Q2 2026 Market Commentary — AI, Emerging Markets, and the Risks We’re Watching

The Quarter in Brief

The quarter opened with the Iran conflict still unresolved and a Strait of Hormuz blockade disrupting oil markets. A mid-June memorandum between the U.S. and Iran began a real, if incomplete, reopening of the strait. Markets have largely moved past the conflict as a daily concern, even though tensions flared again in late June. It was also a quarter defined by Artificial Intelligence (AI): SpaceX’s blockbuster IPO in June, the first of several major AI-related listings expected this year, captured investor attention and set the tone for one of the two risks we highlight below.

Looking at market performance, equity markets had a strong quarter overall. The tech-heavy Nasdaq gained more than 20%, its best quarter since 2020. However, the mega-cap stocks fell about 5% in June and finished the first half of the year up only a few percent. The broader S&P 500 gained roughly 15% for the quarter and is up about 10% for the year. Small-cap stocks (as measured by the Russell 2000) gained about 21% for the quarter and are up 22% year-to-date, their best first half since 1991. Emerging markets did even better, up around 24% and 25% for the quarter and year-to-date, respectively (as measured by the MSCI EM Index).

Our Global View

Our case for investing with a global perspective, and in emerging markets specifically, isn’t built on any single quarter’s results. It rests on three things: growth rates that continue to outpace developed markets, valuations that remain more reasonable by historical standards, and steady improvement in market structure and governance across the region over recent years. That last point was reinforced by Shamaila Khan, UBS’ Head of Fixed Income Emerging Markets and Asia Pacific, at the Morningstar Investment Conference we attended in mid-June. She noted that credit quality across many emerging and frontier market countries is the best it’s been in years, with no sovereign defaults since 2023, and upgrades outpacing downgrades by the widest margin in years. The U.S. still stands as the largest, most liquid, and best-structured market in the world, and remains a cornerstone of a well-balanced portfolio. Rising credit quality abroad, even as U.S. fiscal challenges persist, makes maintaining exposure outside the U.S. an increasingly important complement to that core holding.

That said, gains within emerging markets have been concentrated in a relatively small number of companies and countries. South Korea alone, for instance, has driven an outsized share of EM’s returns this year on the back of memory-chip demand. Over time, we expect this strength to broaden out to more countries and companies. It’s part of why a portion of your emerging markets exposure sits with an active manager alongside a passive index: we believe that positioning is better suited to benefit as broadening plays out.

Two Risks We’re Watching, Both Rooted in AI

Here are two of several risks we’re monitoring as we enter the second half of the year. They’re connected to each other, and to the topic on everyone’s mind: AI.

The first is the sheer scale of capital now required to build AI infrastructure. SpaceX’s IPO was just the start: two more major AI-related stock listings are expected this year, from OpenAI and Anthropic. Alphabet and other large technology companies have also raised tens of billions of dollars this year, both by issuing new stock and by borrowing heavily from investors. This is a shift from the past, when AI spending came mostly out of company profits, and it’s a lot of new capital for markets to absorb.

The second risk connects to the first. Much of that new capital is being spent on the physical building blocks of AI, including computer chips and memory. Right now, memory is scarce and expensive. That scarcity is part of why so much capital is needed in the first place. It has also made memory-chip makers like Micron some of the best-performing stocks this year. Apple has already started passing higher memory costs on to consumers. If a technological breakthrough made memory more efficient, so AI needed less of it, that would be good news almost across the board: cheaper memory, lower AI costs, and a genuine step toward the productivity gains this cycle has promised. But it would undercut the very companies whose stock gains this year depended on that scarcity continuing.

Howard Marks, the veteran investor and co-founder of Oaktree Capital whose memos are closely read across Wall Street, made a useful point about moments like this in a memo last year. Railroads in the 1800s and the fiber-optic cables laid in the late 1990s were both overbuilt at the time. Both caused real financial pain when the excess caught up with them. But none of that money was wasted. The tracks and the cables became the backbone the economy ran on for decades afterward. We don’t know if today’s AI buildout follows that same path. It’s an open question. Whether today’s investors are ultimately rewarded is a separate question from whether the infrastructure is ultimately used. History suggests it usually is, and often in transformative ways nobody could have imagined.

Two Small Changes This Quarter

We made only minor changes to our investment models in the quarter. A small portion of most portfolios, generally 10% or less, is carved out for a group of thematic investments we like for the long term: gold, metals and mining, Bitcoin, publicly traded real estate (REITs), and infrastructure. Depending on your risk profile, you may not hold all of these. Here’s what changed in that group this quarter.

We trimmed our positions in gold and metals and mining after a very strong twelve months in that category, essentially taking some gains after a big run. We redirected these funds toward infrastructure, which fits both our international diversification thesis and, notably, sits close to where a lot of AI-related capital is ultimately flowing (data centers and the power grids needed to run them) alongside essentials like roads.

Bitcoin continued its weak stretch throughout the quarter. While we don’t see an obvious near-term catalyst to reverse that, we still like the long-term case for the exposure. We did make a housekeeping change: we switched our Bitcoin holding from IBIT to MSBT, a fund launched by Morgan Stanley in April that offers the same exposure at a lower annual cost. Same investment thesis, lower fee.

Where That Leaves Us

This quarter had a bit of everything: geopolitical risk that eased without fully resolving, an AI story that was true but concentrated in a narrow set of winners, and real optimism building in small-caps and emerging markets that many headlines missed. The risks we’re watching, how much capital the AI buildout requires and what happens if AI gets cheaper, are real, and we don’t have a confident prediction for how or when they resolve. While we can’t predict what happens next, what we can do is stay genuinely informed, look closely at what’s actually driving the numbers, and prepare portfolios for a range of outcomes.

Sources: Bloomberg Market Data, JP Morgan Asset Management Q2 2026 Market Review, Goldman Sachs Markets, T. Rowe Price, Oaktree Insights.

This communication is for informational purposes only and does not constitute investment advice. Past performance is not indicative of future results. Data sourced from publicly available market indices and financial data providers. Please consult your financial plan before making any investment decisions. © 2026 Visible Wealth Planning. All rights reserved.