By William Power

It was an eventful second quarter for stock-fund investors, including the SpaceX initial public offering, an oil shock, an Iran peace rally at one point, and the first Fed-policy meeting under the central bank's new chairman.

But through it all, it was investors' faith in tech stocks — those tied to artificial intelligence, in particular — that kept the market humming. In the end, the S&P 500 and Nasdaq composite posted their best quarters since 2020, hitting record highs, and the Dow closed the month at a record as well.

The average U.S.-stock mutual fund or exchange-traded fund posted a total return of 17.1% for the quarter, pulling the funds into the black for the year to date, at 13.4%. The funds posted a total return of 1.1% in June itself. (See Mutual-Fund Yardsticks table.)

International-stock funds — which were outpacing their U.S. counterparts earlier in the year — have dropped back in the fund Olympics. They were up an average 10.9% in the quarter, to leave them with a year-to-date gain of 10.6%.

Many analysts wonder whether the AI-tied stocks can continue to monopolize investors' attentions.

Saira Malik, chief investment officer at Nuveen, compares the situation to what happens when a driver instinctively lowers the volume on the car speakers when trying to concentrate on street signs. Noise makes it harder to concentrate. "Today's investment environment is noisy, too," she says. "Geopolitical gyrations, volatile short-term economic data and the incessant thrum of prediction markets all contribute to the cacophony," to the point that many investors feel compelled to stick to the AI trade, she says.

Malik, however, makes the case for not lumping all AI stocks in the same basket, and looking to a broader mix of asset classes such as alternative credit and municipal bonds.

Toward the end of the quarter, the Federal Reserve held rates steady at Kevin Warsh's first policy meeting as the central bank's chairman. But Fed officials signaled rates could rise by the end of the year to fight inflation.

Bond funds rose for the quarter. Funds focused on investment-grade debt (the most common type of fixed-income fund) posted an average total return of 0.8%, to put the year-to-date gain at 0.70%.

Fund flows

Investors voted with their wallets as the market rose in the second quarter.

Based on Investment Company Institute estimates, investors added a net $103.1 billion to U.S.-stock mutual funds and exchange-traded funds in the second quarter. They weren't quite as enthusiastic about non-U.S. funds, despite that category's revival. Those funds attracted a net $26.5 billion.

Bond funds took in a net $231.5 billion, according to the ICI estimates.

It's all a turnaround from last year and from the first quarter of 2026, when investors were pulling back from U.S.-stock funds. In the first quarter, they sent a net $105.1 billion to international-stock funds, more than double that to bond funds, but withdrew an estimated $23.7 billion from U.S.-stock funds.

FINANCIAL FLASHBACK

A look back at Wall Street Journal news from this month in history

  • 20 YEARS AGO: The Options Backdating Scandal

When the Securities and Exchange Commission tightened disclosure requirements for executive stock-option grants in July 2006, it was more than a routine regulatory change.

As had been reported in The Wall Street Journal, many well-timed option awards weren't the product of luck, but of a widespread practice known as backdating. Companies would retroactively select grant dates that produced the most favorable option prices for executives.

Often, the chosen day would be when the stock was at its most recent low. For example, the Journal found in its initial investigation, the CEO of Affiliated Computer Services received six option grants that were dated just before a rise in the stock, often at the bottom of a steep drop — a pattern estimated to have odds of roughly 1 in 300 billion.

The scandal triggered scores of investigations and led to the ouster of dozens of corporate officials.

That regulatory overhaul came when the SEC issued its new guidelines on executive-pay disclosure. While the regulations didn't prohibit companies from awarding options at "propitious times," they increased transparency around the practice.

Under the new requirements, companies had to disclose both the value of stock options on the grant date and the stock's closing market price that day. That simple comparison made backdating far more difficult to conceal, allowing investors to see whether grant dates had been chosen on days with low share prices.

  • 30 YEARS AGO: Market Struggles to Sort Out Sumitomo Mess / Copper Traders See Volatility Amid Scandal
  • 70 YEARS AGO: Iron Curtain Capital: SEC Chief Says Foreign Investors May Be Buying U.S. Stocks Secretly
  • By Simon Constable