Monthly Market Update – June 2026

Wall Street Powers Through a Turbulent First Half as Small Caps, AI and Strong Earnings Drive Markets Higher

Despite geopolitical tensions, energy-price swings and shifting expectations for interest rates, investors have plenty to celebrate at the midpoint of 2026. While June brought mixed results across many asset classes, U.S. stocks delivered their strongest first-half performance since 2021, supported by robust corporate earnings, a resilient economy and continued enthusiasm surrounding artificial intelligence.

Key Takeaways

• KING DOLLAR Don’t Call It a Comeback—King Dollar Has Been Here for Years. A surging U.S. dollar is tightening global financial conditions, supporting U.S. assets, and creating headwinds for international markets. In 2026, the dollar isn’t just a currency—it’s the macro story.
• PRICES AT THE PUMP HAVE LIKELY PEAKED Gasoline prices appear to have peaked, declining about -16% from late May to July 2. Easing Middle East tensions helped push WTI crude oil down nearly -39% from its April high. Lower energy costs are expected to provide relief to inflation while boosting consumers’ disposable income.  
• RATES HAVE LIKELY PEAKED Inflation appears to be losing momentum. Lower energy prices are helping drive the decline, while shelter costs—one of the largest components of inflation—are also expected to ease. J.P. Morgan believes these trends could push inflation below 2% by next spring.
• YIELDS ARE ATTRACTIVE With Middle East tensions easing and inflation pressures showing signs of cooling, bond yields may have already reached their highs, creating a more favorable environment for fixed-income investors with an attractive combination of relatively high current income and the potential for capital appreciation if yields decline.
• ETF USE SURGES BUT NOT ALL IS GOOD Investors have poured more than $1 trillion into ETFs in 2026, shattering historical records and reinforcing ETFs as the investment vehicle of choice. But beneath the headline growth is a trend worth watching: leveraged ETFs are expanding at an even faster pace. These products are designed to amplify market returns—often by 2x or 3x—but they also magnify losses.
• MARKETS ENJOY JULY July has become a standout month for the S&P 500, posting gains for 11 consecutive years—the longest winning streak of any month—and delivering an average return of 3.24% during that span. Since 2006, July has finished higher 80% of the time, tying it as one of the market’s best-performing months.

Market Summary

Asset Class Total Returns

Source: Bloomberg, as of June 30, 2026. Performance figures are index total returns: U.S. Bonds (Barclays U.S. Aggregate Bond TR), U.S. High Yield (Barclays U.S. HY 2% Issuer-Capped TR), International Bonds (Barclays Global Aggregate ex USD TR), Large Caps (S&P 500 TR), Small Caps (Russell 2000 TR), Developed Markets (MSCI EAFE NR USD), Emerging Markets (MSCI EM NR USD), Real Estate (FTSE NAREIT All Equity REITS TR).

U.S. stocks: Small Caps Steal the Spotlight

The S&P 500 Index slipped -1.0% in June but still posted an impressive +15.2% return for the second quarter, marking its strongest quarter since the second quarter of 2020. For the first half of 2026, the index is up +10.2% and has now advanced in four of the last five quarters.

The technology-heavy Nasdaq Composite experienced a tougher June, falling -2.8%, but its quarterly results were exceptional. The index surged +21.6% during the second quarter, its best quarter since Q2 2020, and remains up +13.1% for the year. Strong corporate earnings and heavy investment in AI infrastructure and data centers helped propel both the S&P 500 and Nasdaq to 24 and 20 respective record highs during the first six months of the year.

The standout performers, however, were small-cap stocks. The Russell 2000 Index climbed +3.7% in June, gained +21.5% during the second quarter, and is up +22.6% year-to-date. That represents the best quarterly performance for small caps since late 2020 and the strongest start to a year since 1991. Investors have embraced smaller companies as inflation pressures eased and economic growth remained resilient.

Sector leadership has also shifted dramatically. While Technology fell -3.3% in June, it remains the top-performing sector for the quarter with a remarkable +31.8% gain and is up +19.8% for the year. Meanwhile, Industrials have emerged as an unexpected leader, rising +7.3% in June, +14.9% in the second quarter, and +20.2% year-to-date, making it the strongest sector over the first half of 2026.

The Energy sector experienced a sharp reversal. Despite being up +19.7% year-to-date, the sector dropped -5.1% in June and -13.5% during the second quarter as oil prices fell following improving relations between the United States and Iran.

Beneath the sector level, the AI theme remains powerful. The Philadelphia Semiconductor Index surged +11.1% in June, +88.0% in the second quarter, and +71.3% year-to-date, reflecting enormous demand for chips powering AI applications. By contrast, the once-dominant Magnificent Seven stocks have lagged broader technology shares. The Bloomberg Magnificent 7 Index fell -8.8% in June, gained +13.2% in the second quarter, and is down -1.7% for the first half.

Valuations remain elevated, but earnings growth continues to justify much of the optimism. First-quarter S&P 500 earnings grew +28.8% from a year earlier, the strongest pace since late 2021. Analysts expect profits to increase another +22% in the second quarter and +23% for the full year. According to FactSet data beginning in 2009, profit margins have reached a record +14.8%, while analysts project an extraordinary +54% earnings growth for Russell 2000 companies in 2026.

International stocks: Emerging Market AI Winners Shine While China Struggles

International markets produced mixed results but generally followed the positive tone seen in the United States.

The MSCI EAFE Index, which tracks developed international markets, was nearly unchanged in June with a +0.1% gain, but advanced +11.1% during the second quarter and +9.9% for the first half.

Japan remained a major contributor to performance despite a modest -0.4% decline in June. The MSCI Japan Index climbed +14.2% during the second quarter, marking its sixth consecutive positive quarter—the longest winning streak since 2000. Japanese companies tied to AI-related hardware and supply chains have been key beneficiaries of the global technology boom.

Elsewhere, Europe excluding the United Kingdom continued to perform well, with gains of +1.3% in June, +13.2% in the second quarter, and +8.9% year-to-date.

Emerging markets delivered even stronger returns. Although the asset class declined -1.4% in June, it surged +24.0% during the second quarter and remains up +24.0% for the year, posting its strongest quarterly advance since 2009.

AI-related demand was once again the dominant story. South Korea gained over +85.7% during the second quarter and an astonishing +119.3% in the first half, while Taiwan rose +49.4% in the quarter and +62.6% year-to-date. Both markets benefit from their large concentrations of semiconductor and memory-chip manufacturers.

China presented a stark contrast. Chinese equities fell -7.0% in June, -6.6% during the second quarter, and -14.9% for the first half, weighed down by weakness in retail spending, housing, and automotive markets.

A stronger U.S. dollar may create additional challenges for international assets going forward. The dollar has risen for four consecutive quarters and recently reached its highest level since May 2025, supported by rising Treasury yields and a more hawkish Federal Reserve.

Bonds: Higher Yields Create Headwinds, But Income Helps Generate Gains

Bond investors faced rising interest rates for the month, quarter, and first half, particularly at the short end of the Treasury curve.

The 2-year U.S. Treasury yield rose +15 basis points in June, +38 basis points in the second quarter, and +70 basis points in the first half of the year. Investors entered 2026 expecting rate cuts but were forced to reconsider as inflation stayed elevated and Federal Reserve policy turned more hawkish.

The benchmark 10-year Treasury yield rose more modestly, increasing +2 basis points in June, +15 basis points during the quarter, and +30 basis points year-to-date.

Despite rising yields, most bond sectors generated positive returns because higher income payments offset price declines, while credit sectors also produced gains.

The Bloomberg U.S. Aggregate Bond Index gained +0.2% in June, +0.7% for the second quarter, and +0.6% for the year. High-yield bonds outperformed with returns of +0.3%, +2.5%, and +2.0%, respectively, benefiting from strong corporate credit conditions.

Municipal bonds were among the strongest performers, supported by investor demand for tax-exempt income and favorable market technicals.

International bonds were less successful. The Bloomberg Global Aggregate Bond ex U.S. Index declined -0.7% in June and -0.2% year-to-date, although it still managed a +0.9% gain during the second quarter.

Economy: Slower But Still Growing

Economic data painted a picture of an economy that continues to expand, though not without some signs of slowing.

The labor market cooled in June. Employers added 57,000 jobs, well below expectations, while prior months’ payroll figures were revised lower by a combined 74,000 jobs. Nevertheless, the unemployment rate improved slightly to 4.2% from 4.3%, though part of that decline reflected a lower labor-force participation rate.

Despite slower hiring, labor demand remained healthy. Job openings climbed to 7.594 million, the highest level in a year.

Manufacturing also remained in expansion mode. The ISM Manufacturing PMI registered 53.3, marking the sixth consecutive month above the key 50 level that signals growth. Although new orders and production softened somewhat, both remained positive, and price pressures moderated.

Inflation remained stable but elevated. The Personal Consumption Expenditures (PCE) Price Index increased +0.4%, while Core PCE rose +0.3%, matching prior readings.

Consumers continued to demonstrate resilience. Personal income and consumer spending both advanced +0.7%, exceeding expectations despite higher prices.

Growth indicators were also encouraging. First-quarter GDP growth was revised upward to +2.1% from +1.6%, while core capital goods orders increased +1.6%, helped by continued investment in equipment, research and development, and AI-related projects.

Housing remained a softer area of the economy. While existing home sales were strong, housing starts, building permits, and new home sales all declined during May. Home-price growth also slowed to below its long-term average pace.

Overall, recession fears have eased considerably. Goldman Sachs recently lowered its probability of a U.S. recession to 15% from 25%, citing lower energy prices and improved geopolitical conditions following the U.S.-Iran agreement.

Source: Bloomberg. Data as of June 30, 2026.
Price Returns for Equity, Total Returns for Bonds.
* The term basis points (bps) refers to a common unit of measure for interest rates and other percentages in finance. One basis point is equal to 0.01%. Bond prices and bond yields are inversely related. As the price of a bond goes up, the yield decreases.

Bottom Line

Markets entered 2026 facing significant uncertainty but have emerged with strong gains across many asset classes. AI-driven investment, booming corporate earnings and record profitability and a resilient economy continue to support investor confidence, even as higher interest rates and pockets of economic weakness remain important risks to watch during the second half of the year.

KING DOLLAR

Don’t call it a comeback—King Dollar has been here for years. A surging U.S. dollar is tightening global financial conditions, supporting U.S. assets, and creating headwinds for international markets. 

The U.S. dollar has staged an impressive comeback in 2026. June’s +2.3% return is the third best month for the U.S. Dollar Index since the end of 2024. The second quarter also marked the fourth straight quarter of gains, which is the longest quarterly win streak since the 5-quarter win streak that ended 9/30/2022. As shown in the long-term chart below, the dollar has bounced off the bottom of its multi-decade trend channel, supported by stabilization in the US-Iran conflict and declining oil prices.

The move reflects renewed global demand for U.S. assets as investors respond to relatively strong U.S. economic growth, attractive interest rates, and expectations that the Federal Reserve may keep monetary policy tighter than previously anticipated.

For investors, a stronger dollar has important implications. U.S.-focused companies often benefit because they generate most of their revenue domestically and are less exposed to currency fluctuations. By contrast, large multinational corporations can face headwinds because profits earned overseas are worth less when converted back into a stronger dollar. 

The dollar’s resurgence is more than just a currency story, it’s the center of the current macro setup, signaling that global capital is once again favoring the U.S., a tailwind for U.S. stocks and high-quality bonds and a headwind for international investments.

The Greenback is on a Four-Quarter Win Streak

Source: Bloomberg.

PRICES AT THE PUMP HAVE LIKELY PEAKED

According to the American Automobile Association (AAA), the national average price per gallon for regular unleaded gasoline peaked at $4.56 on May 21. As of July 2, they stood at $3.83, a decline of 73 cents, or about -16% lower from the May 21 peak. Easing tensions in the Middle East have reduced concerns about oil shipments through the Strait of Hormuz. Per Bloomberg data, futures pricing for a barrel of WTI Crude Oil peaked at nearly $113 on April 7, and dropped under $69 on July 2, or a -39% decline. Clearly, the prices at the pump for U.S. consumers has followed oil lower but clearly have lagged oil’s percentage decline. Still, J.P. Morgan expects the drop in gasoline prices to reduce the Consumer Price Index (CPI) by approximately 0.35% in June and nearly 0.2% in July. 

In addition, seasonal trends should also help relieve prices at the pump.  Historically, gasoline prices peak around mid-June as summer driving demand reaches its highest levels, then trend lower through December. For investors, lower gasoline prices carry obvious broader economic implications. Reduced fuel costs increase disposable income for households, supporting consumer spending on travel, dining, and retail purchases. At the same time, easing energy costs also relieves inflation pressures. While gasoline remains well above year-ago levels, the recent downward trend should provide a tailwind for economic activity during the second half of 2026.

Easing Geopolitical Tensions and Seasonal Factors Have Gas Prices Moving Lower

National Gas Price Comparison, 2022 – 2026

Note: Prices are per gallon for regular unleaded gasoline. Sources: AAA (GasPrices.AAA.com). Data as of July 2, 2026.

RATES HAVE LIKELY PEAKED

HedgeEye Risk Management has had one of the best records of forecasting inflation among independent research firms. As an example of the model’s accuracy, their base case inflation nowcast for May had been tracking at 4.27, and the actual print came in at 4.25. Now their inflation nowcast has likely peaked and they forecast that a rollover is underway. Their base case for the June CPI print, which is reported on July 14, is for it to fall to 3.83% year-over-year. 

In addition to a reduction in oil and gas prices, shelter costs are expected to decline. In this space last month, we reported that the shelter component, which makes up about one-third of the CPI, has stabilized near long-term levels. J.P. Morgan notes that shelter costs are expected to decline into next year due to a buildup of unsold new homes and unrented apartments. As a result, they think that CPI inflation could fall below 2% year-over-year by next May.

The bottom line is that if seasonal trends hold and geopolitical risks remain contained, declining energy prices and shelter costs could provide a meaningful tailwind for U.S. consumers and the economy during the second half of 2026 and likely mean inflation, and therefore rates, have likely peaked.

Energy and Shelter Costs Should Reduce Consumer Inflation Pressures

Hedge Monthly Inflation Nowcast

Sources: BLS, Hedgeye Risk Management. As of 6/30/2026.

YIELDS ARE ATTRACTIVE

With the situation in the Middle East on a path of de-escalation, pushing oil prices and inflation pressures lower, bond yields have also likely peaked. In the U.S. the benchmark 10-year US Treasury yield has been marking lower highs and an intermediate-term trend breakdown, joining the earlier breakdowns in the 30-year U.S. Treasury yield. The implications are that the investment regime is shifting from one that favored cash, floating-rate assets, short-duration positioning, and commodities, toward one that favors intermediate and long-duration bonds, interest-rate-sensitive assets, and high duration equity (growth). 

This largely holds for global bonds as well. The European Central Bank (ECB) delivered its first rate hike after an 11-month pause last month, and the Bank of Japan (BoJ) delivered a widely expected interest rate hike in June as well. The United Kingdom and Europe have seen forecasts for growth and inflation come down recently. The fixed income team at J.P. Morgan feel the ECB, Bank of England (BOE), Reserve Bank of Australia (RBA) and Bank of Canada (BOC) should feel reduced pressure to hike rates. Other than a possible further decorative hike by the ECB, those central banks will likely be on hold for the rest of the year. And despite the hawkish shift at the Fed’s last Federal Open Market Committee (FOMC) meeting, cresting oil and inflation is likely to have the Fed on the sidelines for the rest of the year. The Bank of Japan (BoJ) may be the wild card. The BoJ continues to be an outlier, normalizing rates higher at a cautious twice-yearly hiking pace. 

The bottom line is that an improving inflation outlook and the expectation of less restrictive central bank policy should establish a strong tailwind for bonds, both in terms of higher relative starting yields—providing decent income—but also the potential for capital appreciation if yields fall from here.

Yields Have Become Significantly More Attractive Across Markets

10-year government bond yields (U.S. dollar-hedged)

Source: Bloomberg, PIMCO as of 29 May 2026. The currency hedging costs are estimates based on 3-month implied forward yields relative to the U.S. cash rate. Yield to Maturity (YTM) is the estimated total return of a bond if held to maturity. YTM accounts for the present value of a bond’s future coupon payments.

ETF USE SURGES BUT NOT ALL IS GOOD

By now, the enthusiasm surrounding exchange-traded funds (ETFs) is impossible to miss. Investors have already poured more than $1 trillion into ETFs in 2026, shattering historical records and reinforcing ETFs as the investment vehicle of choice. According to Citadel Securities, ETFs now account for roughly 31% of average daily trading volume, well above the 10-year average of 27%.

The appeal of ETFs is easy to understand. For many investors, ETFs offer a compelling combination of benefits:

• Lower costs than many mutual funds
• Intraday trading flexibility on major stock exchanges
• Daily transparency into portfolio holdings
• Greater tax efficiency, thanks to a structure that generally generates fewer taxable capital gains distributions

However, not all ETFs carry the same risk profile. One of the fastest-growing segments of the market is leveraged ETFs, which seek to amplify the daily performance of an index or sector—often by two or three times. While these products can magnify gains, they can also magnify losses just as quickly. These products rely on frequent portfolio adjustments to maintain their targeted leverage levels. As a result, they can create additional buying and selling activity that is driven by mechanics rather than investor sentiment or company fundamentals. A recent Wall Street Journal article highlighted these risks when a popular three-times leveraged semiconductor ETF fell -31% in a single day, roughly tripling the decline of its underlying benchmark, exactly as designed.

Buyers ranging from hedge funds to teenagers on Robinhood have poured money into leveraged ETFs this year, helping to nearly double the assets in these funds to a record $220 billion between March 30 and June 3, according to FactSet. As these products attract more assets, they can amplify market swings through the mechanical buying and selling required to maintain their leverage. 

Another concern developing with leverage ETFs is concentration risk. Roughly $81 billion of those record asset flows has been concentrated in two particular areas:

• Leverage tied to technology-focused ETFs has increased approximately 136% since March.
• Leverage linked to semiconductor exposure has nearly tripled, rising roughly 175% over the same period.

When large amounts of leveraged capital become concentrated in a relatively small group of securities, market moves can become more pronounced in both directions, and again, is exacerbated by the leverage creating the concentration.

For long-term investors, the lesson is simple: ETFs remain powerful investing tools, but not all ETFs are created equal. Leverage alone does not cause market downturns, but it can certainly accelerate market moves when volatility emerges. We do not utilize leveraged ETFs in client portfolios and remain mindful of the growing influence these products may have on both investor behaviors and the broader market structure.

Leveraged ETF Assets Under Management

Monthly data, Since Jan 2020 – Jun 2026

Source: Citadel Securities.

MARKETS ENJOY JULY

For the S&P 500, July has been an all-star month for more than a decade. July has been a positive month for the S&P 500 for 11 consecutive years—the longest streak of any month. Over that 11-year stretch, the index has averaged a +3.24% advance in July. Beyond the 11-year winning streak, July has been solid over the past 20 years. Going back to 2006, the month of July has been positive 16 times—or 80% of the time—tied for the best month on that measure. 

July returns weren’t always so strong, prior to 2006 it was much more of a mixed bag. In fact, from 1957 through 2005, July had the second-worst median return and second-lowest winning percentage of any month of the year (-0.4% and 47%, respectively). Overall, July has been positive in 39 of the past 69 years, or 56.5%, the fourth-lowest win rate.

July is the Best Month for US Stocks Over Past Two Decades

The S&P 500 Index has averaged a +2.4% gain in July since 2006

Source: Bloomberg.

Asset Class Performance

The Importance of Diversification. Diversification mitigates the risk of relying on any single investment and offers a host of long-term benefits, such as lowering portfolio volatility, improving risk-adjusted returns, and helping investments to compound more effectively.

Source: Bloomberg.
Asset‐class performance is presented by using market returns from an exchange‐traded fund (ETF) proxy that best represents its respective broad asset class. Returns shown are net of fund fees for and do not necessarily represent performance of specific mutual funds and/or exchange-traded funds recommended by The Retirement Planning Group. The performance of those funds may be substantially different from the performance of the broad asset classes and to proxy ETFs represented here. U.S. Bonds (iShares Core U.S. Aggregate Bond ETF); High‐Yield Bond (iShares iBoxx $ High Yield Corporate Bond ETF); Intl Bonds (Vanguard Total International Bond ETF); Large Growth (iShares Russell 1000 Growth ETF); Large Value (iShares Russell 1000 Value ETF); Mid Growth (iShares Russell Mid-Cap Growth ETF); Mid Value (iShares Russell Mid-Cap Value ETF); Small Growth (iShares Russell 2000 Growth ETF); Small Value (iShares Russell 2000 Value ETF); Intl Equity (iShares MSCI EAFE ETF); Emg Markets (iShares MSCI Emerging Markets ETF); and Real Estate (iShares U.S. Real Estate ETF). The return displayed as “60/40 Allocation” is a weighted average of the ETF proxies shown as represented by: 24% U.S. Bonds, 10% International Bonds, 6% High Yield Bonds, 14% Large Growth, 14% Large Value, 4% Mid Growth, 4% Mid Value, 1% Small Growth, 1% Small Value, 17% International Stock, 4% Emerging Markets, 2% Real Estate.
* The term basis points (bps) refers to a common unit of measure for interest rates and other percentages in finance. One basis point is equal to 0.01%. Bond prices and bond yields are inversely related. As the price of a bond goes up, the yield decreases.

Chris Bouffard is CIO of The Retirement Planning Group (TRPG), a Registered Investment Adviser. He has oversight of investments for the advisory services offered through TRPG.

Disclaimer: Information provided is for educational purposes only and does not constitute investment, legal or tax advice. All examples are hypothetical and for illustrative purposes only. Past performance of any market results is no assurance of future performance. The information contained herein has been obtained from sources deemed reliable but is not guaranteed. Please contact TRPG for more complete information based on your personal circumstances and to obtain personal individual investment advice.