026 Market Recap Summary

Key Performance Highlights

US Markets: Technology led sector returns with near double-digit gains after posting negative returns in Q1. Industrials also performed strongly, benefiting from AI spending and efficiency gains. Energy was the worst performer as oil prices declined from Q1 peaks above $100/barrel. Utilities also posted negative returns due to rising interest rates and investors' risk-on positioning.

International Markets: Emerging Markets (EM) led global equities despite China posting consecutive negative quarters. South Korea and Taiwan drove EM gains with returns exceeding 50%, offsetting weakness in China and Latin America. This marks a notable shift from the past decade when China dominated EM performance.

Currency Movements: The US dollar strengthened significantly, with the Japanese yen and Canadian dollar lagging most. The weaker Canadian dollar reflected declining commodity prices, while yen weakness indicated increased risk appetite.

Market Concept

The quarter exemplified the "wall of worry" concept, where markets overcame geopolitical concerns (Iranian conflict) and soft macro data through strong earnings performance. Technology earnings remained robust, powered by AI spending.

Forward Outlook

RiverFront Investment Group maintains a cautiously optimistic stance. Both technical and fundamental momentum indicators remain broadly positive. However, analysts note a Federal Reserve likely on hold and heightened vigilance following the strong quarter performance. The firm emphasizes that sustained earnings strength, rather than headline concerns, will determine continued market advancement.

Data Note: All performance figures are as of June 30, 2026, with currency returns measured in USD.