WESCAP Q2 2026 Quarterly Commentary: Global Markets Surge on Geopolitical De-escalation and Robust Corporate Earnings
WESCAP portfolio results were strong the last quarter as the Iran conflict de-escalated, resulting in a more optimistic outlook and strong global stock market returns. The S&P 500 had a positive 15.2% Q2 return, after a loss of 4.3% in the first quarter. This was surpassed in the second quarter by small-cap U.S. stocks (Russell 2000) with a 21.5% return and emerging markets stocks (MSCI) with a 24.1% return. Also strong were REITs (real estate) at 10.7% and developed foreign markets stocks (EAFE) at 10.8% for the quarter.
Regarding the Iran conflict, we stated last quarter that we expected that the de-escalation process could be stepwise and slow enough to keep energy prices elevated for many months. The process did play out unevenly, and the outcome is that oil prices are nearly back to prior levels. Inflation should trend down, as already reflected in slightly lower interest rates.
U.S. corporate earnings have grown very fast (20%+ YOY Q1)—mostly within tech companies—which propelled stock prices significantly higher. Due to this surge in earnings, the U.S. stock market does not appear to be overly expensive on an earnings basis. Returns improved for most sectors, but energy/commodity securities slid from strong first quarter gains.
U.S. bond yields rose and then fell during the quarter with little change overall, though non-dollar emerging markets bonds posted a 3.1% total return for the second quarter.
Concerns about possible AI overspending by hyperscalers/Mag 7 firms negatively affected their stock prices late in the quarter. The Mag 7 stocks as a group this year are essentially showing no price gain, a strong reversal from prior years. However, their heavy spending is expected to continue for another year or two, and we expect sustained economic and earnings growth for most sectors, companies, and households. We also expect a decline in inflation, due to productivity growth, lower energy costs, and tariffs trending down.
Affordability remains a significant challenge for many households, and political headlines may result in additional policy and market uncertainty, but these factors should not deter long-term investors.
As always, please feel free to contact WESCAP at (818) 563-5170 if you would like to discuss any of this further.