MIM equityMarketReview Q2 2026

Artificial Intelligence (AI) has become everything, everywhere, all at once. While the market juggled many issues during the second quarter, including negotiations regarding the conflict in Iran and a changing tariff regime, no single factor had more influence on equity market performance than AI. The conceptual promise of training large language models (LLMs) as an aid to drive improved productivity has exploded into “unlimited” use cases for AI. The spending race from large hyperscalers to create even bigger, more robust models, along with the need for more computing power, have produced real dislocation in technology markets and across other industries. The resulting shortages in many components such as memory, storage and optical, along with the incremental need for power generation and construction equipment, have shifted investment priorities in both financial markets and the real economy, with additional effects in other areas of the economy that have yet to be fully experienced (Figure 1).

Figure 1 | Technology spending dominates CapEx growth Private non-residential fixed investment spending Y/Y growth, chained 2017 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% -15.0% Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19 Jul-19 Oct-19 Jan-20 Apr-20 Jul-20 Oct-20 Jan-21 Apr-21 Jul-21 Oct-21 Jan-22 Apr-22 Jul-22 Oct-22 Jan-23 Apr-23 Jul-23 Oct-23 Jan-24 Apr-24 Jul-24 Oct-24 Jan-25 Apr-25 Jul-25 Oct-25 Jan-26 Total - PNFI IP Eq. & software PNFI Ex- IP Eq. & software Source: MIM using data from FREDFederal Reserve Economic Data, St. Louis Fed. Past performance is not indicative of future results. As of June 30, 2026.

As the quarter commenced, equity markets were grappling with the potential impact of the Iran conflict and the closure of traffic in the Strait of Hormuz. Markets had receded from highs earlier in the year, as the potential for slower economic activity and higher inflation resulting from elevated energy prices weighed heavily on sentiment. However, equity markets gained more traction as both sides of the U.S.-Iran conflict showed willingness to negotiate, and crude prices moved lower. In addition, underlying economic activity such as ISM/PMI manufacturing, consumer spending and employment continued to show favorable results. Though inflation expectations moved higher and, in turn, drove higher interest rate expectations, stronger- than-expected earnings growth particularly in the Information Technology sector, caused equity prices to soar, producing one of the strongest quarters on record for small-cap equities.

Russell 2000 Value Index 17.2% 23.0%

Russell 2500 Value Index 18.5% 24.2%

Russell 2000 Index 21.5% 22.6%

Source: MIM, Bloomberg and FTSE Russell. As of June 30, 2026.

Market leadership was driven mostly by the Information Technology sector (Figure 2), with semiconductors up over 100% during the quarter (Figure 3). The Industrials sector marginally outperformed during the quarter, driven by companies with exposure to AI, data center and power generation markets, as well as a broad recovery for trucking companies. The Health Care sector was also an outperformer this past quarter, with participation from both biotech pharmaceutical and equipment companies. The Energy sector, which produced returns of ~40% during the first quarter, was the worst performing sector in this period, driven by lower crude prices resulting from U.S./Iran negotiations. Lower-quality characteristics (unprofitable companies (Figure 4) and high beta (Figure 5)) continued to outperform during the quarter as well. Though small-cap equities produced a robust result, leadership was extremely narrow with ~60% of the return contribution driven by two sectors (Figure 6).

EQUIT Y MARKET REVIEW Q2 2026 2