Magnus Financial Group LLC (“Magnus”) did not produce and bears no responsibility for any part of this report whatsoever, including but not limited to any microeconomic views, inaccuracies or any errors or omissions. Research and data used in the presentation have come from third-party sources that Magnus has not independently verified presentation and the opinions expressed are not by Magnus or its employees and are current only as of the time made and are subject to change without notice.
This report may include estimates, projections or other forward-looking statements, however, due to numerous factors, actual events may differ substantially from those presented. The graphs and tables making up this report have been based on unaudited, third-party data and performance information provided to us by one or more commercial databases. Except for the historical information contained in this report, certain matters are forward looking statements or projections that are dependent upon risks and uncertainties, including but not limited to factors and considerations such as general market volatility, global economic risk, geopolitical risk, currency risk and other country-specific factors, fiscal and monetary policy, the level of interest rates, security-specific risks, and historical market segment or sector performance relationships as they relate to the business and economic cycle.
Additionally, please be aware that past performance is not a guide to the future performance of any manager or strategy, and that the performance results and historical information provided displayed herein may have been adversely or favorably impacted by events and economic conditions that will not prevail in the future. Therefore, it should not be inferred that these results are indicative of the future performance of any strategy, index, fund, manager or group of managers. Index benchmarks contained in this report are provided so that performance can be compared with the performance of well-known and widely recognized indices. Index results assume the re-investment of all dividends and interest and do not reflect any management fees, transaction costs or expenses.
The information provided is not intended to be, and should not be construed as, investment, legal or tax advice nor should such information contained herein be construed as a recommendation or advice to purchase or sell any security, investment, or portfolio allocation. An investor should consult with their financial advisor to determine the appropriate investment strategies and investment vehicles. Investment decisions should be made based on the investor’s specific financial needs and objectives, goals, time horizon and risk tolerance. This presentation makes no implied or express recommendations concerning the way any client’s accounts should or would be handled, as appropriate investment decisions depend upon the client’s specific investment objectives.
Investment advisory services offered through Magnus; securities offered through third party custodial relationships. More information about Magnus can be found on its Form ADV at www.adviserinfo.sec.gov.
Market Commentary
Market Commentary – Q2, 2026
Overview
The whistle has blown on a quarter defined by geopolitical tensions and a continued artificial intelligence-related investment boom, set against the backdrop of a domestically hosted FIFA World Cup and the 250th anniversary of U.S. independence. U.S. large-cap stocks, as measured by the S&P 500 Index, closed at a new all-time high on June 2 and finished the quarter up 15%. U.S. small-cap stocks, represented by the Russell 2000 Index, performed even better, gaining a noteworthy 22%—their strongest quarterly return since the fourth quarter of 2020, when the index advanced 31%. U.S. intermediate-term bonds, as measured by the Bloomberg U.S. Aggregate Bond Index, posted a modest gain of 0.7%.
U.S. small-cap stocks gained 22% in the second quarter
The quarter was marked by geopolitical tensions, rapid AI investment, a home-soil FIFA World Cup, and America’s 250th anniversary
The tech sector was the center of job cuts in the first half of 2026
The labor market remained resilient throughout the second quarter. The U.S. economy added 365,000 new jobs over the past three-month period, despite continued layoffs in parts of the economy.1 The technology sector remained the center of job cuts in the first half of 2026.2 For the fourth consecutive month, artificial intelligence was cited as the primary driver of layoffs, with 23% of all announced job cuts in the first half of the year attributed directly to AI.2
The U.S. consumer also remained surprisingly strong. Personal spending increased by 0.4% in April and 0.7% in May.3 Meanwhile, wage growth (3.5% year-over-year in June) has not kept pace with inflation (4.2% year-over-year in May, the most recent reading).4 Larger-than-usual tax refunds following the passage of the One Big Beautiful Bill in July 2025 appear to have supported spending. Tax refunds were 18% higher than a year earlier, and the average refund increased about 12% to $3,280.5
A new Federal Reserve Chair started his tenure in May
A defining development during the quarter was the beginning of a new Federal Reserve Chair’s tenure (more on this later). As expected, the Federal Reserve left interest rates unchanged throughout the first half of the year.6 However, expectations for the path of rates shifted dramatically as energy prices pushed inflation higher amid the conflict in the Middle East. The rapid repricing reflected two key forces: inflationary pressure stemming from the Iran conflict and the continued resilience of the U.S. economy, underpinned by a resilient labor market and consumer.
Higher inflation risks and a resilient U.S. economy drove a rapid repricing of rate expectations
The U.S.–Iran conflict disrupted energy flows and fueled global supply concerns
Halftime
Despite a formal ceasefire, key issues between the U.S. and Iran remain unresolved
U.S. gasoline inventories fell to multi-year lows during the quarter
Warsh’s five task forces will review Fed communications, data, AI, balance sheet policy, and inflation
The inflation framework review may prove most consequential
A move toward trimmedmean inflation measures would emphasize trend inflation rather than shortterm volatility
Consumer fundamentals remain healthy
Evidence emerged during the quarter that lowerincome consumers may be recovering
By quarter-end, $71 billion of a court-ordered $165 billion in tariff refunds had been returned
Importantly, the 2026 FIFA World Cup was unlikely to be the primary driver of the strength. Most World Cup-related spending occurs in lodging, dining, transportation, and ticketing, categories that are not well captured by the Redbook Index. However, other data sources reflected strong activity. OpenTable (a measure of key restaurant performance metrics, guest spending behavior, and seated diner traffic) reported a 40% year-over-year increase in seated diners during the final week of June.22 Consumers may see relief on certain goods’ prices in the coming months. On February 20, the Supreme Court ruled that President Trump lacked the authority to impose tariffs under the International Emergency Economic Powers Act (IEEPA), effectively invalidating the April 2025 “Liberation Day” tariffs.23 On March 4, 2026, the U.S. Court of International
Trade ordered Customs and Border Protection to refund at least $165 billion in improperly collected tariffs, injecting liquidity back into businesses and consumers.24 According to court filings, as of the end of June, $71 billion had effectively been refunded, with $100 billion in the pipeline.25,26 Walmart is expected to receive roughly $2.4 billion.27
As Walmart CFO John Rainey noted:
“We think the single best return that we can have on a dollar of capital right now is to invest in the consumer and invest in price.”28
AI hyperscalers have been a key driver of U.S. economic and market strength for years
Market leadership may be expanding beyond the megacap technology companies
Taiwan and Korea led emerging markets, driven by semiconductor and AI-related stocks
Markets
Emerging markets remained resilient, particularly given disproportionate exposure to Middle Eastern oil, ending the quarter up a noteworthy 24%. Among emerging markets, Taiwan (+49%) and Korea (+88%) stood out as top performers due to outsized gains by a handful of semiconductor and AI-related names. In Korea, chip maker SK Hynix rose by over 220% in the second quarter while electronic giant Samsung gained nearly 100%. In Taiwan, the Taiwan Semiconductor Manufacturing Company (TSMC) gained 36% in the second quarter. The MSCI China Index ended the second quarter down 7%, bringing Chinese equities down nearly 15% year-to-date. The MSCI India Index gained 10% in the second quarter, bringing year-to-date returns to -10% for the country.
Fixed-income markets remained relatively muted through the second quarter. U.S. intermediate-term bonds posted modest gains, ending the quarter up 0.7% despite an upward shift in the yield curve over the quarter. After rising to 4.66% on May 19, the 10 year U.S. Treasury yield ended the quarter at 4.42%.
U.S. small-cap stocks outperformed their large-cap counterparts by 6%
Fixed-income markets remained relatively muted through the quarter
The key test is whether AI spending translates into the earnings growth markets expect
Looking Forward
We are focused on how the AI buildout transitions from a story of capacity expansion to one of monetization, profitability, and broader economic productivity. The key question is whether hyperscalers’ AI spending will generate enough returns to support expectations for more than 20% S&P 500 earnings growth in 2026 and continued margin expansion across industries. Meta’s decision to lease excess AI compute highlights a growing debate around whether bottlenecks are easing and if supply is catching up with demand. Within the AI ecosystem, we continue to see opportunity in areas such as power and nuclear infrastructure, though we expect a more volatile path as project delays, capacity additions, and cyclical pressures emerge. Ultimately, the next phase of the AI trade may be defined less by who builds the infrastructure and more by which companies successfully convert AI adoption into sustainable revenue growth, margin expansion, and free cash flow.
We are watching whether Warsh’s task forces reshape inflation policy
We are monitoring the outcomes of Kevin Warsh’s five Federal Reserve task forces, particularly whether they result in changes to how inflation is measured and to Fed communications, including a potential shift toward trimmed-mean inflation measures. Beyond monetary policy, we are watching the reopening of the IPO market, an evolving supply backdrop for U.S. equities, and signs that market leadership is broadening beyond AI capex beneficiaries toward sectors such as Healthcare, Financials, Energy, and Real Estate.
Citations
Share it :
Disclaimer
Magnus Financial Group LLC (“Magnus”) did not produce and bears no responsibility for any part of this report whatsoever, including but not limited to any microeconomic views, inaccuracies or any errors or omissions. Research and data used in the presentation have come from third-party sources that Magnus has not independently verified presentation and the opinions expressed are not by Magnus or its employees and are current only as of the time made and are subject to change without notice.
This report may include estimates, projections or other forward-looking statements, however, due to numerous factors, actual events may differ substantially from those presented. The graphs and tables making up this report have been based on unaudited, third-party data and performance information provided to us by one or more commercial databases. Except for the historical information contained in this report, certain matters are forward looking statements or projections that are dependent upon risks and uncertainties, including but not limited to factors and considerations such as general market volatility, global economic risk, geopolitical risk, currency risk and other country-specific factors, fiscal and monetary policy, the level of interest rates, security-specific risks, and historical market segment or sector performance relationships as they relate to the business and economic cycle.
Additionally, please be aware that past performance is not a guide to the future performance of any manager or strategy, and that the performance results and historical information provided displayed herein may have been adversely or favorably impacted by events and economic conditions that will not prevail in the future. Therefore, it should not be inferred that these results are indicative of the future performance of any strategy, index, fund, manager or group of managers. Index benchmarks contained in this report are provided so that performance can be compared with the performance of well-known and widely recognized indices. Index results assume the re-investment of all dividends and interest and do not reflect any management fees, transaction costs or expenses.
The information provided is not intended to be, and should not be construed as, investment, legal or tax advice nor should such information contained herein be construed as a recommendation or advice to purchase or sell any security, investment, or portfolio allocation. An investor should consult with their financial advisor to determine the appropriate investment strategies and investment vehicles. Investment decisions should be made based on the investor’s specific financial needs and objectives, goals, time horizon and risk tolerance. This presentation makes no implied or express recommendations concerning the way any client’s accounts should or would be handled, as appropriate investment decisions depend upon the client’s specific investment objectives.
Investment advisory services offered through Magnus; securities offered through third party custodial relationships. More information about Magnus can be found on its Form ADV at www.adviserinfo.sec.gov.
Terms of Use
Definitions
Asset class performance was measured using the following benchmarks: U.S. Large Cap Stocks: S&P 500 TR Index; U.S. Small & Micro Cap: Russell 2000 TR Index; Intl Dev Large Cap Stocks: MSCI EAFE GR Index; Emerging & Frontier Market Stocks: MSCI Emerging Markets GR Index; U.S. Intermediate-Term Muni Bonds: Bloomberg Barclays 1-10 (1-12 Yr) Muni Bond TR Index; U.S. Intermediate-Term Bonds: Bloomberg Barclays U.S. Aggregate Bond TR Index; U.S. High Yield Bonds: Bloomberg Barclays U.S. Corporate High Yield TR Index; U.S. Bank Loans: S&P/LSTA U.S. Leveraged Loan Index; Intl Developed Bonds: Bloomberg Barclays Global Aggregate ex-U.S. Index; Emerging & Frontier Market Bonds: JPMorgan EMBI Global Diversified TR Index; U.S. REITs: MSCI U.S. REIT GR Index, Ex U.S. Real Estate Securities: S&P Global Ex-U.S. Property TR Index; Commodity Futures: Bloomberg Commodity TR Index; Midstream Energy: Alerian MLP TR Index; Gold: LBMA Gold Price, U.S. 60/40: 60% S&P 500 TR Index; 40% Bloomberg Barclays U.S. Aggregate Bond TR Index; Global 60/40: 60% MSCI ACWI GR Index; 40% Bloomberg Barclays Global Aggregate Bond TR Index.