VWG Wealth Management 2026 2nd Quarter Review

By VWG Wealth Management on July 7, 2026

Executive Summary

• U.S. and international stocks rebounded sharply in the second quarter, recovering from the deeply negative sentiment surrounding the Iran conflict and the Strait of Hormuz closure. The S&P 500 gained 14.9% for the quarter. Small U.S. stocks rose 21.1%. International stocks in developed markets increased 12.4%. 
• Bonds (as measured by the Bloomberg U.S. Aggregate Bond Index) edged 0.7% higher for the quarter, masking significant turbulence beneath the surface. Persistent inflation — driven by energy, materials, and AI-related price pressures — clashed with softness in wages, job openings, housing and consumer sentiment.
• The primary driver of U.S. equity strength was Q1 corporate earnings and forward guidance that far exceeded expectations. Profits grew faster than prices, resulting in the S&P 500’s price-to-earnings valuation moving lower. 
• The massive AI infrastructure buildout accounted for an estimated 70% of S&P 500 year-to-date gains. Tech capital expenditures were estimated to have accounted for more than 100% of U.S. GDP growth in the first quarter. The relentless news flow of new contracts, supply shortages, and huge capital commitments are attracting strong institutional and retail flows into narrow sub-sectors. This crowding warrants attention. 
• Investors should expect volatility — from AI’s rapid buildout and adoption, sticky above-target inflation, the fragile U.S.-Iran ceasefire, and the polarized U.S. political environment. Portfolios should remain diversified and positioned for long-term appreciation. Please contact your VWG advisor should you experience or anticipate any significant life or financial planning changes. 

Review of the Markets

Global equities rebounded sharply in the second quarter. The April 8 ceasefire announcement ending U.S.–Iran hostilities, combined with a peak in crude oil prices, set the stage. What followed was a sustained rally driven by stellar corporate earnings and relentless momentum in artificial intelligence development and capital expenditures.

For the quarter, the S&P 500 index gained 14.9%, bringing its year-to-date return to 9.6%. Small-cap U.S. stocks surged as the Russell 2000 index rose 21.1%. International developed markets improved 12.4% (MSCI ACWI ex-U.S. index). The MSCI Emerging Markets index increased 21.1%.

Bonds were relatively flat for the quarter, masking significant turbulence beneath the surface. Inflation reaccelerated — driven by rising energy and commodity prices, AI infrastructure and component price pressures. On May 19, the yield on the 30-year U.S. Treasury bond spiked to 5.18%, a level last seen in July 2007. 

The debate among strategists was robust. J.P. Morgan’s Michael Cembalest wrote that “the current inflation indicators are much closer to exhibiting conditions that have prompted the Fed to raise policy rates rather than to lower them.”¹ Renaissance Macro’s Neil Dutta countered that “the case for additional Fed hikes remains weak,” citing subdued wage growth, soft job openings, negative business and consumer sentiment, and the observation that 60% of recent headline inflation strength was attributable to energy.²

The signing of the U.S.–Iran Memorandum of Understanding on June 17 helped to relieve global economic concerns. The reopening of the Strait of Hormuz pushed crude oil prices lower, easing inflation fears and pulling interest rates back. The Barclays Aggregate Composite Index returned 0.5% for the quarter, and the 30-year Treasury yield retreated to 4.93%. The 2-year Treasury note surprisingly remained firm, closing the quarter at a yield of 4.15% — a divergence worth watching.

Global crude oil prices swung dramatically before settling. The Brent Crude ICE continuous futures contract peaked at $114.44 per barrel before closing the quarter at $72.08. Precious metals continued to soften, with NYMEX Gold falling 13.7% for the quarter following three strong years.

Strong U.S. Corporate Earnings and the AI Boom

The end of the first quarter’s macroeconomic uncertainty and negative investor sentiment set the stage for some level of market rebound. However, the primary driver of equity strength was the remarkably strong Q1 earnings releases.

Strategas’ Jason Trennert noted that “Q1 earnings are likely to have increased 28% year-over-year versus an expectation at the start of the season of 14%. Upward earnings revisions have been robust.”³ Bespoke Investment Group reported that “the S&P EPS earnings beat rate was 72.8%, in the 94th percentile of all seasons since 2001. The revenue beat rate was even stronger.”⁴ Record profitability was reported, with the trailing four-quarter return-on-equity of the S&P 500 rising to 22% — well above its long-term average.

The magnitude of positive earnings revisions for coming quarters further bolstered stocks. As seen in the following chart, the valuation of the S&P 500, as measured by its composite price-to-earnings ratio, has decreased this year as prices rose. Earnings and forward expectations have grown into and beyond existing valuations. The last comparable non-recessionary “earnings growth catch-up” period was 1993–1994. 

The technology and AI buildout accounted for most of these gains, with energy and materials also contributing. Approximately 70% of the S&P 500’s year-to-date performance was directly tied to AI infrastructure investment — semiconductors, cloud computing, memory, equipment, data center power, storage, and construction. KKR estimates that “tech Capex (including tech equipment, software IP, and data center construction) accounted for more than 100% of U.S. GDP growth in the first quarter — meaning that the ‘Old Economy’ of goods capex and trade contracted.”⁵ 

Additional optimism came from breathtaking announcements across the AI ecosystem — new model releases, supply shortages, and escalating capital expenditure commitments. Beyond the hype, tangible evidence of AI adoption and viable business models began to emerge. Anthropic revealed that its annualized operating revenue had soared to nearly $45 billion in May, driven by the near-immediate mass adoption of Claude Code, its agentic coding tool. This was a fivefold revenue surge in just five months!

In late June, Bloomberg cited research from Exponential View estimating that AI revenue (ex-China) reached $25 billion in the first quarter — a potential inflection point. “The hundreds of billions of dollars tech companies are spending on AI may be economically viable,” the report noted, while cautioning that “margins are thin and depreciation charges still consume more than two-thirds of revenue.”⁶ 

The AI Boom Countdown – Incessant Demand vs. Stretched Valuations 

Many strategists believe the hypercomputing and AI buildout has further to run. All signs show that computing demand is far outstripping supply. Goldman Sachs’ Dominic Wilson writes that “the peak of the investment boom does not look close at hand, so the near-term path of investment and earnings revisions may still be higher.”⁷ KKR comments that their research gives them “greater conviction that the AI and tech capex cycle may still be in the early stages of an unprecedented surge.”⁸ A separate Goldman Sachs report concludes that “we remain in the early stages of AI enterprise adoption. Only 2% of S&P 500 companies have quantified the impact of AI productivity on earnings.”⁹

Prudent long-term investing requires perspective and discipline. While optimism around AI boom is justified for both the economy and capital markets, some caution is warranted. The speed and size of capital expenditures being committed to the AI infrastructure buildout almost certainly ensures that there will be eventual losers as well as winners. Even if successfully broadly transformative, the handoff from the AI infrastructure ‘builders’ to the implementors and eventual economic beneficiaries will surely be uneven. Many conflicting data points and turns in sentiment along the way should be expected.

Wilson explains that “over the longer-term, investment rates will fall as demand that has been pulled forward eventually moderates. The risk here is that the market is overestimating the persistence of those earnings streams beyond the next 2–3 years. It is harder to know what earnings profiles will look like once the rapid investment phase is over. We expect volatility to rise as the boom extends.”¹⁰

Speculation and stretched valuations in some AI-related stock sub-sectors warrant attention. Charles Schwab’s Liz Ann Sonders observes that “institutions and retail traders are crowded into the same trade, with enormous concentration in a narrow cluster of equipment, chipmakers and infrastructure.”¹¹ Citadel Securities’ Scott Rubner points out that with June’s quarterly rebalancing, semiconductors now account for 18% of the S&P 500.¹² Esteemed global strategist Gerard Minack, presenting the following chart, notes that the S&P 500 technology sector is now pricing in assumed earnings growth of 30% per year over the next five years — a rate he views as unsustainable.¹³

Portfolio Positioning

VWG continues to hold a positive posture. U.S. and international equities remain important component for portfolios seeking long-term appreciation. The recent swift decline in energy prices should provide further support to the global economy. We share Citadel’s Scott Rubner’s view that “the path of least resistance is likely higher.¹⁴” VWG acknowledges the positive impact that the AI boom is having on the U.S. economy, earnings, and on markets. We also expect this surge of investment and adoption to create periods of volatility and intra-market rotation.

We cannot lose sight of other significant current macroeconomic factors that hold the potential to unsettle markets. Core PCE inflation is consistently running above 3% annualized, well above the Federal Reserve’s targets. As of this writing, the U.S.-Iran peace fire and agreements to end hostilities are still fragile. Safe traffic of crude and commodities through the Strait of Hormuz is far from normalized. It is expected to take many months for global supply chains to stabilize. The U.S. polarized political picture will soon clash with the fall mid-term elections.

VWG calls for portfolio diversification across asset classes, geographies, and return streams. We continue to research and implement quality strategies, both liquid and private, that offer differentiated return streams alongside our equity exposure. VWG is focused on the quickly changing developments in markets and the macro- and geopolitical environment. We will be in touch should anything require meaningful conversation or portfolio adjustment.

As always, please contact your VWG advisor should you experience or anticipate a significant change in your financial situation or needs.

We wish you an enjoyable and relaxing summer.

* All stated index returns are as of 6/30/2026 unless otherwise indicated.

* Index Data and Charts sourced from FactSet Research, Morningstar, Bloomberg, Strategas Research Partners, J.P. Morgan, Renaissance Macro, Bespoke Investment Group, KKR, Goldman Sachs, Citadel Securities, Bitget, Semi Analysis, Minack Advisors.

1. J.P. Morgan, “Eye on the Markets,” Michael Cembalest, May 26, 2026.  ↩︎
2. Renaissance Macro, “RenMac Advisor’s Note,” Neil Dutta, June 13, 2026. ↩︎
3. Strategas Research Partners, “Investment Strategy Viewpoint,” Jason De Sena Trennert, June 10, 2026.  ↩︎
4. Bespoke Investment Group, “The Bespoke Report,” May 22, 2026.  ↩︎
5. KKR, “2026 Mid-Year Review: The Divergence Conundrum,” Henry McVey and team, June 25, 2026.  ↩︎
6. Bloomberg, “AI Sales Start to Justify Data-Center Spending Boom,” June 25, 2026; citing Exponential View research.  ↩︎
7. Goldman Sachs Economics Research, “Where the AI Boom Stands Now,” Dominic Wilson & Vickie Chang, June 22, 2026.  ↩︎
8. KKR, “2026 Mid-Year Review: The Divergence Conundrum.” ↩︎
9. Goldman Sachs US Weekly Kickstart, “The Impact of the AI Capex Boom on S&P 500 Return on Equity,” Ben Snider, June 12, 2026.  ↩︎
10. Goldman Sachs Economics Research, “Where the AI Boom Stands Now.” ↩︎
11. Charles Schwab, Liz Ann Sonders, “Bloomberg Surveillance interview,” June 25, 2026. ↩︎
12. Citadel Securities, “July Global Intelligence,” Scott Rubner, June 17, 2026. ↩︎
13. Gerard Minack, Equity Mates “Basis Point” podcast interview, June 9, 2026. ↩︎
14. Citadel Securities, “Global Roadshow Highlights,” Scott Rubner, May 28, 2026.  ↩︎