Rocket Man
Elton John​
Rocketman

I’m a rocket man
Rocket man burnin’ out his fuse up here alone

When SpaceX became the largest IPO in history during June, investors had high hopes it might ignite more enthusiasm and push stocks to even loftier heights. The SpaceX IPO captured the attention of the markets leading up to and the few days after it started trading.  But only a week or so later, the high-flying stock descended some but still ended the month trading above the opening price. The stock will remain in the news orbit in the coming weeks when it becomes part of different indexes and more shares become available to the public. For those investors fortunate enough to invest in the company before it went public, the significant risk they took in an unproven business was well rewarded. It will be telling to see how the investing public evaluates the stock in the coming years when its earnings will have to support its high expectations to justify the lofty valuations. 

Looking beyond SpaceX, many of the other mega-cap growth stocks that drove the S&P to repeated all-time highs as recently as June 2 encountered similar questions of whether their fundamentals would support elevated expectations. Some of the Mag 7 stocks declined more than 10% during June as analysts and others questioned how their massive capex spending would impact forward looking free cash flow estimates. What were once relatively asset-lite companies now have massive capital spending commitments. These companies still have very strong balance sheets and high cash flow generating businesses, but in the current environment, their valuations are being reexamined. 

Despite the challenges of the mega cap stocks in the month, fortunately for investors who have maintained diversified portfolios, there have been other segments of the investment markets that continue to benefit from different themes and risks. Small cap stocks rose more than 3% in June and over 21% in the quarter. Value indexes benefited from their exposure to the Financials and Health Care sectors, as well as some of the older semiconductor and chip manufacturers that have performed very well as part of the evolving AI story. The shaky resolution (at least for now) to the Iran Conflict also helped lower market volatility to a degree. However, elevated energy prices and a continued threat of a reignition of fighting put pressure on some overseas markets. Finally, central banks around the globe are challenged to find the right balance between keeping interest rates low to not curtail economic growth without pushing inflation higher. The new Fed, under Chairman Warsh, left rates unchanged in late June as expected. Forecasts for rate changes in the second half have vacillated between small cuts and increases, highlighting the difficulty in forecasting the economy in the current environment. Add in the upcoming midterm elections and it will be an interesting second half of 2026. 

At quarter end, both the large cap growth and value indexes were up 14%, reflecting a rotation across markets heading into the second half of the year. Of note, the S&P Equal Weighted index beat the Cap Weighted index by 3.5% in June, indicating a broadening of the market which is often an indicator of improved market strength. Developed non-U.S. stocks were flat during June with smaller caps fading more than large caps. Emerging Market stocks were also down for the month but up more than 24% in Q2. China’s equity markets have struggled in 2026, returning (-15%). China is now the third largest country in the EM index, having been surpassed by Taiwan and S. Korea this year. 

U.S. bond markets were slightly to the positive for the month and up about 1% for Q2. U.S. interest rates moved a few basis points higher at the longer end of the yield curve while rising 20-30+ basis points at the short end of the curve. The flattening of the yield curve due to rising short-term rates, known as a bear flattener, typically indicates markets are concerned about slowing economic growth in the future.

Here are observations on what occurred across market segments in June:

Broad Market Performance¹

Domestic Equity²

• U.S. equity markets were mixed in June as the S&P was down 1% while the Russell 2000 rose 4%. For the quarter, the S&P rose 15%, recovering after a negative Q1.
• After outperforming in Q1 by 11%, the Russell 1000 Value trailed the Russell 1000 Growth index by 3% in Q2, though both indexes were up 14+%. More impressively, small cap stocks outperformed larger cap stocks by 6% in Q2 and 12% YTD.    

International and Global Equities³

• International developed markets were mixed in June, as sluggish economic growth and more price pressures weighed on markets across Europe. Japan was flat for the month and up 14% for the quarter. Overall, MSCI EAFE lagged the U.S. in Q2.
• Emerging market stocks declined slightly in the month, weighed down by weak China returns and selling pressure on tech names in S. Korea and Taiwan. The MSCI EM index was the top equity category, rising more than 24% in Q2.

Fixed Income Markets⁴

• U.S. bond markets managed to deliver small gains for the month and the quarter despite the small rise in rates across the curve. Credit and securitized sectors were largely positive during the period.       

Specialty Markets⁵

• Commodity index returns were negative, hurt by falling oil prices and softness in precious metals. REITs came back in June, outperforming broad market equities and fixed income.    

Sectors⁶

• Industrials (+7%) was the top sector in June while the sectors with sizeable weights in Mag 7 stocks were down (-3 to -7%) and Energy declined 5%. For the quarter, Information Technology (+32%) was the best performing sector. All sectors except Energy and Utilities were positive in Q2.    

Q2 earnings may be more challenged as the full effects of the Iran Conflict and higher energy prices and supply chain issues worked their way through the economy. An employment slowdown, expected by some due to AI or a softening economy, has not occurred. Consumer spending has sustained the economy, with the wealth effect helping the upper income groups and higher tax refunds providing funds for middle and lower income groups. With oil prices falling more than 30% since the start of Q2, consumers may see some relief at the gas pump, though prices on many food products continue to rise.  The economy may slow but there are few indicators pointing towards a recession. 

Many market observers would say that it is good for markets to go through periodic retrenchments as the process helps clear out some of the excesses that build up and bring investors back to focusing on fundamentals. The performance of most Mag 7 stocks in June could be a good thing as investors reassess and revalue stocks that had risen so much in a short period of time. Fortunately, in the quarter, there were many segments that had favorable performance, again demonstrating the importance of diversification. As June ended, SpaceX was up 26% from its IPO price but 16% below its peak price reached on its second day of trading. While it may not have risen into the outer orbit that some may have hoped for, time will tell for investors if “It’s lonely out in space on such a timeless flight”.

^1-6 All data referenced in the table and comments supplied by Morningstar as of 06-30-2026

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