By: Paul Morrone
The second quarter was filled with enough headlines to make your head spin. The war in the Iran, an oil price shock, inflation, a new Fed Chair, SanDisk and Micron Technologies stocks, the world cup and more drove a flurry of social media mems and political blowback. In the financial media, however, the SpaceX IPO drew more attention than anything I’ve seen short of a full-blown economic meltdown. It was historic for many reasons, and it’s hard to comprehend the benchmark that this set for capital markets, investors, and Elon Musk. The unconventional nature of the deal structure, intense media coverage and social impact of the event (Musk became the world’s first trillionaire – albeit briefly) was impressive enough to generate clickbait for even a seasoned investor. But what was a blockbuster from a headline standpoint turned out to quickly disappoint investors who bought in at the peak thinking they were going quickly to the moon.
Admittedly, there is a long runway ahead for SpaceX, but its rise (from it’s opening price of $150/share up to over $225/share within a matter of days – and subsequent fall into the end of the quarter down to about $160/share as of the time of this writing) was clear evidence of the hype that surrounded this major event. But that only tells half the story. Remember, only 5% of SpaceX was sold during the IPO – the remaining 95% remains held by insiders (largely Musk) – who have significant lockup periods before they can sell their equity on the open markets. That amounted to roughly $75bn of capital available for the rest of the universe (i.e. you and me as investors) to buy when the IPO began. So, while headline values were eyepopping (a $1.77T valuation at the $150/share IPO opening price), the reality is that supply (a meaningful, but not staggering number of $75bn) and demand (incredibly high) were so imbalanced that there was no where for things to go but up – at least at first. As your macroeconomics 101 class will suggest, these imbalances will eventually work themselves out (in an efficient market) and an equilibrium will arise. The bigger question is, when insiders can liquidate their shares (in tranches starting this summer through the end of the year), will supply outstrip demand?
As the third quarter commences, we’ll undoubtedly hear of more blockbuster IPOs (ChatGPT maker OpenAI has officially filed for a public offering and Claude maker Anthropic has confidentially filed to date – along with others widely anticipated to do so shortly thereafter), which will test the stamina of individual investors and the depth of capital market pockets as companies continue to seek liquidity though massive public listings. These will certainly be talking points during the rest of 2026, and the success – or failure – of these marquee companies in the AI space is sure to be a case study for years to come.
But enough about SpaceX, and IPOs and AI. As diversified investors know, we aren’t betting the ranch on one company to succeed and believe in the power of capital markets over time to build wealth effectively. Speaking more broadly, markets entered April deeply oversold, sentiment was depressed, and the financial media was, as it tends to do in moments of peak uncertainty, running the most bearish of headlines. What followed was one of the most powerful quarterly recoveries in recent memory, reinforcing once again what history has shown us time and again: the cost of trying to time the market almost always exceeds the cost of staying invested through the storm.
Coming into the quarter, the S&P 500 had shed -4.3% in Q1, weighed down primarily by a surge in oil prices that followed the effective closure of the Strait of Hormuz in late February. The Nasdaq-100 fared worse, down nearly -6%, as mega-cap technology names absorbed the brunt of the selling. Rate cut expectations had been completely priced out of the market by quarter-end, and with crude oil trading near $100 per barrel, a renewed outbreak of inflation started to seem like a real possibility rather than a disclaimer at the end of a Fed press conference.
Just as you never want to try to fix the roof during a hurricane, once you are in the midst of a market storm like the one experienced in the opening months of 2026, it is almost always best to wait for the bounce. That bounce came in April, and it came with conviction.
Rather than extending the prior quarter’s de-risking, risk assets responded swiftly to a stabilization in Middle East headlines and a renewed wave of optimism surrounding corporate earnings and the AI infrastructure buildout. The Nasdaq-100 surged +15.7% in April alone — its strongest monthly performance in more than 23 years. The S&P 500 added +10.5% for the month and the Russell 2000 jumped +12.3%, its best monthly showing since November 2020. This helped major US indices close out the best quarter in nearly 6 years. As has been the theme of this entire multi-year bull market cycle, “buy the dip” continued to reward investors with patience. Pricing has since stabilized, and even pulled back marginally in the more recent weeks as investors recalibrate their expectations after such a quick run-up. Rest assure, all eyes will be on 2Q earnings as we head into the summer trading lull.
One of the most important investment stories of 2026 has been the resurgence of international equities. For years, the question of whether to look beyond U.S. borders was met with the same answer: why bother? That narrative has changed, and Q2 reinforced it. Emerging markets, as measured by the MSCI EM Index, nearly 25% YTD. The primary catalyst has been a combination of AI-driven earnings growth in Asia — particularly in the semiconductor and technology hardware complex — and a continued weakness in the U.S. dollar that has provided a meaningful tailwind to foreign-denominated asset returns. Developed international markets (MSCI EAFE) added nearly 10% YTD, matching the return of the S&P500. The case for geographic diversification, which has been building for several quarters, has become considerably harder to ignore.
A market this good deserves a clear-eyed look at what keeps investors up at night. The list has not changed meaningfully, but it warrants repeating. First and foremost, inflation remains the primary downside risk for financial markets. Oil prices have retreated from their highs, but the Strait of Hormuz situation remains unresolved, and geopolitical flare-ups in Lebanon, Gaza, and across the broader Middle East continued through the quarter. A re-acceleration in energy prices could quickly reignite inflationary pressures and force the Fed’s hand in the wrong direction. Second, valuations are not cheap. The forward P/E on the S&P 500 sits above 20x, above both its five- and ten-year historical averages. As history has shown, premium valuations typically do not matter until they matter a lot — and they tend to matter most when the economy falls into recession. With GDP growth projections remaining positive, that remains a worry for another day. Third, signs of bond market stress, while not yet acute, continue to bear close watching in the months ahead. When companies are issuing century bonds to fund today’s data centers, the question of return on investment takes on a different dimension entirely.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
All investing involves risk including loss of principal. No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.
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