A quarter-end report is a photograph. Markets do not stop moving while it is developed. We are writing about the second quarter in the third week of August, and in this instance the distance is useful rather than inconvenient: the story of this quarter is one nobody could have told on July 1, because what happened in July and the first weeks of August is what reveals the argument the second quarter had actually started.

The headline returns were extraordinary. That is the least interesting thing about them. Underneath the indexes, leadership moved in ways no one sequenced in advance — and while stocks were delivering their best quarter in six years, the bond market was already arguing with them about the price of money. That argument is where this commentary begins.

The stretch since our last letter is unusually good raw material, because the same set of facts supports two of the most powerful — and opposed — ways of thinking about markets: the efficient-markets view that prices aggregate information and cannot be reliably timed, and the behavioral view that valuations can detach from fundamentals on the back of a compelling story. The honest read is that both lenses are describing something real right now — a spring round-trip from war shock to record highs, a bond market repricing the Fed rather than the war, and a value rotation that paid off brilliantly in one corner of the world while lagging in another. That dispersion is where this commentary begins.

The past seven weeks were a genuine stress test — not of the economy, but of how markets respond under pressure. A geopolitical shock forced a rapid repricing of risk, followed by a sequence of adjustment and recovery. But beneath the index numbers, leadership shifted decisively: value over growth, smaller over larger, non-U.S. over U.S. The dispersion was not random. It tracked the pricing structure already embedded in global equity markets — and that is where this commentary begins.

Markets are adjusting quickly to a more fragile backdrop as rising oil prices, shifting rate expectations, and renewed geopolitical tension reprice risk across sectors. This environment is being defined less by collapse than by abrupt adjustment, raising the more important question: not what happens next, but how investors should respond when uncertainty moves faster than the facts.

There’s a fight happening right now over the future of artificial intelligence, between a White House that wants no guardrails and an AI company whose Pentagon contract is under review for insisting on them, between companies spending hundreds of billions on a productivity revolution and a market that’s rotating away from them in real time. Who profits, who gets displaced, who sets the rules, these questions are being answered right now, not in theory but in stock prices, in Washington, and in the portfolios of anyone with meaningful exposure to U.S. technology.

But first, the numbers.

As 2025 came to a close, the economic picture looked largely familiar. Unemployment remained low, consumer spending held up, and inflation continued to ease gradually, even if it stayed well above long-term targets. Policy uncertainty never fully faded, but it also failed to disrupt growth in a meaningful way.

Markets reflected that ambiguity. Some investors positioned for a resurgence in inflation, others for a sharper slowdown. Neither scenario fully played out. Instead, markets moved unevenly through the year and still produced solid results. U.S. equities finished 2025 up roughly 17%. Markets outside the U.S. were stronger, with both international and emerging market equities posting gains north of 30%. Fixed income also contributed, with bonds benefiting from higher starting yields and a more stable rate environment.

And then the calendar turned.