It is easy to get used to the market going up and up. The second quarter of 2026 was no exception. Several notable accomplishments were noted by Business Insider on July 1, 2026 as achievements for the quarter, including:
The S&P 500 and NASDAQ 100 had their best quarters since 2020
The S&P 500 rose 15% and the NASDAQ was up 28% for the second quarter of 2026. The NASDAQ index is more heavily weighted in technology stocks. Technology stocks had a knockout quarter, with the sector rising over 40%. Artificial Intelligence (AI) opportunities were rewarded with high expectations.
The SOX index had its best quarter ever
The SOX index is the Philadelphia Semiconductor Index. This index is heavily comprised with companies that provide semiconductor chips that are used in computer technology that generates AI. The following quarterly performance numbers are notable: Micron (+242%), Intel (+216%), Marvell Technology (+201%), and AMD (+186%). Just astounding. A $10,000 investment in Micron on March 31st could have turned into $34,200 in a short three months.
Small caps had their best quarter since 2020 (and best first half since 1991)
The Russell 2000 index of small-cap companies soared 21% in the second quarter. These companies have struggled the past few years as focus has remained on the large mega-technology names at the top of the Standard and Poor’s 500 index. Stronger performance in small cap stocks is a good indicator that investors are willing to branch out and have more confidence in broader markets going forward.
Energy stocks had their worst quarter since 2020
Crude oil prices staged a major pullback in the quarter following very strong growth in the previous quarters. Falling oil prices helped improve confidence in investors that inflation may not be as much as problem as feared.
The market increase since October 2022 has been remarkable. However, earnings growth has also been strong. The chart from J.P. Morgan Asset Management illustrating the S&P 500 Price Index illustrates an astounding sharp uptick in the index.
However, the sharp run-up is not what catches my eye in this information. What is most notable is the forward price to earnings (p/e) ratios at each of the inflection points. On February 19, 2020, prior to the COVID crisis drop, the forward P/E was 19.2x. On January 3, 2022 the P/E ratio was 21.4x.
On June 30, 2026, the forward P/E ratio was 20.4x. The forward P/E ratio is calculated by dividing the current price of the S&P 500 Index by earnings per share expected for the next twelve months.
Compared to February 2020, the S&P 500 price is currently more than double. Math tells us that for the P/E ratio to be equal at the two times in history earnings would have to double as well as the price to maintain an equal measurement. In other words, to maintain this level of price increase for stocks earnings have done their job over the past few years to keep up with growth in step with prices.
To justify these prices and the current P/E ratio going forward, earnings must continue to grow at expected rates. The next month will be very important to see if we can maintain these high prices. Over the next month companies will report earnings for the second quarter and they typically give guidance as to their expectations going forward. Time will tell. We are truly living in extraordinary times.
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