Home page hero banner

Markets staged an impressive rebound in the second quarter as a surge in tech-related corporate earnings growth combined with rising hopes for a U.S./Iran ceasefire to push stocks sharply higher, as the major U.S. averages hit new all-time highs. Markets received positive news almost immediately in the second quarter as, on April 7th, President Trump announced a two-week ceasefire with Iran, ending direct hostilities between the two countries. That news (and the subsequent move lower in oil prices) helped stocks recoup the geopolitically driven March declines, but it was really a stellar first-quarter earnings season that fueled the market rally in April. Annual earnings growth surged to approximately 15% for the S&P 500 following the Q1 results, a number nearly double the long-term average. While AI-linked tech companies posted some of the stronger earnings growth on booming data center demand, a broad swath of companies and sectors posted strong financial results as more than 80% of the companies reporting during the Q1 season beat Wall Street estimates. That AI-led earnings growth, along with the U.S./Iran ceasefire, helped fuel the strong rebound in stocks.Market gains accelerated in May and were driven by the same factors that drove the April rally: Strong earnings and expectations for a U.S./Iran ceasefire. Earnings in May, while not as plentiful as the April reporting season, were similarly strong with major tech companies such as Nvidia, Intel, Dell, Snowflake and others posting strong results that reinforced the simply massive demand for AI infrastructure. But while the tech sector again posted some of the strongest results, earnings on the whole in May were impressive with Walmart producing solid results and pushing back on fears that higher prices were hurting consumer spending. Meanwhile, surges in demand for data center components such as memory and semiconductors led to massive gains in certain tech stocks through the end of May, as the S&P 500 hit multiple new all-time highs during the month. Geopolitically, while there was no official U.S./Iran ceasefire, markets firmly believed there would be no material escalation either, so the lack of an official agreement didn’t weigh on stocks.The rally continued in early June thanks initially to reported progress on a U.S./Iran ceasefire agreement, which was signed by President Trump and Iranian leaders in mid-June. Anticipation for the SpaceX IPO (the largest IPO in history) also helped to further support the tech sector and AI-linked investments, as the S&P 500 hit another new all-time high mid-month. However, also in mid-June, investors received a surprise from new Federal Reserve Chairman Kevin Warsh. The Fed made no change to interest rates in June, as expected, but the meeting statement and Warsh press conference were viewed as “hawkish,” and the probabilities for a rate hike later this year rose sharply. That deviation from previous Fed policy expectations caused some market volatility. However, stocks generally proved resilient as falling oil prices (which dropped back to pre-war levels) led investors to believe the current inflation spike will be temporary. In sum, the stock market completed an impressive rebound from the steep declines of late March, as much-better-than-expected earnings growth (powered primarily by AI-linked tech stocks), continued solid economic activity, and the signing of a U.S./Iran ceasefire helped send the S&P 500 to new all-time highs. Second Quarter Performance ReviewThe gains in the S&P 500 in the second quarter were broad, but the impact of the AI boom was evident across and throughout markets. By market capitalization, small caps outperformed large caps thanks to a combination of strong economic growth (which can disproportionately benefit smaller company earnings), falling oil prices and the “trickle down” of AI optimism towards small-cap tech and AI infrastructure companies.  From an investment style standpoint, growth outperformed value but not as much as one would think given the strength in AI-linked tech stocks in the second quarter. Growth styles benefited from a surge in AI infrastructure stocks such as memory and semiconductor manufacturers while value strategies received a boost from industrials. On a sector level, 10 of the 11 S&P 500 sectors finished the second quarter with positive returns. The best performing sector in Q2 was, by a very wide margin, the technology sector as it benefited from huge rallies in memory stocks such as Micron and SanDisk as well as continued gains in the semiconductor stocks. Industrials also logged strong gains as companies in that sector were poised to benefit from increased AI data center construction as well as more defense spending. Finally, real estate also posted strong returns on anticipated data center demand, as several tech and AI-linked REITs posted very strong gains in the second quarter. Turning to the sector laggards, energy was the only sector to post a negative return for the quarter. The energy sector was pressured primarily by falling oil prices as they were sharply higher at the start of April before the U.S./Iran ceasefire process started. The communication services sector was the other clear laggard in the third second quarter (that sector saw only a small gain) as weakness in the legacy internet and mobile providers weighed on the sector (the IPO of SpaceX reminded investors Starlink and other satellite internet providers are legitimate threats to those legacy business models). International market performance was also influenced by tech/AI as emerging markets handily outperformed the S&P 500 in the second quarter thanks to an extreme rally in South Korean shares, as they benefited from the boom in memory companies. Foreign developed markets, however, lagged the S&P 500 as they received little AI performance-related boost compared to the S&P 500. Commodities saw moderate declines in the second quarter, thanks primarily to the drop in oil prices due to reduced geopolitical tensions. Oil prices were volatile but ended the quarter solidly lower on a combination of increased ship transit through the Strait of Hormuz and the U.S./Iran ceasefire agreement. Gold prices also fell during the quarter on the aforementioned decline in geopolitical concerns and a stronger U.S. dollar, which hit a one-year high in June on rising rate hike expectations.Switching to fixed income markets, the leading benchmark for bonds (Bloomberg U.S. Aggregate Bond Index) realized a modest positive return for the second quarter as falling commodity prices reduced inflation concerns.  Looking deeper into the fixed income markets, shorter-duration bonds again outperformed longer-duration fixed income as some inflation statistics hit multi-year highs and ended Q2 far above the Fed’s 2.0% target. Turning to the corporate bond market, both investment grade and lower quality but higher-yielding bonds posted solidly positive quarterly returns. High-yield bonds outperformed investment grade debt, as generally resilient economic growth and falling geopolitical risks prompted investors to reach for higher yield despite greater credit risks. Third Quarter Market OutlookAs they did in 2025, stocks proved resilient in the first half of the year despite several macro-economic surprises, as strong corporate earnings and underlying economic growth overcame doubts about AI profitability, war and higher interest rates. To that point, investors had to confront numerous market surprises over the first six months of 2026, including a direct war between the U.S. and Iran, a spike in oil prices to multi-year highs, a rebound in inflation (which caused rate hike expectations to replace rate cut hopes) and some doubts about the broad profitability of AI. But while those surprises each caused temporary bouts of market volatility (with the worst coming in March after the U.S./Iran war began), they were largely offset by foundational bull market metrics: Strong earnings and solid economic growth. The Q1 earnings season was much stronger than expected, and while the earnings gains were led by AI-linked tech stocks such as Nvidia, Micron and others, the reality is the vast majority of companies reported better-than-expected revenue and earnings and that strong corporate performance helped to offset macroeconomic uncertainty.Economic growth, meanwhile, pushed back consistently on fears of stagflation following the war-driven spike in oil prices. Yes, inflation metrics and prices rose but economic growth never wavered, as virtually all economic indicators from the labor market, manufacturing and service sectors showed solid activity. Finally, AI enthusiasm remained a key driver of the stock rally, as numerous large tech companies reaffirmed their commitment to spend hundreds of billions of dollars on data center and AI infrastructure buildout, which gave investors continued confidence in the future of AI and provided a broad economic boost, as these massive tech companies spend across the economy to build out data centers and other AI infrastructure. However, while the market and economy were again impressively resilient in the first half of 2026, we must caution against allowing this resilient market to lull us into a false sense of security as we embark on the second half of the year, because risks to this bull market remain. First, expectations for Fed rate hikes are rising. At the start of 2026, investors widely expected one or two rate cuts in 2026. Now, because of high inflation, the market is expecting, perhaps, one or two rate hikes. And while that is not automatically negative for markets, the reality is that the last time the Fed embarked on a rate hike campaign (2022) stocks dropped sharply. Second, the exposure of the entire economy and market to continued AI investment remains a source of concern. Massive AI infrastructure investment is helping to power the economy, but if the companies spending that money begin to doubt the ROI of AI infrastructure investment, they could reduce spending and that would be an economic negative that impacts markets. Finally, the U.S. economy has proved historically resilient over the past several years, but it is not infallible. The rebound in inflation, if it continues, threatens consumer spending and the housing market and we will be watching the economy closely, because at elevated valuations, the stock market is not at all pricing in a loss of economic momentum.In sum, we start the second half of 2026 with a strong market: Earnings growth is above historical averages, economic growth is solid and AI enthusiasm remains as boisterous as ever. However, risks remain in the form of high inflation (which could hurt economic growth), potential rate hikes and vulnerability to AI infrastructure spending, and we will monitor these risks closely as we continue to balance risk and reward.    At Towson Partners Wealth Management, we understand the risks facing both the markets and the economy, and we are committed to helping you effectively navigate this challenging investment environment. Successful investing is a marathon, not a sprint, and even intense volatility is unlikely to alter a diversified approach set up to meet your long-term investment goals.Therefore, it’s critical for you to remain patient, and stick to the plan, as we’ve worked with you to establish a unique, personal allocation target based on your financial position, risk tolerance, and investment timeline.Rest assured that our entire team will remain dedicated to helping you successfully navigate this market environment.Please do not hesitate to contact us with any questions, or comments, or to schedule a portfolio review.Sincerely,Towson PartnersThis is provided for informational purposes only and is not intended as investment advice or a recommendation to buy or sell any security or adopt any investment strategy. Opinions expressed are those of the author as of the date of publication and are subject to change without notice. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results may differ materially from those expressed or implied. Past performance is not indicative of future results. Investing involves risk, including the possible loss of principal. Janney Montgomery Scott LLC, its affiliates, and its employees are not in the business of providing tax, regulatory, accounting, or legal advice. You should consult your own tax or legal advisor regarding your individual situation. Please consult your Financial Advisor to determine whether any strategy discussed is appropriate for your individual circumstances.

Market volatility spiked in the first quarter of 2026 as a surge in geopolitical tensions combined with stress in private credit markets and growing concerns that AI may pose threats to certain industries to push the S&P 500 moderately lower to start the year.Geopolitical surprises started immediately in 2026 as on January 3, the U.S. military performed a daring raid in Venezuela and arrested Venezuelan President Maduro, causing a temporary pop in market volatility given uncertainty around the country’s vast oil supplies. The action proved limited, however, and the new Venezuelan leader pledged to work with the U.S., easing market tensions. Shortly after markets recovered from that initial surprise, we received another one, as the U.S. Attorney for the District of Columbia issued two grand jury subpoenas to Fed Chair Powell surrounding the renovation of the Federal Reserve building. That action renewed concerns about attacks on Fed independence, which, if compromised, could lead to sustainably higher inflation. In response, several prominent Republican Senators pushed back against the subpoenas and voiced support for Fed independence, easing market concerns. While these surprise headlines caused short bursts of market volatility, stable economic data and a generally solid fourth-quarter earnings season helped keep economic and earnings growth forecasts intact, while the Fed reminded investors at the January meeting that it still planned to cut rates again this year. Despite the headline volatility, the S&P 500 ended the month with a solid gain.Volatility continued in early February, but this time it was more focused on specific sectors of the market such as tech and financials. AI company Anthropic released a Claude Cowork app that caused a steep decline in the software sector, as fears surged that AI advancements could ultimately eliminate the need for entire sectors of the economy. That idea jolted investors’ previous opinions that AI was nearly all beneficial to the markets and economy. Meanwhile, underlying fears of credit risks in private credit funds grew, as numerous large alternative asset managers limited redemptions from specific funds, fueling concerns there was a bubble in the industry. Finally, on the last day of February, geopolitical risks surged as the U.S. launched a massive attack on Iran, sparking a war between the two countries that effectively closed the Strait of Hormuz and drastically reduced available global oil supplies, which caused oil prices to surge overnight. These factors combined to push the S&P 500 slightly lower for the month but the index remained positive for the year.     The market declines accelerated in March as hopes for a quick resolution to the U.S./Iran war faded. While the U.S. and Israel dominated the conventional military conflict, Iran and its proxies attacked neighboring Gulf states’ energy infrastructure and oil tankers in the Persian Gulf, causing the price of oil to surge above $100/bbl and increasing pressure on the global economy. The S&P 500 fell modestly on the surge in geopolitical risks, although hopes of a ceasefire late in March did help limit losses. The S&P 500 declined moderately in March and finished the quarter in solidly negative territory.          The first quarter of 2026 saw volatility surge, as military conflicts combined with more traditional market concerns of overvalued assets (in private credit) and potentially negative impacts of AI to pressure stocks moderately, although still-stable economic growth and corporate earnings helped to support markets throughout the quarter.First Quarter Performance ReviewMarket internals and performance in the first quarter were driven primarily by the U.S./Iran war, but also by concerns about private credit and potentially negative impacts from AI. On an index level, the three major large cap stock indices finished the quarter with losses. The Nasdaq was the worst performer among them thanks to weakness in AI-related tech and software stocks. Small caps, however, relatively outperformed large caps as the Russell 2000 finished the first quarter with a small gain, as small-cap stocks are generally viewed as more insulated from the headwinds of the first quarter (i.e., geopolitical tensions, private credit worries, AI concerns). Turning to value vs. growth, value massively outperformed growth in the first quarter and managed a modest gain, as value-focused strategies benefited initially from a rotation away from tech and towards sectors less exposed to AI. Additionally, late in the quarter, value styles benefited from the surge in the lower-multiple energy and materials sectors, which rallied following the outbreak of the U.S./Iran war. Tech-heavy growth strategies finished solidly lower for the quarter. On a sector level, performance was mixed as six of the 11 S&P 500 sectors finished the quarter with a positive return. The best-performing sector in Q1, by a large margin, was energy, which surged more than 30% in the first quarter thanks to rising oil prices. The materials sector, which includes companies with heavy commodity exposure, also was a solid performer on rising natural resource prices following the U.S./Iran war. Finally, consumer staples and utilities also finished the first quarter with strong gains, as investors rotated to less volatile, more defensive parts of the market. Looking at sector laggards, the financial sector was the worst-performing S&P 500 sector in Q1 and suffered solid losses, thanks to aforementioned private credit concerns. The consumer discretionary sector also posted a moderately negative return on worries that higher oil prices would reduce consumer spending. Finally, the technology sector dropped on weakness in software stocks and AI-linked technology stocks. Internationally, foreign markets relatively outperformed the S&P 500 and ended the quarter with only a small decline, despite the surge in geopolitical risks. Emerging markets outperformed both developed markets and the S&P 500 and registered only a fractional loss despite the strong dollar, as the surge in commodity prices was seen as offsetting the rising U.S. dollar. Foreign developed markets declined in Q1, but only modestly, and solidly outperformed U.S. markets thanks mostly to the smaller weighting of tech shares in foreign indices.  Commodities were generally speaking, sharply higher in the first quarter thanks to the surge in the geopolitical risk premium following the outbreak of the U.S./Iran war. Oil prices hit the highest levels since 2022 thanks to the U.S./Iran war and following Iranian attacks on Gulf oil infrastructure, which further reduced global supply. Gold, meanwhile, hit a new all-time high above $5,000/oz. early in the quarter but finished with just a moderate quarterly gain, as the surging dollar pressured gold prices late in Q1.   Switching to fixed income markets, the leading benchmark for bonds (Bloomberg Barclays US Aggregate Bond Index) finished the quarter with a slight loss as bonds were solidly higher mid-quarter but declined in March on rising inflation concerns, as surging oil prices and hotter-than-expected inflation readings reduced expectations for Fed rate cuts. Short-term bills modestly outperformed longer-duration bonds and logged a positive return as they are less sensitive to rising inflation risks compared to longer-duration debt. Turning to the corporate bond market, both high yield and investment grade corporate bonds declined slightly in the first quarter as the U.S./Iran war and spiking oil prices raised concerns about an economic slowdown. Reflecting general investor anxiety about economic growth given the war and rising oil prices, both lower yielding but higher quality investment grade corporate bonds and high yield bonds (which have a better yield but also more credit risk) experienced similar small losses for the quarter.      Second Quarter Market OutlookStocks begin the second quarter facing three distinct market headwinds: Higher oil prices (a result of the U.S./Iran war), credit concerns (emanating from private credit funds) and worries that AI, while a transformative technology, could have unanticipated negative impacts on important market sectors. Each of these concerns will need to be resolved if the market is going to fully rebound from the Q1 declines, although it’s important to note that economic growth and corporate performance remained solid in Q1 and that is helping to support markets.Starting with geopolitics, the focus for markets remains on the price of oil. Elevated oil prices pose a risk for the markets and economy in multiple ways including 1) No Fed rate cuts as the Fed worries higher oil prices may spur inflation, 2) Depressed consumer spending as higher gas prices reduce disposable income and 3) Tighter corporate margins given increased transportation and infrastructure costs. Ultimately, that could lead to stagflation in the economy, which would be negative for most assets. For geopolitical risks to fully recede, we will need to see a credible ceasefire agreement between all parties (the U.S., Israel and Iran), transit through the Strait of Hormuz return to something close to pre-war levels and a decline in oil prices back towards pre-war levels. Private credit, meanwhile, is evoking memories of the financial crisis amongst more tenured investors, fueling fears that the recent influx of investor capital into private credit funds led to poor investing standards and overvaluation. While analogies to the financial crisis are understandable, it’s important to realize the private credit market is much, much smaller than the markets that caused the financial crisis and Fed officials have recently said they see no indication of a systemic problem. While that is reassuring, private credit concerns are still weighing on the financial sector, which is the second-largest sector in the S&P 500 by weight and an important market leader. An easing of private credit concerns and a rebound in the financials is needed to help the market further stabilize in the second quarter.Finally, turning to AI, opinions on the impact of AI on the economy and markets have shifted from mostly positive to that of increased skepticism, and there are two main concerns associated with AI currently. First, that massive spending on AI infrastructure by large tech companies may ultimately have a poor ROI and depress future earnings. Second, that AI advancements may disrupt entire portions of the economy (such as the software sector) and lead to large job losses that hurt overall economic growth. Both of these concerns need to be addressed and countered for AI and the tech sector to fully rebound in Q2. Bottom line, the first quarter did contain several negative surprises for investors and we begin the second quarter with uncertainty over geopolitics, credit and AI. But there are also positive factors at work that must be considered, including a still-resilient economy, strong corporate earnings growth and a Federal Reserve that is still signaling rate cuts. Those factors supported stocks and bonds in the first quarter and despite the volatility and elevated uncertainty, the outlook for the economy and markets is not universally negative and as we saw firsthand in Q1, the geopolitical and corporate landscape can change quickly.    At Towson Partners Wealth Management, we have experienced these types of markets before and are committed to helping you effectively navigate this challenging investment environment. Successful investing is a marathon, not a sprint, and through both bull and bear markets, we will remain focused on the diversified approach we have set up to meet your long-term investment goals.Therefore, it’s critical for you to stay invested, remain patient, and stick to the plan, as we’ve worked with you to establish a unique, personal allocation target based on your financial position, risk tolerance, and investment timeline.We remain vigilant towards risks to portfolios and the economy, and we thank you for your ongoing confidence and trust. Please rest assured that our entire team will remain dedicated to helping you successfully navigate this market environment.Please do not hesitate to contact us with any questions, comments, or to schedule a portfolio review.________________________________________________________________________________________________________________This is provided for informational purposes only and is not intended as investment advice or a recommendation to buy or sell any security or adopt any investment strategy. Opinions expressed are those of the author as of the date of publication and are subject to change without notice. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results may differ materially from those expressed or implied. Past performance is not indicative of future results. Investing involves risk, including the possible loss of principal. Janney Montgomery Scott LLC, its affiliates, and its employees are not in the business of providing tax, regulatory, accounting, or legal advice. You should consult your own tax or legal advisor regarding your individual situation. Please consult your Financial Advisor to determine whether any strategy discussed is appropriate for your individual circumstances.

The 2026 new year is finally underway, but far-reaching tax changes from 2025 have not removed the necessity for thoughtful estate and tax planning. This program will address recent changes in tax law and how it may impact your estate and financial plan.Please join us to discover what actions you might want to consider in light of the recent changes. We will highlight our top ideas to mitigate income and estate taxes while meeting your goals and objectives. We will address techniques for effective wealth transfer through gifting and by using trusts to your advantage. We will also review unique strategies to help plan for effective positioning of retirement assets.FEATURED SPEAKERKathleen Stewart Vice President, Senior Financial Planner at Janney Montgomery Scott LLC