The second quarter and first half of 2026 are now officially in the record books. Domestic Equities (U.S. stocks) staged a blistering rally from their first quarter slump as the S&P 500 gained nearly 15% in Q2, its best quarter since 2020. Technology stocks were among the best performers leading the tech-heavy Nasdaq-100 to a gain of more than 27%. Artificial Intelligence (AI) sentiment rebounded, helping to push the NYSE Semiconductor Index to a gain of more than 90% for the quarter. While tech heavyweights posted strong numbers, small cap stocks generally outperformed their large cap counterparts as the Russell 2000 Index out-gained the S&P 500 by more than 6% in Q2.
International Equities also advanced, though there was a large gap in performance between developed and emerging markets. The MSCI EAFE Index, which comprises developed markets gained a little under 10%, while the MSCI Emerging Markets Index was up more than 20%. South Korea was a major driver of the spread between emerging and developed markets as the Korea Composite Index gained more than 65% in Q2.
While stocks were mostly higher, it was an unproductive quarter for Commodities as the S&P GSCI Commodity Index fell almost 17%. Crude oil was down more than 30% for the quarter, giving back virtually all the ground it gained at the outset of the Iran conflict, which also acted as a major headwind for energy stocks. Meanwhile, precious metals continued their decline that begin in Q1 as silver was down more than 20% while gold dropped more than 13%. Silver is down roughly 15% for the year after having been up more than 60% early in the year.
Interest rates rose over the quarter as worries about energy prices and inflation fueled speculation that the Federal Reserve could raise interest rates this year. Those concerns cooled somewhat as energy prices fell in Q2, but the market is pricing in about a 75% chance of a rate hike by the end of 2026.
International Equities remain at the top of the asset class rankings in the Dynamic Asset Level Investing (DALI) indicator, which provides us with a heat map of where relative strength (and weakness) resides across and within asset classes. Domestic Equities remain in second place, but we saw significant movement among U.S. sectors last quarter. After falling to fourth place in the first quarter, technology has reclaimed the number one spot in the sector rankings as the sector led the rally in U.S. stocks. Meanwhile, energy, which began the second quarter in first place, has fallen to seventh as worries about a prolonged conflict with Iran have eased.
The current reading for the PR4050 is: U.S. Equity Core = 99.30% & Money Market = 4.23%. For the PR4050 indicator to trigger and alert us when we should consider moving to cash, U.S. Equity Core must be 40% or below and Money Market must be 50% or above.
Source: Nasdaq Dorsey Wright
Below is the most recent D.A.L.I. (Dynamic Asset Level Investing) Indicator showing International Equities and Domestic Equities in the top two spots, while both maintain a commanding lead over Cash and Fixed Income.
Source: Nasdaq Dorsey Wright
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Nasdaq Dorsey Wright’s “DALI" employs relative strength-based analysis to rank macro asset classes based on developing leadership trends within the global capital markets. The objective guidance within DALI provides the tools necessary to properly allocate portfolios across all major asset classes in an effort to emphasize strength wherever it exists. Domestic Equities, International Equities, Commodities, Currencies, Fixed Income and Cash are evaluated daily to identify dynamic developments across investment genres, as well as within them. This tool provides the tactical precision that allows investors to adapt as the market leadership changes.
International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.
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MSCI World Index: A broad global equity index that represents large and mid-cap equity performance across 23 developed markets countries.
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