Second Quarter 2026 Market Overview

After a volatile start to the year, markets rebounded in the second quarter, with every major asset class posting positive returns. Interestingly, the concerns that came to the forefront in the first quarter have not gone away, but their outlook may have improved.

Oil and gas prices have fallen sharply after the apparent progress in negotiations with Iran and the partial reopening of the Strait of Hormuz. The annual reading for inflation in May came in at 4.2%, well above the Fed’s target. 60% of the month-over-month increase came from rising energy prices, so relief on that front would be welcomed by investors and consumers alike.¹Giangiulio, Davis. “Inflation Peaked in May as Energy Prices Fell in June, Kalshi Traders Think.” CNBC, 1 July 2026, https://www.cnbc.com/2026/07/01/inflation-peaked-in-may-as-energy-prices-fell-in-june-kalshi-traders-think.html.

The change in sentiment saw major equity asset classes up double digits for the quarter, with US Small Cap stocks and Emerging Markets leading the way.

Source: Tamarac Reporting, Morningstar Direct and JP Morgan, as of 06/30/2026. Please see important disclosures below.

Value stocks stabilized portfolios in the first quarter when growth stocks tumbled and are still ahead even with the rally in the second quarter. US Large Cap growth stocks, which are dominated by Mega Cap tech names, are up just 5% for the year, trailing US Large Cap value stocks by over 10%.²Source: Morningstar Direct. Data as of 6/30/26. US Small Cap stocks continue to lead in the US, doubling the returns of their larger counterparts.

Bond yields rose modestly in the second quarter, but nonetheless, bonds were positive across the board. High credit-quality bonds were up modestly, while high yield and Emerging Market bonds led the way.³“Treasury Yields Extend Quarterly Rise as U.S. Economy Holds Up.” The Wall Street Journal, 30 June 2026, https://www.wsj.com/finance/investing/jgb-futures-edge-lower-weighed-by-yens-weakness-09bdbca2.

Markets rallied strongly in the second quarter after a rough start to the year, even though the concerns in the first quarter are largely still present. Investors seem to be looking past concerns about inflation and the conflict with Iran for now. Investors benefited from being diversified this year, with US Small Cap and Value stocks leading the way in most of the world, and Emerging Markets having a great year as well.

Important Disclosures 

Team Hewins, LLC (“Team Hewins”) is an SEC registered investment adviser; however, such registration does not imply a certain level of skill or training, and no inference to the contrary should be made. We provide this information with the understanding that we are not engaged in rendering legal, accounting, or tax services. We recommend that all investors seek out the services of competent professionals in any of the aforementioned areas.

The volatilities of any comparative indices included in this presentation may be materially different from the individual performance attained by a specific client in a Team Hewins strategy. In addition, client holdings may differ significantly from the securities that comprise the indices. The indices have not been selected to represent an appropriate benchmark to compare an investor’s performance, but rather are disclosed to allow for comparison to the performances of certain well-known and widely recognized indices. The indices are unmanaged, include reinvestment of dividends, capital gain distributions or other earnings and do not reflect any fees or expenses. Indices cannot be invested in directly. Set forth below are descriptions of the indices included in the presentation.

Past performance is not an indication of future returns. Comments provided herein reflects Team Hewins’ views as of the date of this write up and are provided for informational purposes only. Such views are subject to change at any point without notice. Some of the information was obtained from third party sources believed to be reliable but the information is not guaranteed. Any forward-looking statements or forecasts are based on assumptions and actual results are expected to vary from any such statements or forecasts. Due to various risks and uncertainties no reliance should be placed on any such statements or forecasts when making any investment decision. Nothing presented herein is or intended to be investment advice or a recommendation to buy or sell any securities and no investment decision should be made based solely on the information provided. Team Hewins is not responsible for the consequences of any decisions or actions taken as a result of information provided in this writeup and does not warrant or guarantee the accuracy or completeness of the information. There is a risk of loss from an investment in securities, including the risk of loss of principal. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will be profitable or suitable for a particular investor’s financial situation or risk tolerance. Asset allocation and portfolio diversification cannot assure or guarantee better performance and cannot eliminate the risk of investment losses.

Source: © [2026] Morningstar. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising.

Index returns for JPM GBI EM GD USD Unhedged Index (Emerging Markets Bonds) sourced from Tamarac Reporting and JP Morgan.

Index Descriptions 

• S&P 500 Index (Large Cap U.S. Stocks): measures the performance of large capitalization U.S. Stocks. It is a market-value-weighted index of 500 stocks that are traded on the NYSE, NYSE MKT, and NASDAQ. The weightings make each company’s influence on the Index performance directly proportional to that company’s market value.

• Russell 2000 Index (Small Cap U.S. Stocks): An unmanaged index that measures the performance of the small-cap segment of the U.S. equity universe. It is a subset of the Russell 3000 Index, representing approximately 10% of the total market capitalization of that index and includes approximately 2,000 of the smallest securities based on a combination of their market cap and current index membership. Russell Investment Group owns the Russell Index data, including all applicable trademarks and copyrights.

• MSCI EAFE Index (International Developed Stocks): The MSCI EAFE Index (Europe, Australasia, Far East) is a free float-adjusted market capitalization-weighted index that is designed to measure the equity market performance of developed markets, excluding the U.S. & Canada. The MSCI EAFE Index consists of the following 22 developed market country indices: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, and the United Kingdom.

• MSCI Emerging Markets Index (Emerging Markets Stocks): is a Morgan Stanley Capital International Index that is designed to measure the performance of equity markets in 25 emerging countries around the world.

• Bloomberg US Aggregate Bond Index (Investment Grade U.S. Bonds): includes U.S. government, corporate, and mortgage-backed securities with maturities of at least one year.

• Bloomberg Muni Bond Index 1-10 Yr Blend (1-12) (Int-Term Municipal Bonds): A market value-weighted index which covers the short and intermediate components of the broader Bloomberg Capital Municipal Bond Index. The 1-10 Year Municipal Blend index tracks tax-exempt municipal General Obligation, Revenue, Insured, and Prerefunded bonds with a minimum $5 million par amount outstanding, issued as part of a transaction of at least $50 million, and with a remaining maturity from 1 up to (but not including) 12 years.

• ICE BofA Merrill Lynch U.S. High Yield, BB-B Rated, Constrained Index (High Yield U.S. Bonds): Tracks the performance of US dollar-denominated below-investment-grade (BBB rated) corporate debt publicly issued in the US domestic market. Qualifying bonds are capitalization-weighted provided the total allocation to an individual issuer does not exceed 2%. Issuers that exceed the limit are reduced to 2% and the face value of each of their bonds is adjusted on a pro-rata basis.

• JPM GBI EM GD USD Unhedged Index (Emerging Markets Bonds): A comprehensive global local emerging markets index that consists of regularly traded, liquid fixed-rate domestic currency government bonds.