Market Trends | June edition

U.S. stock indexes entered June on a 9-week winning streak,¹ buoyed by the resilience of the U.S. economy and strength in corporate earnings.

That winning streak came to an abrupt end in the first week of June² as a stronger-than-expected May jobs report pushed markets to price in a likely more hawkish Fed path.

The second week of June featured more market volatility amid renewed tension around the Strait of Hormuz and the Consumer Price Index hitting a three-year high on an annualized basis.³

A combination of inflation trending higher and the labor market exhibiting strength will likely make it difficult for the Fed to cut rates, as markets previously expected. Fed fund futures now imply over 60% probability of at least one rate hike by December, up from less than 1% in February.⁴

Despite the market pricing, we believe the Fed is most likely to stay on hold for the foreseeable future, given that monetary policy cannot mitigate higher oil prices resulting from a supply shock.

Despite the complex macroeconomic backdrop and elevated geopolitical uncertainty, IPO activity is expected to rebound in 2026, potentially making it the largest IPO year on record. This burst of IPO activity is driven by a pipeline of large, high-profile companies related to Artificial Intelligence (AI) and its buildout, such as SpaceX, Anthropic and OpenAI.

Historically, IPO activity has risen when macro fundamentals are solid and equity market performance is strong. So this expected surge in activity likely also reflects investor confidence in the overall health of the economy.

Prior to the early June selloff, the S&P 500 jumped over 5% in May and the Nasdaq rose over 10%, the latter notching its second-straight month of double-digit gains for the first time since 2009.⁵

The momentum was global: Korea’s Composite Stock Price Index (KOSPI) rose 29% on the month, bringing its YTD gain above 100%.⁶ (Learn more about potential opportunities in South Korea and our views on international stocks.)

Even as higher energy prices persist, the stock market was likely buoyed by the strength in corporate earnings.

S&P 500 earnings rose 28.6% in Q1, the highest growth rate since Q4 2021.⁷ S&P earnings are now projected to rise more than 22% in 2026, up from 17% on March 31, validating the rally and reinforcing leadership in AI and technology.⁸

In our opinion, the market’s rally in April and May — when the S&P 500 rose 19.5% — was  arguably justified by the fundamental strength of U.S. corporate profitability.⁹

On the other hand, concentration continues to rise:

• The top 10 names in the S&P 500 drove 60% of first-quarter earnings growth.¹⁰
• The top 10 names have driven about 83% of S&P 500 gains YTD.¹¹
• Tech has driven 64% of the S&P 500’s return so far this year — nearly double its long-run average contribution.¹²

U.S. 30-year Treasury yields rose as high as 5.19% in May, the highest level since July 2007.¹³ Bond yields, which historically tend to move in the opposite direction of prices, subsequently retreated after news of an extended ceasefire in the Middle East sent crude oil contracts sharply lower.

Notably, May was the strongest month on record for fixed income ETFs, with flows doubling from the prior month to $65 billion, as investors likely eyed an end to the conflict in the Middle East.¹⁴

The iShares 0-3 Month Treasury Bond ETF (SGOV) led the fixed-income leaderboard with inflows of $6 billion in May, reflecting a larger trend: ultra short exposures flipped from outflows in April to $14 billion of inflows in May, while long-term bond allocations fell nearly 90% vs. the prior month to just $400 million.¹⁵

Learn more about seeking stability and income with SGOV.