7 Charts on Q2 Markets Highlights: The Big AI Rally Gets Even Bigger

Stocks staged a comeback in the second quarter of 2026, making for their best quarter since the spring of 2020. Investors looked past the dislocations from the Iran war and growing expectations of Federal Reserve interest rate hikes. The rally was led by a revival of the artificial intelligence trade with a different set of players from before, as hardware stocks posted massive gains. Notably, even after three years of big gains in the AI trade, the quarter saw some of the biggest quarterly rallies on record for some AI-heavy indexes.

Meanwhile, the agreement to end the Iran war sent oil prices tumbling, relieving the worst-case inflation fears and allowing bond prices to rise. In the background, it was also a tough quarter for gold prices, and bitcoin appears to have entered a new “crypto winter.” Here are some highlights of the quarter.

The second quarter saw stocks stage a reversal of their first-quarter losses and then some, with the Morningstar US Market Index returning 15.52%. The year started with stocks struggling to maintain upward momentum as investors focused on potential disruptions from the AI boom, as a wide range of industries outside technology posted losses in an “AI Loser trade.” Expectations of Fed rate cuts provided some support. But the narrative changed dramatically at the end of February, when the Iran war started and oil prices spiked.

The second quarter began with investors looking ahead to a resolution of the war despite a steady stream of back-and-forth statements by US President Donald Trump. With the announcement of a ceasefire, oil prices began to trend back toward prewar levels, helping lift stocks for a rally that carried through late May. Among the factors putting the brakes on that rally were growing expectations that the Fed would raise interest rates before year-end to combat inflation.

The Q2 AI Infrastructure Stock Surge

The picks-and-shovels AI trade came back with a vengeance in the quarter, including a continued big rally in Taiwan and South Korea. Samsung surged 436%, and SK Hynix climbed nearly 230%. With capex spending by the big AI labs and hyperscalers showing no sign of slowing, the quarter saw a fresh round of gains in semiconductor stocks. Meanwhile, memory stocks saw stratospheric gains as shortages began to build and companies jacked up prices.

Putting it all together, indexes driven by aspects of the AI trade had some of their best quarters on record. In Korea, stocks rose more than 75% in US dollar terms, making it their best quarter since 1998. Taiwan’s gain was its biggest since the end of 2001. Among US benchmarks, the best-performing Morningstar index was the US Nanotechnology Index, which is heavily weighted in hardware stocks. It saw a 99.25% gain, the largest in its 15-year history. The Morningstar US Artificial Intelligence Index posted its largest rally since its inception in 2021.

Among the US stocks in the triple-digit club in 2026, in the second quarter, SanDisk SNDK surged 258%, Micron Technology MU rose 241%, Intel INTC 216%, and Marvell Technology MRVL 200%. By quarter’s end, however, concerns were building that valuations on many of the big winners had gone too far. For example, Morningstar analysts consider each of those four stocks overvalued, with Micron earning a 1-star rating.

From Fed Rate Cuts to Hikes

The stock market rally was made all the more impressive by shifting expectations for a less-friendly interest rate environment. Investors and Fed officials came into 2026 leaning toward the possibility of rate cuts in response to weakness in the jobs market throughout 2025. One key impediment was that inflation was stuck above the Fed’s 2% target.

But the backdrop changed significantly in March, thanks to the energy price spike and a series of employment reports showing unexpected strength in hiring. By the time Kevin Warsh concluded his first press conference as Fed chair in June, the pendulum of rate expectations had swung in the other direction. It’s far from a done deal that the Fed’s next move will be to raise rates. (Morningstar senior US economist Preston Caldwell thinks we’ll see an extended hold, followed by cuts in 2027.) Still, at midyear, the bond futures market is priced for one or two increases in 2026.

Bond Yields Looking Higher for Longer

The bond market had a bumpy ride in the second quarter, with yields rising alongside inflation and prices falling amid shifting expectations for the Fed. However, as oil prices fell back toward prewar levels, bond yields fell back from their highs. Analysts say that upward pressure on bond yields is also coming from rising budget deficits in the United States, Japan, and across Europe, along with a huge jump in borrowing in the investment-grade bond market by hyperscalers like Amazon AMZN and Alphabet GOOG to help finance the AI buildout. On the plus side, many fund managers say bond yields are looking attractive.

Gold Doesn’t Shine in Q2

Gold bugs (investors who are permanently bullish on the precious metal) are having a tough time. Normally, an event like the Iran war and generally greater geopolitical uncertainty would drive buyers to gold for its perceived value as a haven. The same goes for rising inflation expectations. Instead, gold fell some 15% in the second quarter, its largest quarterly decline since the second quarter of 2013, when it lost 23%. Gold lost 11.2% in June 2026 alone, in part because markets priced in a stronger US dollar resulting from potential Fed rate hikes.

In addition, with safe US Treasuries yielding a relatively attractive 4.5%, gold has lost its luster for now. Still, despite the sharp quarterly drop, gold finished the quarter roughly 22% higher compared with a year ago.

Bitcoin: Winter Is Here

Cryptocurrency enthusiasts call an extended bear market for cryptocurrencies a “crypto winter.” In the second quarter, bitcoin’s decline showed no signs of slowing, with the largest cryptocurrency falling roughly 13% below $59,500 as of June 30. This followed a 23% decline in the first quarter. Bitcoin has now seen a 53% drop from its all-time high of nearly $126,200 in October 2025.

The selloff was primarily driven by institutional selling, persistent ETF outflows, regulatory uncertainty, and a broader shift in investor attention away from crypto toward AI. The decline has also triggered a wave of forced liquidations in crypto derivatives markets, accelerating volatility and downward momentum as leveraged investors were pushed out of positions. Adding to the selling pressure was a sustained exodus from crypto ETFs.