Global equities markets entered April 2026 awash in red, with losses primarily driven by an escalating conflict in the Middle East and a surge in oil prices. But investors had every reason to be pleased with market performance in the second quarter of the year, with most indices erasing the losses of the first quarter and ending the first half of the year convincingly in the black.
Trade was volatile throughout Q2, with hopes and fears about the outcomes of peace negotiations between the US and Iran setting financial market direction. But the eventual signing of the Islamabad Memorandum between the US and Iran on 14 June allowed market participants to draw a line under the war – at least for now – with attention shifting back to the themes that prevailed before the conflict broke out in late February.
Investors brushed aside lingering uncertainty about the Iran war and the difficult negotiations yet to come and, in turn, focused on healthy corporate earnings reports for Q1 as well as encouraging macroeconomic data. Lower oil prices and signs of a cooling labour market dampened fears that the Fed would need to raise interest rates, providing a supportive backdrop for equities.
AI and emerging markets power the rebound
Financial results for Q1 were positive across every market sector, but technology companies, specifically those involved in Artificial Intelligence (AI), showed particular strength. Investor conviction in the AI growth story boosted key mega-capitalisation technology stocks which lifted the Nasdaq and S&P 500 in Q2. The Nasdaq composite surged 21.4% over the quarter, while the S&P 500 added 15.2%. For the year to 30 June, the Nasdaq was up nearly 13%, and the S&P 500 gained almost 10.2%.
The S&P Information Technology ETF returned 18.18% for the first half of the year, underscoring how concentrated and AI-dependent the rally has become. The Nasdaq closed out June with its best quarterly performance in six years, despite tumbling 4.6% in the week of 22 June. This volatility highlights how vigilantly investors are tracking AI stocks to determine whether the massive capital committed to AI will deliver commensurate returns.
As pleasing as the returns from the US indices were, the performance of emerging markets equities outshone American counterparts. Semiconductor manufacturers in Taiwan and South Korea saw their valuations climb as investors chased exposure to high-demand computer components tied to the global AI infrastructure build-out. The Ninety One Emerging Markets Fund delivered a gain of 26.9% for the quarter. (We explore the emerging markets AI play in a separate article in this edition of our Market Update).
South Africa lags
Turning to South African markets, the JSE All Share Index (ALSI) recorded a disappointing quarter and a weak first half of the year. The ALSI fell 2.4% in rand terms during the second quarter but managed a small gain of 0.6% in dollar terms. For the year to 30 June, the ALSI was down 3% in rand terms and around 2.3% in dollars. The negative returns were largely due to a marked decline in gold and platinum prices.
The JSE’s standout performance in both rand and dollar terms for 2025 was largely attributed to the red-hot demand for precious metals. Investors should not necessarily expect a repeat of last year’s gold-driven windfall without an improvement in the domestic growth outlook. The market remains exposed to cyclical, global factors, but would indeed benefit if the precious metals were to start climbing again.
The rand was relatively stable this quarter, averaging R16.48/$, and has strengthened slightly over the past three months. The currency’s outlook is supported by sustained investor interest in high-yielding emerging markets. (By contrast, this week our ‘Currency Decoder’ estimated a fair value exchange rate at R18.33/$.) The South African Reserve Bank has indicated concerns about fuel-related inflation, but Bloomberg Economics forecasts an unchanged repo rate of 7% as at the end of 2026.
The outlook for the rest of the year
A combination of hyperscale data centre spending, resilient US consumer demand and a lower oil price continues to support equity markets. We can expect to see investors’ attention turn to second-quarter earnings, to be released later this month, for evidence of how persistent inflation has impacted corporate margins. Big tech results will be scrutinised closely for signs that AI-driven capital expenditure is translating into growth and profits.
Provided tensions in Iran do not reignite, the AI theme and Fed policy are likely to be the dominant forces shaping market direction in the second half of the year. The US dollar strengthened over the second quarter. However, the reduced likelihood of further rate hikes could see that strength fade, a development that may benefit emerging markets.
Investors will also be watching whether the rally broadens beyond AI names. There is a widening gap between the earnings delivered by quality companies and their current stock prices. In many instances, earnings are increasing, but investors are less willing to pay up for quality in a market that remains momentum driven. This price compression (versus earnings compression) suggests that there are pockets of value outside of the tech sector.
One of the strongest quarterly rebounds in recent years
The first half of 2026 reminds us how quickly sentiment can turn and how markets can recover unpredictably from adverse events. Although the world is surely in a worse state than pre the Middle East conflict, investors who reacted to the geopolitical turmoil in April by moving to the sidelines would have missed out on one of the strongest quarterly rebounds in recent years, as outlined in our other article in this Quarterly.
