Q2 wrapped up with green arrows across the board, but maintaining that momentum won’t be easy.
📈 A Quarter for the Bulls
- Wall Street wrapped up the second quarter with gains that looked almost improbable given the messy headlines on the daily.
- The S&P 500 rallied 15%, the Nasdaq surged 21%, and the Dow climbed 13% — their strongest quarterly performances since 2020, 2020 and 2022, respectively.
- Markets shrugged off a historic oil shock, US-Iran war tensions, higher-rate fears and painful questions about the AI boom. Chipmakers did much of the heavy lifting as investors continued betting that artificial intelligence will boost corporate profits.
- The record count kept growing, too. The S&P 500 and Nasdaq have logged 24 and 20 record closes this year, showing that climbing a wall of worry remains one of the market's favorite things to do.
🤖 AI Still Drives the Bus
- The AI trade remains the market's biggest engine, but it's also attracting tougher critique. Investors increasingly want proof that billions spent on chips, servers and data centers will eventually translate into equally impressive profits.
- Earnings expectations remain supportive. Analysts expect S&P 500 companies to post roughly 22% growth in second-quarter profits and around 23% earnings growth for the full year. If true, it’ll be a healthy backdrop for equity bulls.
- Valuations, however, leave little room for disappointment. When stocks trade at premium prices, companies need results that comfortably beat expectations.
⚖️ Q3 Challenges
- The Federal Reserve could become the market's next hurdle. New Chair Kevin Warsh has adopted a tougher stance on inflation, raising the later this year instead of the cuts many investors had hoped for.
- Higher rates have already left their mark elsewhere. Gold tumbled 13% during the quarter — its worst performance since 2013 — while silver plunged 20%, showing how quickly money can rotate when yields become more attractive.
- The third quarter begins with momentum firmly on Wall Street's side. But after a blockbuster run, investors now face the classic question: is this the start of another leg higher, or has the market already priced in most of the good news?