Strong earnings, easing oil prices drive Q2 stock rally

U.S. stock investors brushed off any concerns from the Iran war to send major indexes to their best quarter since 2020.

The big picture: Stocks rebounded after a bruising first quarter.

In the second quarter, the S&P 500 index rose nearly 15%, the Nasdaq Composite jumped more than 21%, and the Dow Jones Industrial Average increased nearly 13%.

Flashback: The rebound follows a bruising first quarter, when all three indexes finished in the red, brought down by a brutal March when the Iran war sent oil prices soaring for most of the month.

And it wasn't just the biggest names having a good first half.

The Russell 2000, a U.S. small-cap index, is up some 21% on the year, marking its best first half since 1991, according to Bespoke Investment Group.

Between the lines: Strong corporate earnings throughout the first half buoyed confidence in stocks in Q2, particularly in the tech sector.

And a rocky road toward a ceasefire in Iran gave investors a degree of confidence that energy prices won't reach five-alarm-fire levels.

Zoom in: The price of West Texas Intermediate crude — the U.S. benchmark for oil — has been easing for most of June, and was slightly above $70 per barrel this morning.

That's down more than 30% during the quarter, and a far cry from $200 — the level that analysts at Macquarie predicted it could reach if the war dragged into June.

Average gas prices topped out at $4.56 per gallon around Memorial Day weekend but have since fallen to a more manageable $3.85, according to AAA.

The second quarter also had the largest IPO ever — the debut of SpaceX, which saw its shares soar, slump and then rise again.

The company's $87.5 billion IPO accounted for 92% of the listings in the period, according to KPMG's U.S. Quarterly Deals Snapshot.

Yes, but: Deal activity was sluggish in Q2, as a wave of economic caution amid the Iran war "clearly impacted confidence" in mergers and acquisitions, leading many players outside energy and AI to pause or delay transactions, per KPMG.

That has caused "significant pent-up demand" across the broader market heading into the second half, the firm said.

In crypto, bitcoin slid 14% in the quarter, extending a slide since hitting an all-time high of $126,080 in October.

What we're watching: Concerns about an AI bubble continue to shadow tech stocks' momentum.

Big Tech companies have issued $150 billion in new debt so far this year, according to DataTrek Research.

The Nasdaq Composite slumped about 2.8% in June amid growing concerns about costs.

What they're saying: "We believe incrementally hawkish and uncertain Fed policy will be the overarching theme in 2H 2026," writes Nicholas Colas, co-founder of DataTrek.

"As the yield curve flattens, recession worries may emerge," but "the corporate bond market is not priced for that outcome."