Q2 2026 Market Review & Outlook

As 86% of S&P 500 companies have reported a positive EPS surprise and 80%reporting a positive revenue surprise for Q2 of 2026 (As of 24th July 2026), there is a positive outlook for the upcoming quarter. As the S&P 500 total return was up 15.2%for the three months, we need to think about what is triggering these large gains and whether they are just transitory.

At present, the current supply of infrastructure related to Artificial Intelligence (AI) has been met with more than ample demand and uptake for the technology throughout both the consumer and corporate sectors. AI capex among hyperscalers in 2026 is estimated at roughly $850 bn, with spending growth expected to continue throughout the year. Debate about whether these expenditures will be fruitful for companies is currently the highlight of every major news outlet, as the magnificent seven group of megacap tech stocks has shed more than $2.2tn of value in the month of June. "We are not [investing in] any of the Mag 7, apart from a bit of Nvidia," said Simone Ragazzi, a global equity portfolio manager at investment firm Algebris. Alongside this, the Philadelphia Semiconductor index, which tracks US chipmakers, has almost doubled in the first half of this year, highlighting the move towards the chipmakers benefitting from this AI revolution. However, the needs for chips and power generation are clear-cut, as this will either limit AI growth or cause cost inflation for these big spenders to rise.

As earnings come out for Q2, we have seen a clear divide between the magnificent 7. Meta shares tumbled 8% after the results shed light on their spending binge that could total $145bn, with free cash flow down by 91% compared to the same period a year ago. "Meta believes AI infrastructure is now a strategic asset, but its bill is arriving faster than the pay-off," said Mike Proulx, research director at Forrester. Meta's stock soared over 9% over a month ago following news that they would sell off their AI computing power; however, now this seems unlikely following Mark Zuckerberg's comments. On the other hand, Microsoft's Azure - their cloud business division - has surpassed $100bn in revenue and has over 40% quarterly revenue growth. As well, their AI front succeeded as customers are being converted into paid AI clients. Customers jumped by 10 million this quarter thanks to deals including a 500,000+ partnership with the NHS.

My personal belief is that markets are going mad and now are wobbling with further panicked selloffs a possibility. With the rise of highly competitive Chinese competitors within the AI space, the big US tech companies may be in further trouble.

Supply of oil and petroleum products from the Middle East faces continued disruption following the resumption of attacks between the US and Iran, severely reducing traffic through the Strait of Hormuz. The US government has had to release oil from its strategic petroleum reserve, which has now fallen to 307.7 million barrels - the lowest level in more than 40 years. The operational minimum is estimated to be around 180 mn to 200 mn barrels, exposing their vulnerability to future supply shocks. At the time of writing, oil prices are around $90 a barrel, falling from their peak of around $110. Following this downturn, we have seen America's largest oil companies such as ExxonMobil reporting soaring earnings roughly double those from a year ago.

Still, inflation in the United States remains well above the FED's target of 2%, with CPI above 4%. Despite lingering energy spikes and hardware costs due to the AI boom and inflation in the services sector, Kevin Warsh held off on rising interest rates, a move that was expected to occur. The decision still spooked markets as the treasury yield curve steepened. Warsh's commitment to not spoon-feeding markets with forward guidance has led to the market adding a"credibility premium," according to Ryan Wong of HSBC. The lack of guidance has left room for traders to imagine the worst and has also allowed rumours of Trump's interference with the Fed to re-emerge. Despite this being unlikely, most statistics point towards a rate rise, leaving analysts questioning the credibility of the Fed.

Looking into the future, I do believe rate rises are going to be seen across the major Central Banks following the continuation of the Iran war. Within the UK, it is far too early to consider the new chancellor's policies' impact on inflation, but with input prices increasing, it is hard to argue against a rate rise in September.

The discipline to avoid chasing themes is a key requirement for investors in this current market. As the topics discussed above show huge volatility potential within certain areas of the stock market, the need for portfolio diversification is high. Despite this, with the current strong earnings and the scale of productive investment we are safe for another quarter.