2nd Quarter News
The second quarter of 2026 was defined by significant geopolitical shifts and a dramatic reversal in energy markets. The signing of a tenuous Memorandum of Understanding (MOU) between the U.S. and Iran in April established a fragile ceasefire and opened the Strait of Hormuz. This caused the spot price of Brent crude to plummet from its April peak of $138 per barrel to around $71 by the end of June.
However, as we move into July, the landscape has shifted once again. Recent volatility surrounding renewed U.S.–Iran strikes has tested the market’s resolve, with oil prices oscillating sharply. While these headlines are concerning, our view is that the geopolitical conflict remains “mitigatable.” Unlike a total, long-term blockade of the Strait, current trade flows suggest that market participants are looking through the noise, recognizing that a full-scale disruption remains a lower-probability tail risk.
Inflation metrics remain a complex primary challenge. While June’s Headline CPI offered some relief by cooling to 3.5%, May’s Headline PCE inflation climbed to 4.1%. More concerningly, Core PCE moved further away from the Federal Reserve’s target, reaching 3.4%. Concurrently, the labor market is showing signs of deceleration; the economy added just 57,000 jobs in June, alongside a downward revision for May to 129,000 jobs, though the unemployment rate held steady at a structurally sound 4.2%. In response, newly appointed Federal Reserve Chairman Kevin Warsh has signaled a distinctly hawkish tactical shift, prioritizing price stability. Nine of 18 Fed officials are now projecting a rate hike this year. Because forward guidance has been eliminated, individual Fed speakers are the only remaining signal of intent. Recently, Fedspeak has been unambiguously hawkish on inflation. With no roadmap, markets will parse every word for clues about the path ahead. While this has caused short-term volatility, we must remember that expectations are fluid. As we saw in 2024 and 2020, the market tends to over-project the “hawkish” path and given the recent cooling in top-line CPI and job growth, conditions can change rapidly by September.
Heading into the second half of the year, proactive risk management remains a cornerstone of our planning. As always, we will look to protect client portfolios at the same time as we look for opportunities beyond the current level of volatility.
The Economy: The U.S. economy proved more resilient during the first half of the year than many had anticipated. Notably, the third and final estimate for 2026 Q1 GDP was revised upward to a 2.1% annualized rate, a significant increase from the previous estimate of 1.6% and a marked acceleration compared to the 0.5% growth recorded in 2025 Q4.
Building on that momentum, the economy continued to show resilience throughout the second quarter. While geopolitical tensions and trade uncertainty remained in focus, easing concerns in the Middle East helped stabilize energy markets, reducing fears that higher oil prices would fuel a sustained inflationary shock. Economic growth continued at a moderate pace, supported by healthy consumer spending, ongoing business investment—particularly in artificial intelligence and infrastructure—and a labor market that remained relatively stable.
Inflation continued to trend lower overall, although progress remained uneven, and the Federal Reserve maintained its cautious stance. Policymakers emphasized that future interest rate decisions will remain dependent on incoming economic data, reinforcing expectations that rates could stay elevated until inflation moves more convincingly toward the Fed’s long-term target.
Looking ahead, investors are balancing a constructive economic backdrop against several potential risks, including evolving trade policy, geopolitical developments, and the pace of monetary easing. While uncertainty remains, corporate earnings have continued to exceed expectations, supporting a favorable outlook for equities as we enter the second half of the year.
