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The Financial Quarterly | Quarter 2, 2026

Review and Outlook

After a rough first quarter, stocks roared back to end the second quarter strong, with the three major indexes posting their best quarterly gains in years.1

Is a strong Q2 a sign of things to come? Or could more turbulence lie ahead?

Let’s review what happened last quarter and discuss what could come next.

SEI Forward

Key Takeaways for Savvy Investors

After a rocky start to the year, the second quarter told a very different story.

All three major indexes notched their best quarter in years.1 Also encouraging is the breadth of the recovery. For much of the bull market, a small group of tech companies has driven most of the market’s growth.4 Last quarter, the gains spread into a broader rally.1

Some of the recent surge is recovering ground lost earlier in the year, but the first half of 2026 ended solidly higher.

In the first half, the S&P 500 rose 9.6%, the Dow 8.9%, and the NASDAQ over 12%.1 Strong quarters often follow weak ones, which is a major reason selling into dips often hurts long-term investors. It’s also a reminder not to read too much into any single quarter’s performance, whether good or bad.

What could happen in the second half of the year?

The flip side of such a strong run is that more volatility could lie ahead. As stocks test new highs, expectations also rise, so we may see a pullback or two if optimism fades. Overall, the economy is growing, though there are some signals worth watching.4 A recent jobs report came in softer than expected.5 Consumer sentiment also remains weak as many Americans worry about their financial prospects.6

Consumer spending drives about 70% of the U.S. economy, and it’s held up so far, though mostly on the strength of higher-income households.6 Whether that spending trend will continue if sentiment stays weak is a key question for the second half of the year.

Our approach: neither chase the rally nor fear it.

We designed your strategy for a range of market conditions. We’re staying balanced, watching the data, and keeping the focus on your long-term plan rather than the headlines. As the November midterm elections draw closer, we can expect the political headlines to get louder. We don’t recommend changing your investment strategy based on noise. We monitor election outcomes, but we don’t let them drive portfolio decisions.

We’ve got our hand on the wheel and we’ll keep you updated as needed. Questions about your portfolio heading into the rest of the year? Let’s talk.

How Did Markets Perform Last Quarter?

S&P 500

%

The broader market rebounded as war fears eased and corporate earnings remained solid.1

NASDAQ

%

The tech-focused NASDAQ soared as worries about AI spending cooled.1

DOW 30

%

The blue-chip index had its strongest quarter since 2022.1

What factors may influence markets in the months to come?

Let’s take a look ahead at some of the factors that we’ll be watching in the weeks and months ahead.

Geopolitics

Geopolitics & Iran

While the war in Iran seems to be cooling, the situation is not fully settled. If peace holds and energy prices fall, it may ease pressure on household budgets. However, a new geopolitical flare-up could cause prices to spike and markets to retreat.2

Corporate Earnings

Corporate Earnings

Despite economic worries, company profits have held up well, supporting market growth. However, if companies start lowering forecasts, we could see markets pull back.4

Inflation

Inflation

Inflation is still running well above the Federal Reserve’s 2% target, and higher energy costs have added fresh pressure. Whether inflation cools from here is one of the central questions for the second half of the year.3

Interest Rates

Interest Rates

For much of the past year, the question was when the Fed would cut rates again. That has shifted, and with inflation so sticky, some analysts now think a rate hike is possible, which could be a headwind for stocks.2

“Strong quarters often follow the ones that test your nerve, a reminder that patience and flexibility are key to long-term investing.”

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Sources
  1. CNBC, 2026 [https://www.cnbc.com/2026/06/29/stock-market-today-live-updates.html]
  2. Reuters, 2026 [https://www.reuters.com/business/us-stock-futures-little-changed-strong-quarter-nears-end-2026-06-30/]
  3. AP News, 2026 [https://apnews.com/article/consumer-prices-inflation-war-gas-878f6759c93fcb078aeefffe19d4dfa5]
  4. Charles Schwab, 2026 [https://www.schwab.com/learn/story/us-stock-market-outlook]
  5. CNBC, 2026 [https://www.cnbc.com/2026/07/01/stock-market-today-live-updates.html]
  6. ING, 2026 [https://think.ing.com/snaps/us-sentiment-underlines-k-shaped-consumer-strife/]

The S&P 500 is a stock index considered to be representative of the U.S. stock market in general. The NASDAQ Composite Index is an unmanaged composite index of over 2,500 common equities listed on the NASDAQ stock exchange. The Dow Jones Industrial Average is a price-weighted index that tracks 30 large, publicly traded American companies.

All index returns exclude reinvested dividends and interest. Indices are unmanaged and cannot be invested into directly.

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