Market Update July 16, 2026
So much for the U.S.-Iran conflict being a brief, get in and get out type of affair. Four and a half months later, the fighting continues. But despite this and a series of on-again, off-again ceasefires, stocks staged an incredible rally in the second quarter. The Alfred E. Neuman “What, me worry?” motto has returned to the stock market with a vengeance.
With investors largely throwing caution to the wind, the S&P 500 index rose 15.2% in the second quarter, bringing its year-to-date return back in the black, up 10.2% through June. The rally was heavily concentrated in the A.I. stocks that have carried the S&P 500 these past few years. We see a similar phenomenon in the MSCI Emerging Markets index. This index is also heavily driven by the technology sector, with the three largest stocks comprising over 30% of the index. As goes these three stocks, so goes the index. With technology all the rage again, this index was up a spectacular 24% in the second quarter, bringing its year-to-date gain to 23.9%. The MSCI EAFE index of established foreign market stocks had a more modest second quarter gain of 10.8%, putting it up 9.4% year-to-date. Bonds as measured by the Bloomberg US Aggregate index were up 0.6% for the year through June.
The excitement over technology stocks has reached new heights, conjuring memories of the dot-com bubble of the late 1990’s that finally peaked in March of 2000. Nobody rings a bell when you hit the peak of a bubble, but recent events have me thinking we might be close. In June, we had the largest initial public offering of stock (IPO) in history. With much excitement on the part of investors, Space X raised $75 billion, nearly triple what was previously the largest IPO by Saudi Aramco in 2019. Never mind that Space X is currently a money losing business and was priced at 94 times the company’s total sales for the prior year. This is mind-boggling when you consider that the already pricey S&P 500 trades for 3.4 times sales. Two more massive IPOs are expected by early next year – Anthropic and Open AI. Also joining the fray was Alphabet, the parent company of Google. It had a massive, record-breaking secondary stock offering in early June, raising nearly $85 billion. As noted in Barron’s, big equity financings such as these tend to come near market tops, when companies can get the best price for shares.
As if all this was not enough, the big technology companies that dominate the S&P 500 have been on a borrowing binge. Previously these companies were funding their huge investments in A.I. from their excess free cash flow. With free cash flow now largely exhausted, they are turning to the bond market to raise capital, with similarly massive sums as we have seen with the issuance of new stock. It appears investors’ appetite for these bonds may be starting to wane.
Another noteworthy event from the second quarter is that we now have a new chairman of the Federal Reserve. President Trump nominee Kevin Warsh replaced Jerome Powell on May 22nd, who’s term as Fed chair ended. Any thoughts that people might have had that the new chairman would bring interest rate cuts and further stimulus to the economy were quickly dashed. With inflation exceeding the Federal Reserve’s target of 2% for over five years now, Mr. Warsh and the Federal Open Market Committee (FOMC) indicated following their recent meeting that they were committed to bringing inflation back down to target. Expectations have flipped from a rate cut before the end of the year to a rate increase now being forecast. In recent history, the expectation has been that the Fed will come to the rescue of the financial markets during downturns, providing interest rate cuts to stimulate the economy and prop up the markets. This has been referred to as the “Fed Put.” The Fed’s recent tone has implied that the Fed may not do so in the future, but will stick with its mandates of stabilizing prices (inflation) and maximizing employment. This could result in higher volatility in the financial markets but would be positive for the long-term health of the economy and markets.
Thankfully, we are not limited to just stock and bond indexes when it comes to investing. There are many other stock and bond investments that I believe afford better value for our clients. Do not hesitate to reach out to me if you would like to discuss or if there is anything we might be able to help you with.
Sincerely,
Glenn S. Rank, CIMA®
Certified Investment Management Analyst®
President
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· The S&P 500 is an unmanaged capitalization-weighted index of 500 widely held stocks that’s generally considered representative of the U.S. stock market. The S&P 600 Index is a capitalization weighted index comprised of 600 stocks viewed as having a relatively small market capitalization, chosen for market size, liquidity, and industry group representation. The MSCI EAFE index and the MSCI Emerging Markets index are unmanaged indexes compiled by Morgan Stanley Capital International that are generally considered representative of the developed international stock market and emerging international stock market, respectively. International securities involve additional risks including currency fluctuations, differing financial accounting standards, and possible political and economic volatility, and may not be suitable for all investors. Investing in emerging markets can be riskier than investing in well-established foreign markets. Investing in small cap stocks generally involves greater risks, and therefore, may not be appropriate for every investor. The Bloomberg US Aggregate Bond index is a broad base, market capitalization-weighted bond market index representing intermediate term investment grade bonds traded in the U.S. Inclusion of these indexes is for illustrative purposes only. Note that bond prices rise when yields fall, and vice versa, due to the inverse relationship between bond prices and yields. Keep in mind that individuals cannot invest directly in any index and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor’s results will vary.
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