Q2 Recap: Markets Get Back on Track

In financial markets, there is a concept known as “the wall of worry.” Put plainly, this concept describes how markets often see past short-term concerns to post positive returns, essentially climbing over the proverbial wall of worry. The second quarter was a great demonstration of this concept, as geopolitical and global macro concerns were not enough to stop global stocks from rebounding and posting strong returns. This rally has gained even more steam as the Iranian conflict appears to be clearing up, and oil markets have responded accordingly. With this background let’s take a deeper dive into Q2 returns.

Source: Factset, Morningstar. Data as of June 30, 2026. Chart shown for illustrative purposes only. Past performance is no guarantee of future results. Not indicative of RiverFront portfolio performance. See disclosures at the end of this publication for description of asset classes and the indices for which the returns above are based. Returns above do not reflect any fees or costs associated with investing in the applicable asset classes. It is not possible to invest directly in an index.

Technology was the leader by a wide margin, after posting close to a double-digit negative return last quarter. As we discussed in our most recent earnings recap, Technology earnings have continued to be very strong, driven by AI spending and efficiency gains. Similarly, the Industrials sector had a strong quarter, riding similar tailwinds as the Technology sector. At the bottom of the returns table sits Energy. In the first quarter, the Energy sector was able to generate market-leading returns with oil prices peaking above $100 per barrel. However, as oil prices fell in the second quarter, oil returns also lagged the remainder of the market. Even with this negative quarter, the sector only trails technology from a trailing twelve-month standpoint. The only other negative sector for the quarter was Utilities. There are two dynamics working here, in our view. First, due to the steady cash flows of the sector, Utility equities often behave like bonds. As such, in a quarter where rates rise, as they did in Q2, utilities will struggle to produce positive returns. Second, Utilities are often viewed as a defensive sector. In a quarter when investors begin to take a more risk-on posture, we would expect the sector to lag.

Source: Bloomberg. Data as of June 30, 2026. Chart shown for illustrative purposes only. Past performance is no guarantee of future results. Not indicative of RiverFront portfolio performance. Returns shown do not reflect any fees or costs associated with investing in the listed sectors. the applicable asset classes. It is not possible to invest directly in an index.

Moving to Table 3 below, we see Emerging Markets (EM) leading all global equities. This result is somewhat surprising, especially when peeking at the bottom of the table and seeing China posting a negative return for the second quarter in a row. Over the past decade, China has been viewed as the growth engine of Emerging Markets, with the broad regional returns following China. However, both South Korea and Taiwan have stepped in as growth-oriented market drivers for EM. Both of these countries posted returns over 50% this quarter, allowing EM to overcome negative Chinese returns, as well as sluggish returns in Latin America. On the currency front, we saw a continuation of dollar strengthening. Specifically, the yen and Canadian dollar lagged the most. For the yen, this currency cross is often seen as a risk-on/risk-off measure. The dollar strengthening here could be a reflection of the market’s more risk-on stance this quarter. For the Canadian dollar, we believe weakening oil prices was the...