The Brave Report: Market Commentary for Q2 2026

I guess the party wasn’t over… After the Iran conflict caused markets to sell off rapidly in March, we saw stocks bounce back just as rapidly in April and May.  Easing tensions in Iran and earnings results that started to justify the massive AI spend gave the markets legs, and it continued its climb to new all-time highs. The old adage about selling in May failed miserably, and those investors who remained patient during the first quarter were rewarded in the second. With continued strong earnings results and increased breadth over the quarter, this most recent rally could have legs to climb higher if tensions in Iran remain muted.

Market Overview

Markets bounced back sharply in the second quarter, posting the best quarter since 2020. The S&P 500 gained almost 15%, the DOW industrials advanced by close to 13%, and the NASDAQ saw gains of over 21%.  International markets also participated, as we saw emerging markets gain more than 24%.  The gains were primarily driven by strong quarterly earnings, proving that some of the AI spend is starting to pay off.  We also saw a de-escalation of the Iran conflict, which relieved some pressure on oil markets and eased fears of continued inflation. Most importantly, we saw breadth improve compared to recent quarters, which is a positive sign for continued positive performance.

On the fixed income side, we saw rates stabilize compared to previous quarters, with the 10-year treasury only rising slightly from the start of the quarter. We saw no new action from the Fed as they continue to be data dependent.  With growth and employment data remaining strong, I expect the Fed to continue to be patient with any future rate decisions. Inflation fears continue to be a driving force on the rates side of things, but the de-escalation in Iran has helped to ease many of those fears.

The Iran conflict drove markets in March, as oil spiked and inflation fears elevated.  However, the easing of this conflict in the second quarter had the opposite effect.  Removing this tail risk from markets. This allowed the markets to focus on corporate earnings results for a change, which did not disappoint.

Going into the quarter, earnings expectations were high, and overall results met or exceeded these lofty expectations.  Year-over-year earnings grew by 23%, marking the second straight quarter with earnings growth over 20%.  In total, over 80% of companies beat expectations, which is well above the long-term average.  While technology and semiconductor companies were the main drivers of this growth, all 11 sectors are on pace for positive growth years.

One important takeaway from earnings season is margin expansion, especially among technology companies.  This is an early sign that AI spend is making companies more efficient, and while the proposed spend from most of these companies is enormous, we are at least seeing the start of the justification for this spend.

Although earnings results were strong and expectations for future quarters have been raised, risks remain in the market. Tensions have eased in Iran, but the deal remains fragile, and tensions could easily flare up again. Any new spikes in oil prices would reignite inflation fears and cause a rush to safety again. If these tail risks reappear, positive earnings can easily be ignored, and volatility will increase again.

High valuations have been called into question for a while now, with many pundits stressing caution.  I do agree that valuations are stretched in some areas, but the rapid earnings growth we have seen in recent quarters does help justify the elevated multiples that many companies are trading at.  I do think that these companies will have to continue to put out exceptional growth numbers to maintain these multiples, but it has shown that some of these valuations are justified.

Moving forward, I am still cautiously optimistic.  With the rapid climb we have seen over the past quarter, it would be prudent to trim in areas that have grown too large from an allocation standpoint. I do not think the Iran conflict is done, causing short-term spikes in volatility. The initial ceasefire and subsequent negotiation don’t seem to carry much authority. While tensions have been lowered, I expect the fears over this conflict to draw out over the next few quarters. I will continue to be patient with new money and try to take advantage of any entry points, but I am not rushing out to chase the top of the market, especially considering the current geopolitical backdrop.

Strategy Commentary

I maintained my overall equity allocation throughout the quarter. The only adjustments were to shore up the overall allocation as certain areas outperformed.  I also took a little bit of profit in a few areas that had extended past their comfortable allocation levels. I am still being patient with putting new money to work as valuations remain relatively stretched.

Domestically, I maintained my overweight to Technology and Communication Services. While Technology lagged in the first quarter, it bounced back sharply in the second quarter.  I think we will continue to see the economic benefits of the AI spend in these sectors first, so I will continue to maintain these overweights.  We did see an increase in breadth during the quarter as other sectors and small caps participated in the rally.  Small caps continue to provide an appealing valuation story compared to large caps, so I may look to increase the allocation at some point in the future.

I didn’t make any changes to my international exposure, but with the easing geopolitical climate in Iran, we should continue to see emerging markets perform well.  Developed international had a good quarter but still lagged the US, so I am still comfortable maintaining current allocation levels.

On the fixed income side, I will be looking to move out on the curve.  With oil prices dropping and inflation concerns easing, upward pressure on rates should be muted. It does seem that the Fed will push out future rate cuts further than expected, which will also put a floor on rates. I think this will create a bit of a range-bound rate environment as opposing forces pull on rates.

Click here for the .pdf version of this report:The Brave Report-2026Q2