Investment Outlook: Summer 2026

By Argent Wealth Management, LLC on July 9, 2026

Second Quarter Review, Third Quarter Outlook

Cyclical Sectors Show Importance of Staying Invested

A massive second quarter stock market rally was driven by cyclical industries such as technology, financials, and industrials. Most of these areas of the market were hurt earlier this year by the conflict in Iran and stubbornly high interest rates. As a resolution to the Iranian war seems to be nearing, investors have returned to focusing on company fundamentals and stock valuations. The massive amount of spending related to artificial intelligence has triggered rallies in the shares of semiconductor stocks, which now account for the largest portion of the technology index. Software companies, particularly those in cybersecurity, also showed signs of life this quarter, as investors realize that AI can make their business models more efficient. Amazingly, technology was the only sector to beat the overall market this quarter, rising 41.2%. This makes sense, as technology is twice as large as any other group. Industrials (+11.2%) and financials (+8.4%) followed behind, as these companies are printing money by building for, and lending to, respectively, the AI-fueled technology conglomerates. Financials were the worst-performing sector in Q1 and technology was only about 2% better. The huge recovery in economically-linked sectors highlights the importance of maintaining your long-term asset allocations even in times of market turbulence.

On the flip side, energy equities fell 8.3% during the second quarter after outperforming the next best sector by nearly 30% during Q1. It has still been a good year for energy stocks, and the financial health of this group has become pristine, as evidenced by the generous dividends and share buybacks they are returning to investors. It is also worth mentioning that the only sector to turn in two straight down quarters, Communications (XLC), is one of the most concentrated in the S&P 500 with only 21 holdings. Basic Materials (XLB) is the only sector with fewer S&P 500 holdings (19.) Shake-ups to the telecom industry, including competition from SpaceX, and a decline in the fortunes of Facebook parent firm Meta as they struggle to develop a clear AI strategy, caused outsized impact to this group.

A New Economy Calls for New Capital

Perhaps the most important market event during the 2nd quarter was the June 12th initial public offering (IPO) of SpaceX, the largest in history. Elon Musk’s sprawling space travel and communications corporation debuted to a double-digit increase and caused vanishingly few trading hiccups. It also set the stage for the coming IPOs of large language model developers Anthropic and OpenAI. At the same time, major technology firms, such as Google and the aforementioned Meta, tapped the equity markets for tens of billions of dollars. The question is, who is absorbing all this supply? While the market may have short-term fluctuations as investment managers offload high-flying winners to take on new shares of stock, the overall wealth of investors both at the retail and institutional levels has skyrocketed in recent years (helped by higher yields on U.S. Treasuries) and this cash seems to be coming off the sidelines to participate in new offerings. See, for instance, Berkshire Hathaway’s agreement to gobble up $10 billion of Google shares in a private placement. While Anthropic and OpenAI’s debuts will test the market’s continued appetite, we do not flag this as a major risk to broader market returns.

Warsh’s Worst Nightmare – Rising Inflation and a Mandate to Lower Rates

President Trump has railed against high interest rates, arguing they dampen economic activity, such as home purchases. While this is certainly true, whether policymakers should follow his rhetoric boils down to how durable you think inflation is. The CPI inflation gauge, seen below, has ticked up from the mid-2%s to 4%, and insights from Nad Davis Research show that inflation pressure has built. Commodity price pressures remain generally high, even if oil prices have eased in the past few weeks. Retailers tend to be fast to increase prices but slow to lower them, so inflation stemming from a shortage in oil supplies could be sticky. While not a bad thing, the wealth effect caused by the AI stock boom is keeping consumer spending high, putting a higher floor on the inflation rate. This makes new Fed chairman Kevin Warsh’s job tricky. Warsh has shown the ability to change his views over the years, but if he raises rates too quickly to tamp down inflation, he risks being caught in a political crossfire. Thus far, he has focused his efforts on standardizing and simplifying the Fed’s communications process, and prioritizing the evaluation of current data over long-dated forecasts.

Semiconductor Spike Spans the Globe

When examining the returns of other major asset classes we track, the 30% quarterly jump for the EMXC (Emerging Markets ex-China) fund stands out. The reason behind the surge is that the index makes up for not owning Chinese stocks (which are heavily geared towards online shopping) by owning more semiconductor producers, in large part based in Taiwan and South Korea. Demand for these companies’ products took the world by storm in 2026, as a shortage of memory chips caught electronics producers like Apple off guard. Apple and others have scrambled to make up for the shortfall and paid top dollar for these products, even securing long-term purchase agreements. Meanwhile, Chinese stocks struggle with slowing economic growth caused by a real estate crisis and population bust.

Small and Mid-Cap U.S. stocks continued to excel this quarter. As shown on the second page, the S&P 500 gained ~13% this quarter. Mid-cap U.S. equities matched that amount while while the Russell 2000 index (RUT on the chart below) gained 20%. After years of being laggards, a strong regulatory backdrop and an increased M&A activity has helped small and mid-cap stocks to narrow the performance gap with their larger competitors. International stock returns (IEFA) were weaker in the quarter, due to slower growth and less technology exposure in Europe, while U.S. bond returns (AGG) were flat as investors saw the potential for the Fed to raise rates in the back half of the year, thus reducing the value of their current bond holdings.

The Economic Backdrop Remains Robust, Despite Persistent Fear

While all these scorching stock returns are nice, current economic conditions drive our future decision-making. Job openings have risen and kept pace with the amount of unemployed U.S. workers, and wage growth is at least in the ballpark of the inflation rate, supporting continued strong consumption.

Credit conditions are strong for businesses and consumers. Headlines have suggested that a crisis is brewing in private credit markets, which involves riskier lending to mid-sized corporations. However, these problems are limited to a few corners of the finance world and primarily, though not exclusively, involve enterprise software firms grappling with reduced pricing power in the age of artificial intelligence. The broader market view is one of strong corporate and personal balance sheets.

Sources:

Fig. 1: Factset, Argent Wealth Management, LLC © 2026 on 7/1/2026

Fig. 2: Ned Davis Research, Inc. on 7/1/2026

Fig. 3: Factset, Argent Wealth Management, LLC © 2026 on 7/1/2026

Fig. 4: Ned Davis Research, Inc. on 7/1/2026

Fig. 5: Ned Davis Research, Inc. on 7/1/2026

Fig. 6: Ned Davis Research, Inc. on 7/1/2026