Q2 2026 Market Commentary

Q2 2026 Market Commentary

Period covered: 1 April – 30th June 2026

RBIM Market Update Q22026.pdf

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Overview

During the second quarter equity markets continued to advance, led by technology, semiconductors, and broader AI beneficiaries. Geopolitics also dominated markets moves as the war in the Middle East began to de-escalate and subsequent oil prices started to fall.

Technology and emerging markets delivered strong market returns with the latter marking the best quarterly gain since the second quarter of 2009. However, equity leadership has become increasingly concentrated, bringing volatility. Semiconductor stocks, after a powerful rally, began to swing sharply, with large moves in both directions. This showed how dependent market returns have become on a relatively small group of companies.

Commodities faced a stiff headwind over the quarter. Oil prices fell by over 35% as the war in Iran de-escalated and a memorandum of understanding signed between the US and Iran with the expectation that we would see a full reopening of the Strait of Hormuz, easing supply disruption in energy markets. Gold and precious metals also fell as the currency debasement trade lost further momentum.

The AI narrative & equity concentration risk

Artificial intelligence remained a dominant market theme and much of the equity strength over the quarter was around strong earnings and the AI drive. The scale of capital expenditure tied to AI development continues to support earnings growth across large parts of the technology sector. However, we are increasingly mindful of growing market concentration and high valuations, which reinforces the need for careful positioning over blanket enthusiasm.

The drive for AI has not been without its volatility, and investors have asked the question of whether these stocks are causing an equity bubble. The SpaceX initial public offering represented this mood most vividly, raising $75 billion from investors who initially saw the market capitalisation rise to almost $3 trillion in the first days of trading. Investors are willing to bet on AI’s economics being massively improved by building data centres in space and discounting today’s real earnings.

Inflation and Central Banks

While energy prices have fallen recently, the conflict in the Middle East has increased inflationary expectations in the near term, and central banks have changed their trajectory on interest rates. While key central banks were looking to cut interest rates before the Middle East crisis started, the impact, particularly from higher energy prices has seen the European Central Bank hike 0.25% in June, alongside Japan, while both the UK, and US held interest rates, but their tone and language hardened.

Portfolio Changes

•Given the geopolitical instability in the Middle East and the associated volatility caused by changes in inflation expectations and pricing around monetary policy we made limited changes to the strategies over the quarter.

•However, in May, we deployed some cash to Janus Henderson Absolute Return strategy which aims to deliver cash plus target without taking too much excessive risk. This is a long/short equity fund that should be able to navigate the changing backdrop and add some protection as we move through the cycle.

•Ultimately, our focus is on building portfolios that can benefit from growth opportunities but can remain resilient across a wide range of market outcomes.

•The current market environment requires a measured approach, not reckless aggression. We believe this philosophy, in an environment where market conditions can shift quickly and unpredictably, is a sensible way to approach the second half of the year.

Outlook

Inflation: re-accelerating slightly, risks skewed higher

Growth: moderately slowing, with some labour market weakness

Policy: cautious central banks, limited room for easing

Markets: sensitive to geopolitical headlines and commodity swings

Risks: conflict escalation, AI productivity disappointment, renewed trade tensions

Looking ahead, the global economy is becoming more fragmented, physical, and selective. Governments and companies are increasingly prioritising energy security, domestic manufacturing, and supply chain diversification over efficiency.

The key questions for markets centre on inflation, interest rates, and whether financial conditions remain supportive. The economy has remained resilient, but higher energy prices, elevated geopolitical uncertainty, and the potential for higher financing costs could create additional volatility, more than investors have been used to. However, global recession seems as far away as it ever has suggesting risk assets will continue to perform albeit with more volatility.