Stock Funds Rallied 17.1% in a Quarter That Made Investors’ Heads Spin
An IPO rocket and a new Fed gave investors plenty to think about. Plus: Our latest Financial Flashback, to the options-dating scandal 20 years ago.
It was an eventful second quarter for stock-fund investors, including the SpaceX initial public offering, an oil shock, an Iran peace rally at one point, and the first Fed-policy meeting under the central bank’s new chairman.
But through it all, it was investors’ faith in tech stocks—those tied to artificial intelligence, in particular—that kept the market humming. In the end, the S&P 500 and Nasdaq composite posted their best quarters since 2020, hitting record highs, and the Dow closed the month at a record as well.
The average U.S.-stock mutual fund or exchange-traded fund posted a total return of 17.1% for the quarter, pulling the funds into the black for the year to date, at 13.4%. The funds posted a total return of 1.1% in June itself. (See Mutual-Fund Yardsticks table.)
International-stock funds—which were outpacing their U.S. counterparts earlier in the year—have dropped back in the fund Olympics. They were up an average 10.9% in the quarter, to leave them with a year-to-date gain of 10.6%.
Many analysts wonder whether the AI-tied stocks can continue to monopolize investors’ attentions.
Saira Malik, chief investment officer at Nuveen, compares the situation to what happens when a driver instinctively lowers the volume on the car speakers when trying to concentrate on street signs. Noise makes it harder to concentrate. “Today’s investment environment is noisy, too,” she says. “Geopolitical gyrations, volatile short-term economic data and the incessant thrum of prediction markets all contribute to the cacophony,” to the point that many investors feel compelled to stick to the AI trade, she says.
Malik, however, makes the case for not lumping all AI stocks in the same basket, and looking to a broader mix of asset classes such as alternative credit and municipal bonds.
Toward the end of the quarter, the Federal Reserve held rates steady at Kevin Warsh’s first policy meeting as the central bank’s chairman. But Fed officials signaled rates could rise by the end of the year to fight inflation.
Bond funds rose for the quarter. Funds focused on investment-grade debt (the most common type of fixed-income fund) posted an average total return of 0.8%, to put the year-to-date gain at 0.70%.
Fund flows
Investors voted with their wallets as the market rose in the second quarter.
Based on Investment Company Institute estimates, investors added a net $103.1 billion to U.S.-stock mutual funds and exchange-traded funds in the second quarter. They weren’t quite as enthusiastic about non-U.S. funds, despite that category’s revival. Those funds attracted a net $26.5 billion.
Bond funds took in a net $231.5 billion, according to the ICI estimates.
It’s all a turnaround from last year and from the first quarter of 2026, when investors were pulling back from U.S.-stock funds. In the first quarter, they sent a net $105.1 billion to international-stock funds, more than double that to bond funds, but withdrew an estimated $23.7 billion from U.S.-stock funds.