The second quarter (Q2) of 2026 was marked by ongoing geopolitical uncertainty in the Middle East. Despite this, markets performed well and delivered positive returns across the board.
However, inflation remained elevated in many regions, and Europe experienced its first contraction in growth in nearly four years.
Keep reading for an in-depth view of global investment markets over Q2 2026.
UK
The UK experienced a mixed Q2, with stronger growth and steady inflation, but markets lagged.
The latest data from Trading Economics shows the UK economy grew by 0.6% in Q1 2026, up from 0.1% in Q4 2025. This marked the strongest growth since Q1 2025 and was largely driven by the services sector.
Meanwhile, the Office for National Statistics reports that inflation rose by 2.8% in the 12 months to May, unchanged from April and still above the 2% target. Transport made the largest upward contribution, while food and drink prices fell.
The Bank of England held the base rate at 3.75% in its June meeting. Despite inflation falling over recent months, the situation in the Middle East may cause further price spikes, and the outlook remains uncertain.
The UK continued its relatively slow start to the year on the markets. JP Morgan’s market review shows the UK FTSE All-Share returned 4.7% in Q2, making it the weakest-performing major market for the quarter. It also remains the weakest in the year to date, despite delivering positive returns of 7.2%. This comparatively poor performance is largely due to the UK market’s reliance on the energy and mining sectors and its limited exposure to technology.
Europe
The European economy also had an uncertain quarter, as inflation fell and markets delivered solid returns, but economic growth contracted.
Figures from Trading Economics show Eurozone inflation fell to 2.8% in June, down from 3.2% in May. This is the lowest rate since before the Iran war, though it is still above the European Central Bank’s 2% target. Among the major economies, inflation eased in Germany, France, and Italy, but was unchanged in Spain.
Growth readings were less positive, as the latest data reveals the Eurozone economy contracted by 0.2% in Q1, marking the first decline since Q4 2022. This contraction was due to reduced energy supplies linked to the ongoing conflict in the Middle East.
Despite this, European markets delivered positive returns, and JP Morgan’s review shows the MSCI Europe ex-UK Index rose 14.4% in Q2.
US
In Q2, the US saw strong market returns and growth, but inflation continued to climb.
Data from Trading Economics shows US annual inflation rose to 4.2% in May, up from 3.8% in April. This marks the third consecutive monthly rise in inflation, driven largely by energy costs linked to the conflict with Iran.
With inflation still rising, the BBC reports that the Federal Reserve left interest rates unchanged at 3.5% – 3.75% at the new chair’s first policy meeting last month.
Meanwhile, the US markets had a good quarter, and economic growth was solid. The latest figures from Q1 show the US economy expanded 2.1%, up from previous estimates of 1.6% and up from 0.5% in Q4 2025.
JP Morgan reports that the S&P 500 rose 15.2% in Q2, supported by strong performance in AI equities and rising demand for electrical equipment.
Asia
Asian markets performed well in the quarter, and inflation remained well below 2%.
JP Morgan’s review shows the MSCI Asia ex-Japan Index was the standout performer, returning 27.8% across Q2. This was largely driven by strong demand for electrical equipment and semiconductors. Meanwhile, Japan’s TOPIX rose 14.4%.
Trading Economics reports that Japan’s annual inflation rose to 1.5% in May, up from 1.4% the previous month. Further data shows that China’s annual inflation remained steady at 1.2% in May 2026, unchanged from April.
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