The first half of 2026 was defined by the significant contrast between geopolitical disruptions and an unexpectedly resilient economy. Early in 2026, the Iranian conflict and temporary disruption of energy supplies sparked an oil price spike. This re-elevated inflation concerns and caused markets to briefly pause a growth outlook and appetite for risk. Inflation climbed to its highest level in several years, and expectations for Federal Reserve rate cuts were largely replaced by discussions of potential rate hikes later in 2026. Despite these headwinds, the global economy avoided a meaningful slowdown. Corporate earnings significantly exceeded expectations, market fundamentals remained relatively healthy, labor markets were stable, consumer spending held up and economic growth reaccelerated.
The major investment theme remains artificial intelligence (AI) driving a capital spending cycle in 2026. Semiconductor companies, technology infrastructure providers, utilities and industrial firms tied to AI development were major beneficiaries. Strong earnings growth was the primary driver of equity market gains, allowing U.S. stocks to reach new highs while valuations remained in check. After several years of returns concentrated in a handful of mega-cap technology stocks, performance broadened across asset classes and regions. Small-cap stocks, emerging markets, international equities and value-oriented sectors generally outperformed large-cap U.S. growth stocks during much of the first half of the year. Emerging markets, particularly in Asia, benefited from their central role in the global AI supply chain, while Europe and Japan gained support from improving fiscal policies, corporate governance reforms and defense spending initiatives.
People are also reading…
Fixed-income returns were modest, with the Barclays US Aggregate returning about 0.06% year to date. The yield curve for U.S. Treasuries flattened in the second quarter as short-term rates increased and longer-term rates decreased. This was a break from a lowering trend that had been in place for the last year. Fixed-income markets are also digesting the current inflation data and the associated long-term risk of a "higher for longer" scenario. Credit spread – a measure of the difference between U.S. Treasuries (seen as relatively safe investments) yields and all other bond yields – widened a bit later in the second quarter but remains historically narrow, signaling an overall "risk on" tone in the markets. Widening yields are generally viewed as a "fear" indicator.
Looking ahead
The collective outlook of most NCCF managers is cautious but measured. Elevated energy prices pose ongoing inflation risk, recession probabilities remain low to moderate, and historical data suggests that markets stabilize in the months following geopolitical shocks. Hopes for additional rate cuts, which generally provide favorable conditions for both equity and fixed-income markets, are fading. The current prevailing sentiment is the Fed will leave rates flat for the rest of 2026 but leave the door open for a rate cut during the ongoing conflict and a continued balance between rising inflation and the uncertainty of corporate earnings that are highly dependent upon consumer and business capital spending.
Performance of NCCF investment managers in second quarter 2026
Returns among NCCF managers varied more than most quarters. Most NCCF managers experienced healthy returns in the range of 8.5% to 10% following a slightly negative first quarter, leaving most year-to-date returns in the 6% to 8% range. Diversified portfolios continued to outperform growth-oriented strategies, which is expected during bouts of volatility. Returns remain positive on a rolling longer-term basis, with most managers averaging double-digit positive returns at the one- and three-year intervals. Returns at the five-, 10- and 15-year intervals are lower and in line with the broader goal of supporting endowment spending.
Long-term investment performance
1-year performance:
- Long Term Diversified Pool: 13.0%
- Benchmark – Diversified: 18.4%
- Long Term Growth Pool: 16.0%
- Benchmark – Blended: 16.0%
- All Managers (Net Weighted): 14.3%
- Benchmark – Broad: 17.6%
3-year performance:
- Long Term Diversified Pool: 11.9%
- Benchmark – Diversified: 13.9%
- Long Term Growth Pool: 14.6%
- Benchmark – Blended: 13.7%
- All Managers (Net Weighted): 12.9%
- Benchmark – Broad: 15.0%
5-year performance:
- Long Term Diversified Pool: 5.5%
- Benchmark – Diversified: 7.5%
- Long Term Growth Pool: 8.1%
- Benchmark – Blended: 7.3%
- All Managers (Net Weighted): 6.5%
- Benchmark – Broad: 7.8%
10-year performance:
- Long Term Diversified Pool: 7.9%
- Benchmark – Diversified: 9.1%
- Long Term Growth Pool: 10.3%
- Benchmark – Blended: 9.5%
- All Managers (Net Weighted): 8.8%
- Benchmark – Broad: 9.5%
15-year performance:
- Long Term Diversified Pool: 7.0%
- Benchmark – Diversified: 7.8%
- Long Term Growth Pool: 9.1%
- Benchmark – Blended: 8.9%
- All Managers (Net Weighted): 7.9%
- Benchmark – Broad: 8.0%
Benchmark – Broad: This benchmark represents a general approach to investment: 70% MSCI All Country World Equity Index, 30% Bloomberg Barclays Aggregate Bond Index.
