Performance Insights - July 2026
During Q2, asset markets swayed with shifting market sentiment around the prospects for a resolution of the Middle East conflict. Despite the US-Iran MoU committing both sides to a peace deal and declining inflation expectations, the Fed outlook turned hawkish.
Intelligence analysis by Llama
Q2 saw asset markets swayed by shifting market sentiment around the Middle East conflict, with the Fed outlook turning hawkish despite declining inflation expectations.
Imagine you're playing a game where the rules keep changing. That's what happened in Q2 with the Middle East conflict. The US and Iran agreed to a peace deal, but the Fed, which controls interest rates, got more cautious. This made oil prices drop, and the energy sector suffered. Meanwhile, some companies that make AI hardware did well because they were investing a lot in this area and had strong earnings.
Analysis
A $60B Vote of Confidence
The US-Iran MoU committing both sides to a peace deal had a significant impact on asset markets in Q2. Despite the declining inflation expectations, the Fed outlook turned hawkish, leading to a steep decline in oil prices. This had a major detractor effect on the energy sector globally, with indices heavily weighted in Energy, like the UK, being particularly affected.
Why Cursor?
Indices with significant AI hardware exposure, notably in Asia Pacific ex Japan and the Russell 2000, outperformed as robust AI capex and resilient tech earnings drove returns. This is a key driver of the equity leadership in Q2.
The Road Ahead
Hawkish pivots by the Fed and ECB, alongside diverging global policy, supported the US dollar and led to high yield bond outperformance, while regional bond returns varied with local inflation and monetary responses.
Key points
- Q2 saw asset markets swayed by shifting market sentiment around the Middle East conflict.
- The Fed outlook turned hawkish despite declining inflation expectations.
- Indices with significant AI hardware exposure outperformed as robust AI capex and resilient tech earnings drove returns.
- The energy sector was negatively impacted by the steep decline in oil prices.
- Hawkish pivots by the Fed and ECB supported the US dollar and led to high yield bond outperformance.
If the peace deal between the US and Iran holds, it could lead to a more stable Middle East, which could in turn boost oil prices and the energy sector. Additionally, the companies that make AI hardware could continue to do well if they maintain their strong investment in this area.
However, if the peace deal fails, it could lead to a more volatile Middle East, which could negatively impact oil prices and the energy sector. Additionally, if the companies that make AI hardware fail to maintain their strong investment in this area, their performance could suffer.
Market signals
- Russell 2000 Indices with significant AI hardware exposure outperformed as robust AI capex and resilient tech earnings drove returns.
AI-generated analysis of potential market relevance. Not financial advice.
