June 2026 Market Commentary: Markets Take Lead From WC - Caution

Markets took a breather in June, but still managed to produce a strong quarterly return on the back of outsized gains in April and May.  Watch our latest market update for more information.

We saw no changes in our data-driven Three Dials allocation framework during the month of June, as we summarize below.

TECHNICAL

While AI and chip stocks continue to dominate the headlines, the S&P surprisingly was led by the “old economy” Industrials sector during the first half of the year. Combined with the strong performance of small-cap and international stocks, we continue to be in the midst of a healthy, broad-based rally, and as such, our Technical Dial remains in a Positive position.

ECONOMIC

While the labor market has proven resilient this year, the June jobs report didn’t provide much to be optimistic about. Total nonfarm payrolls badly missed expectations, the two previous months of strong growth were revised downward by a total of 74,000 jobs, and the labor force participation rate declined as more of the working-age population stopped looking for jobs altogether. With the average consumer still feeling pinched over higher costs and losing confidence in the jobs market, our Economic Dial remains Negative.

VALUATION

Jeremy Grantham, the GMO co-founder and long-time bear on US stocks, renewed his call this month and labeled this the “most expensive market in US history”, given that nearly every closely-watched valuation metric sits at or near all-time highs. Based on the data, our Valuation Dial continues to sit in a Negative position.

MARKET COMMENTARY

Markets took a breather in June, but still managed to produce a strong quarterly return on the back of outsized gains in April and May. The S&P 500 pulled back -1% in June but still posted a +15% gain for Q2, its best quarterly gain since 2020. The blue-chip index is up +10% year-to-date. International stocks also fell back -1% on the month, with the MSCI ACWI ex-US Index notching a +12% return through the first half of the year. Small-cap stocks were the outlier in June, with the Russell 2000 index gaining +4% on the month for a +22% YTD gain, its best first-half return since 1991 and strongest outperformance versus the S&P since 2001. Within fixed income, bond markets remained quiet despite Kevin Warsh’s first Fed Meeting taking a more hawkish tone on inflation than anticipated. While markets now see higher odds of a rate hike in 2026, long-term yields were muted, so the Bloomberg Aggregate Bond Index delivered a +0.2% gain for the month and is up +0.6% YTD. Commodity prices plummeted in June, with oil prices falling back toward pre-war levels on hopes of a reopened Strait of Hormuz, while gold prices took a hit from the Fed’s apparent indication toward higher rates. The Bloomberg Commodity Index fell -8.5% in June, but is still up +14% through the first half of the year.