The second quarter handed us a war, a new Federal Reserve chair, and the strongest three months for U.S. stocks since 2020. The S&P 500 returned 15.2 percent. If you had known in advance how it would all play out, a rally is not what you would have predicted. Iran closed the Strait of Hormuz. Oil spiked past $110 a barrel. The incoming Fed chair spent his first weeks making clear that rate cuts were off the table and that a hike was back on it. We got the rally anyway.
Start with what happened on the surface. Major combat in Iran began at the end of February and mostly ended with a ceasefire on April 8. While it lasted, the closure of the Strait pulled roughly a fifth of the world's daily crude off the market and revived memories of the last inflation scare. Oil ran up and then unwound just as fast once shipping resumed, finishing the quarter near $70. Markets did what they now reliably do with geopolitical shocks. They treated the panic as a sale. By the time the headlines quieted, stocks had not just recovered, they had made new highs.
Underneath that, something more durable changed, and it had nothing to do with the war. Kevin Warsh took over as Fed chair in May and made clear he intends to run the institution differently. He scrapped forward guidance, stood up a set of committees to rethink how the Fed communicates and operates, and set a tone squarely focused on price stability. The market read the message correctly. The expected path moved from rate cuts to the real possibility of a hike before year end. Higher for longer stopped being the risk to worry about and became the base case.
That is a change in the cost of capital, the one number that reprices your business, your bonus, and your portfolio in the same afternoon. Normally a higher discount rate is a headwind for stocks, especially the growth names that dominate the index. This quarter they climbed regardless, and the reason is worth thinking about. First quarter earnings grew 28 percent over the prior year, and 85 percent of S&P 500 companies beat expectations, the highest share since 2021. Earnings that strong can overpower a rising discount rate. The market got a live demonstration of a repricing, absorbed it, and moved on, because the cash flows showed up.
Whatever you hold that doesn't trade on an exchange runs on the same math. A public stock reprices in real time, on a screen, and every ninety days you get to watch whether the earnings were strong enough to absorb the reset. A business, a concentrated stock position, real estate, a stake you've held for decades, all of it can grow into a higher discount rate too. It just doesn't come with a ticker. You don't get the market's verdict every afternoon. You get it when a lender, a buyer, or a sale forces the number onto the page, and by then it is set and there is nothing left to do about it.
And if your wealth sits less in equity than in what you earn, in a salary and a bonus and a grant of company stock, the same conditions are working on the durability of that too. The paycheck that funds your life depends on one company, often in one sector, carried by the same conditions the market just spent a quarter reassessing in public.
For most of the people reading this, your single largest asset went through the same repricing. You simply couldn't see it happen. The macro backdrop sharpens the point. This was a quarter that rewarded what you own more than what you earn. Stocks rose 15 percent. Income had a quieter three months: June added just 57,000 jobs, hiring cooled, and wage growth came in at 3.5 percent, one of the weakest readings in five years.
That side of the ledger takes different shapes, a business, a block of company stock you never quite got around to trimming, a concentrated position you built years ago and kept out of loyalty or habit. Whatever the form, the risk is the same: it's marked to market only when you sell it, or when a role changes, a market shifts, or a grant turns out to be worth less than the plan assumed.
One more thing, because it changes what the word "safe" means right now. Inflation ran at 4.2 percent in May, the hottest reading since 2023. The trades people reach for when they get nervous did not protect them: gold fell 14 percent, and bitcoin fell for a third straight quarter. Cash and high grade bonds earn their place in a plan for the liquidity and optionality they give you. What they did not give you this quarter was real return. Core bonds barely outpaced zero before inflation, so even the safest holdings lost purchasing power. Sitting still felt safe and cost you ground.
The market gets a new mark every ninety days, because earnings force one on it. Nothing forces one on your business, your position, or your equity grant. That is what a personal balance sheet is for: putting a real number on what you hold before a lender, a buyer, or a market puts one on it for you. What follows, liquidity, diversification, protecting the purchasing power that nominal comfort erodes, is easier once you know the number. It's harder to build off a guess.
That might start with a real valuation on the business, done well before a sale, so the number is yours and not a buyer's. It might mean pricing out what a concentrated stock position is costing you in risk, or stress testing a withdrawal plan against 4 percent inflation instead of 2. Different starting points, same first step: know the number before someone else sets it for you.
The market spent this quarter proving it can absorb almost anything, because it never stops pricing itself. Your largest asset doesn't get that treatment. It only gets priced when you decide to look, or when someone else decides for you. Your largest asset went through the same repricing this quarter. You couldn't see it happen. That's the price that never printed, and it's still waiting on you to look.
Sources: S&P Dow Jones Indices; Federal Reserve Board, FOMC Statement and Summary of Economic Projections (June 2026); U.S. Bureau of Labor Statistics, Consumer Price Index (May 2026) and The Employment Situation (June 2026); FactSet Earnings Insight; Bloomberg Finance L.P. (market data including Brent crude oil, WTI crude oil, U.S. Aggregate Bond Index, gold and bitcoin performance). Data as of June 30, 2026.
This commentary is for informational purposes only and does not constitute investment advice.
