Strong earnings, easing oil prices drive Q2 stock rally
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U.S. stock investors brushed off any concerns from the Iran war to send major indexes to their best quarter since 2020.
The big picture: Stocks rebounded after a bruising first quarter.
- In the second quarter, the S&P 500 index rose nearly 15%, the Nasdaq Composite jumped more than 21%, and the Dow Jones Industrial Average increased nearly 13%.
Flashback: The rebound follows a bruising first quarter, when all three indexes finished in the red, brought down by a brutal March when the Iran war sent oil prices soaring for most of the month.
And it wasn't just the biggest names having a good first half.
- The Russell 2000, a U.S. small-cap index, is up some 21% on the year, marking its best first half since 1991, according to Bespoke Investment Group.
Between the lines: Strong corporate earnings throughout the first half buoyed confidence in stocks in Q2, particularly in the tech sector.
- And a rocky road toward a ceasefire in Iran gave investors a degree of confidence that energy prices won't reach five-alarm-fire levels.
Zoom in: The price of West Texas Intermediate crude — the U.S. benchmark for oil — has been easing for most of June, and was slightly above $70 per barrel this morning.
- That's down more than 30% during the quarter, and a far cry from $200 — the level that analysts at Macquarie predicted it could reach if the war dragged into June.
- Average gas prices topped out at $4.56 per gallon around Memorial Day weekend but have since fallen to a more manageable $3.85, according to AAA.
The second quarter also had the largest IPO ever — the debut of SpaceX, which saw its shares soar, slump and then rise again.
- The company's $87.5 billion IPO accounted for 92% of the listings in the period, according to KPMG's U.S. Quarterly Deals Snapshot.
Yes, but: Deal activity was sluggish in Q2, as a wave of economic caution amid the Iran war "clearly impacted confidence" in mergers and acquisitions, leading many players outside energy and AI to pause or delay transactions, per KPMG.
- That has caused "significant pent-up demand" across the broader market heading into the second half, the firm said.
- In crypto, bitcoin slid 14% in the quarter, extending a slide since hitting an all-time high of $126,080 in October.
What we're watching: Concerns about an AI bubble continue to shadow tech stocks' momentum.
- Big Tech companies have issued $150 billion in new debt so far this year, according to DataTrek Research.
- The Nasdaq Composite slumped about 2.8% in June amid growing concerns about costs.
What they're saying: "We believe incrementally hawkish and uncertain Fed policy will be the overarching theme in 2H 2026," writes Nicholas Colas, co-founder of DataTrek.
- "As the yield curve flattens, recession worries may emerge," but "the corporate bond market is not priced for that outcome."
