As Q2 comes to an end, we can already see notable patterns emerging in market performance over the last three months. Of course, past performance does not indicate future performance, but we can gain insight into current trends to better understand what’s ahead. Q3 will certainly have a different set of market catalysts than Q2, which was largely dominated by the war in the Middle East.
A notable pattern that emerged over the last three months is strong performance in equities. Stock markets have roared ahead in Q2, and that might be setting up a dangerous situation that could affect forex pairs more directly in the coming months. It’s notable that this surge higher comes amid a hawkish pivot at the Fed, with the market now largely expecting a rate hike as soon as the coming quarter.
Geopolitics Dominate the Market
Part of the moves recorded in Q2 could reflect timing, given how important the US-Iran war was to market performance. The conflict started in March, causing markets to tumble and crude prices to rocket higher, peaking around the end of the month. That coincided with the start of the new quarter, allowing equities to rebound from the lows and capture new gains as markets adjusted to the new reality with the Strait of Hormuz closed.
It might not seem immediately obvious why the stock market would rise if there is a pending energy crisis. However, the phenomenon was due in part to a reversal of a prior trend. Up until early 2026, there was a rotation from tech into industrials. Then, high crude prices meant that businesses’ costs were likely to rise after the start of the war. Industrials have much smaller profit margins, so they would see a bigger hit to their bottom line from higher energy prices. Meanwhile, tech companies have broader margins, giving them more room to absorb higher energy prices. And they are largely concentrated in the US, which faces a much lower risk of supply interruption from the war.
Will A Stock Crash Affect Forex?
Now that crude prices are returning to pre-war levels, this phenomenon could reverse once again. If tech stocks don’t deliver on the high bar set by rising stock prices, the stock market could enter a correction in the second half of the year. Summer is often a time when stocks underperform. At the very least, this implies a shift away from risk appetite and back into safe havens.
Precious metals were among the worst-performing assets in the last quarter as appetite for safe havens diminished. They could get a resurgence in the coming months if tech stocks falter. Already, tech stocks have had a hiccup immediately after the war ended, and after the Fed’s hawkish pivot.
The Fed, Inflation, and Currency Moves
The thought is that higher inflation will force the Fed to raise rates. At least that’s why the market is pricing in a 70% chance of a rate hike by September. But, if energy prices come down, so could inflation, and lower those odds. This would likely reverse dollar gains and support pressure currencies.
If last quarter’s economic performance was the underlying catalyst for markets amid the energy supply crisis, inflation and the pace of energy price declines could be the theme for the coming quarter. That is, assuming there is no major crisis that causes a large stock sell-off, given the high valuations in the tech sector, which makes such an eventuality relatively likely.
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