Insights

A Strong Quarter Built on a Fragile Truce

June brought another month of gains for investors, rounding out a remarkably strong quarter for global share markets.

Oil prices fell sharply from their earlier highs, US technology shares continued to benefit from enthusiasm around artificial intelligence, and expectations of further interest rate increases began to ease.

But the recovery rests on foundations that remain uncertain.

The agreement between the US and Iran is still only a truce. Inflation remains above target in Australia, the US and Europe. And while markets have moved quickly to price in a calmer outlook, central banks are not yet convinced that the pressure has passed.

What drove the gains

The most important development during the month was the fall in oil prices.

Oil had reached approximately US$120 per barrel earlier in the year as conflict with Iran disrupted supply and unsettled financial markets. The signing of a memorandum of understanding between the US and Iran helped prices retreat materially, easing immediate concerns about inflation and economic growth.

That change in sentiment supported global share markets.

International shares rose 3.14% in June and finished the quarter 12.61% higher. Emerging market shares gained 2.39% for the month and 22.64% over the quarter.

The Australian market produced a more restrained result, gaining 0.67% in June and 4.05% over the three months to 30 June.

US markets were particularly strong over the quarter. The Dow Jones Industrial Average rose around 13%, the S&P 500 gained almost 15%, and the NASDAQ advanced approximately 21%, its strongest quarterly performance since 2020.

Artificial intelligence remained the dominant market theme.

Investment in data centres, semiconductors and supporting infrastructure continued to drive expectations for technology company earnings. The theme also broadened beyond the largest technology businesses, with selected industrial, capital goods and smaller technology companies benefiting from anticipated spending on AI infrastructure.

Australia remains under pressure

The Reserve Bank of Australia left the cash rate unchanged at 4.35% in June.

That pause should not be mistaken for an indication that the rate-increase cycle is necessarily over. The RBA continued to describe inflation as too high and noted that some businesses were still experiencing rising costs and passing those increases on through higher prices.

Headline inflation eased to 4.0% in the year to May, down from 4.2% in April. Much of that improvement came from an 11.9% monthly fall in fuel prices.

Underlying pressures proved harder to shift.

Measures excluding fuel remained firm, rental costs continued to rise, and tight housing supply is likely to keep upward pressure on rents in the near term.

The labour market also showed signs of weakening, with unemployment moving to 4.4%. Consumer confidence softened, business conditions eased and national property-price growth stalled in May after earlier declines in Sydney and Melbourne.

Taken together, the data give the RBA more time before making its next decision, but not necessarily room to declare victory over inflation.

A mixed Australian share market

The Australian share market’s positive quarterly return concealed a meaningful shift beneath the surface.

Resources and energy companies were held back by weaker commodity prices. Oil’s retreat weighed on energy stocks, while gold prices came under pressure from higher global bond yields and a stronger US dollar.

Iron ore remained relatively resilient through April and May before weakening in June as softer Chinese demand and elevated port inventories limited further gains.

Consumer discretionary companies performed more strongly as investors began to anticipate a possible pause in monetary tightening. Australian companies exposed to AI-related investment also continued to attract interest, particularly capital goods businesses and selected small technology companies connected to data centres and infrastructure spending.

The global picture

The US economy remained more resilient than many investors expected.

Consumer spending weakened briefly before beginning to accelerate again, while company investment remained firm. However, employment growth fell short of expectations after several stronger months, causing some analysts to step back from forecasts of further rate rises.

The Federal Reserve left interest rates unchanged in June. Its first meeting under new chair Kevin Warsh was nevertheless more cautious on inflation than investors had anticipated.

Europe faces a similar balancing act.

Inflation remains above target, largely because of energy costs, but growth is still too fragile for the European Central Bank to tighten policy aggressively. Leading indicators suggest inflationary pressure may continue to ease, although economic activity is expected to remain broadly flat in the months ahead.

China’s economy remains divided.

High-technology manufacturing and investment continue to expand, supported by artificial intelligence infrastructure and clean-energy production. By contrast, property investment, traditional fixed-asset investment and other parts of the domestic economy remain weak.

China’s export strength has helped compensate for that softness, but its record trade surplus also highlights how dependent growth has become on overseas demand.

The longer view

Periods like this can create a distorted picture.

A strong quarter can make markets appear calmer than they really are, just as a difficult month can make long-term investing appear more dangerous than it is.

Over the ten years to 30 June 2026, international shares returned 14.05% annually. Emerging market shares returned 10.87%, while Australian shares returned 9.45% annually.

Those results include wars, inflation shocks, interest-rate cycles, elections, recessions, pandemics and repeated predictions that markets had entered a permanently different era.

The path was never smooth, but the longer-term outcome was shaped more by staying invested than by correctly predicting each turn.

The honest read

June was another positive month, and the June quarter was exceptionally strong for global shares.

But some of that performance reflects markets reversing the fear that dominated the beginning of the year. It does not mean the underlying risks have disappeared.

The US-Iran truce remains uncertain. Inflation is still too high for central banks to relax. Economic growth is uneven, and enthusiasm around artificial intelligence continues to concentrate a significant amount of market attention in a relatively narrow group of companies.

For people approaching retirement, that does not necessarily call for a change in direction.

It does make it worth understanding how much of a portfolio depends on continued share-market growth, how much is available to fund near-term spending, and whether the overall structure can tolerate another period of volatility without forcing uncomfortable decisions.

Strong returns are welcome. A plan that does not depend on them arriving at precisely the right time is better.

For the full June market update, including asset-class returns across one-month, three-month, six-month, one-year, three-year, five-year, seven-year and ten-year periods, download our June monthly report here.