Market Performance & Trends

The second quarter of 2026 produced positive stock market returns across the board, from domestic to international stocks and value to growth stocks. The S&P 500 was up 15.2% in Q2, while the Nasdaq Composite was up 21.6%. The S&P 500 and the Nasdaq 100 achieved their best quarterly performance in the past six years. Also from a historical perspective, the Nasdaq 100 recorded its second-best quarterly performance in the last 25 years! Sector returns YTD were led by Industrials, Technology and Energy, while Financials and Consumer Discretionary are both negative YTD. International stock market performance was led by Emerging Market investments, up over 20% for Q2 and YTD. Value continued the trend of outperforming Growth, which started in Q4 of 2025. This was demonstrated by the Magnificent Seven stocks underperforming the S&P 500 in Q2 (15.2% vs 9.84%).

Economic Landscape

The Federal Reserve has yet to cut the Federal Funds Rates in 2026 as was widely anticipated at the beginning of the year. In fact, due to the increasing inflationary pressures brought about by the Middle East conflict in Iran, there is the anticipation of the next Federal Funds Rate change to be an increase in rates and not a decrease. During Q2, the 2-year US Treasury yield increased from 3.79% to 4.14%, while the 10-year US Treasury increased in yield from 4.30% to 4.44%. This flattening of the yield curve may indicate the expectation of an increase in the Federal Funds Rate. GDP for Q1 2026 was up 1.6% vs. an increase of 0.5% in Q4 of 2025. The US labor market continues to demonstrate its strength as the unemployment rate has continued to have a downward trend through the first two quarters of 2026.

Investment Committee Update

The Investment Committee instituted no changes to current investment allocations or investment portfolios in the second quarter. Our scheduled passive portfolio rebalance was completed in March. Our last full rebalance to the taxable active portfolio was in August 2025. Our model portfolios have outperformed their respective benchmarks, except for the fixed income allocation within our passive allocations and equity returns vs. the Morningstar Strategic Benchmark. Fixed income active allocations and stock allocations as compared to the TTC Benchmark achieved outperformance through the second quarter.

Investment Outlook

Considering the underperformance of value stocks in recent history prior to 2025, these investments continue to offer opportunities for outperformance going forward. The trend of Value vs. Growth in the first half of 2026 bodes well for Value to continue to gain back some of the underperformance from the past years. Growth stocks outperformed value stocks by an average of 11.45% per year from 2020 to 2025. However, in 2026 Large Cap Value has outperformed Large Cap Growth, 16.20% vs 5.30%. The S&P 500 is expected to deliver strong results on both the top and bottom line for Q2 2026. Q2 earnings growth (YoY) expectations have risen from 18.8% at the end of Q1 to 23.1%, according to FactSet. Revenue expectations have also trended higher throughout the quarter, with Q2 revenue growth forecasts rising from 9.5% at the end of Q1 to 12.3%. This marks the highest revenue growth rate since Q2 2022. In contrast to the anticipated continued positive earnings and revenue, we would be remiss to not mention the current valuation of the US stock market as it compares to historical levels. The cyclically adjusted price-to-earnings (CAPE) ratio of 40.96 at the end of June indicates the overall stock market is overvalued as compared to historical averages. While it is understood the market is considered overvalued, we believe there are areas which still hold opportunities to achieve outperformance, as compared to stock market averages.