Q2 2026 Economic & Market Commentary

Global financial markets staged a remarkable recovery during the second quarter of 2026, as fears of a prolonged energy crisis gradually gave way to cautious optimism surrounding diplomatic progress in the Middle East. While the quarter began with investors still grappling with the fallout from the US-Iran war and the closure of the Strait of Hormuz, improving geopolitical sentiment, easing oil prices, and renewed enthusiasm for artificial intelligence helped drive a sharp rebound across global equity markets. Markets that entered April under significant pressure finished June with renewed confidence, although volatility remained elevated and investors continued to navigate an uncertain macroeconomic environment.

Global Overview

Global equity markets rebounded strongly during the second quarter of 2026, recovering much of the losses experienced during the geopolitical turmoil of March. The principal catalyst for the recovery was the gradual de-escalation of hostilities between the United States, Israel and Iran, together with increasing expectations that commercial activity through the Strait of Hormuz would progressively normalize. Although geopolitical risks remained elevated, investors became increasingly confident that the worst-case economic scenarios would be avoided. Oil prices, which had surged above $100 per barrel during the height of the conflict, declined steadily throughout the quarter as prospects for a ceasefire improved, reducing concerns around global inflation and energy shortages.

The improvement in energy markets allowed investors to refocus on underlying economic fundamentals. Corporate earnings generally remained resilient, while artificial intelligence continued to dominate market leadership, particularly within the technology and semiconductor sectors. Equity markets responded positively, with global developed market indices delivering one of their strongest quarterly performances in several years despite a modest pullback during June. Asian technology markets were among the standout performers as investment in AI infrastructure accelerated further.

Bond markets remained sensitive to inflation expectations throughout the quarter. While the decline in oil prices reduced some inflationary pressure, central banks continued to adopt a cautious approach, with the US Federal Reserve signalling that interest rates would likely remain restrictive until there was greater confidence that inflation was moving sustainably towards target. As a result, bond yields remained elevated relative to pre-war levels, although volatility moderated considerably compared with the first quarter.

Emerging markets benefited from the improvement in global risk appetite, supported by recovering commodity prices outside the energy complex and renewed investor demand for higher-risk assets. Nevertheless, geopolitical uncertainty, elevated interest rates and ongoing currency volatility continued to present challenges for many developing economies.

South Africa

South African markets participated in the global recovery during the second quarter, although performance remained uneven across sectors. The easing in geopolitical tensions supported broader risk sentiment and helped stabilise capital flows into emerging markets, while the moderation in oil prices provided some relief to inflation expectations and the domestic economic outlook.

The ALSI recovered from its March weakness as investors returned to quality industrial and financial shares, although the mining sector remained more volatile than in previous quarters. Gold producers surrendered a portion of the exceptional gains achieved during 2025 as declining safe-haven demand weighed on the gold price, while platinum group metal producers experienced mixed performance amid an uncertain global growth outlook. Financials and consumer-facing businesses benefited from improving investor confidence, while the rand stabilised as global risk appetite improved following the easing of tensions in the Middle East. Overall, the quarter represented a welcome recovery following the sharp correction experienced at the end of the first quarter, although market participants remained mindful of the ongoing geopolitical and inflationary risks facing the global economy.

United States

US equity markets recorded a powerful rebound during the second quarter of 2026, reversing much of the weakness experienced earlier in the year. The S&P 500 delivered one of its strongest quarterly performances since 2020, supported by easing geopolitical tensions, resilient corporate earnings and renewed investor enthusiasm for artificial intelligence-related companies. Technology stocks once again led the market higher, with semiconductor and AI infrastructure businesses driving much of the advance.

As the quarter progressed, investors became increasingly comfortable that the economic fallout from the Iran conflict would be less severe than initially feared. Falling oil prices eased inflation concerns, while corporate earnings generally exceeded expectations despite higher input costs. The market narrative shifted from geopolitical risk back towards earnings growth, AI investment and the outlook for monetary policy. Although the Federal Reserve maintained a cautious stance and continued to emphasise its commitment to price stability, investors viewed the moderation in inflationary pressures as reducing the likelihood of further policy tightening in the near term.

Despite the strong recovery, volatility remained elevated throughout June as investors assessed evolving developments in the Middle East, changing expectations for interest rates and the sustainability of elevated technology valuations. Nevertheless, by quarter-end, market sentiment had improved materially compared with the end of March, leaving investors cautiously optimistic that the global economy could avoid the worst outcomes that had appeared increasingly likely only a few months earlier.