Market update – quarter ended 30 June 2026

Commentary on the June quarter by Russell Investments, FireSuper’s investment manager and consultant.

Global markets

Global share markets had a strong June quarter, with the MSCI All Country World Index returning 15.3% in New Zealand dollar terms.

Much of this growth was driven by technology companies involved in artificial intelligence (AI). However, these shares were also more volatile, with prices fluctuating in response to developments in the Middle East conflict.

Overall, the global economy performed better than many expected. The US economy remained resilient, while manufacturing activity across Asia strengthened as demand for AI-related products and exports increased.

In the United States, strong company earnings supported share market gains. The Dow Jones Industrial Average reached a record high on the final trading day of the quarter. Manufacturing activity also expanded for the sixth consecutive month, the longest period of growth in almost four years, despite ongoing cost pressures.

However, the manufacturing data was collected before the 17 June ceasefire announcement in the Middle East, so it does not fully reflect the impact of the conflict on supply chains or energy costs. Manufacturing activity also slowed in June after a strong May, as businesses had already brought forward orders to avoid potential shortages and higher prices.

Global bond markets also delivered positive returns, gaining 1.0% in New Zealand dollar hedged terms.

Bond markets were volatile throughout the quarter as investors responded to developments in the Middle East and changing expectations for interest rates. Inflation remained elevated in many countries, with higher oil prices and disruptions to commodity markets adding further inflationary pressure. This led central banks to take a more cautious approach to future interest rate decisions.

At its first meeting under new Chair Kevin Warsh, the US Federal Reserve adopted a more hawkish stance than many had expected. It removed its previous bias towards lowering interest rates and signalled that its next move could instead be to raise rates.

In Europe, government bond prices fell as the European Central Bank raised interest rates by 0.25% in June, citing concerns that higher energy prices could keep inflation elevated.

Japanese government bond prices also declined after the Bank of Japan raised interest rates to 1.0%—their highest level since 1995. In Australia, the Reserve Bank left the cash rate unchanged at 4.35% in June after increasing it at its May meeting.

Domestic markets

New Zealand shares also delivered positive returns during the June quarter, with the S&P/NZX 50 Index returning 5.5%. Although the market benefited from improving global sentiment and easing concerns about the Middle East conflict, it underperformed most international share markets.

Share prices rose steadily during June after stabilising in May. While overseas events remained the main driver of market performance, there were also encouraging signs from the domestic economy.

The 2026 Budget forecast a smaller government deficit for the year and outlined a path back to surplus by the 2029/30 financial year, without introducing significant new spending.

Inflation remained above the Reserve Bank of New Zealand's target range, with annual inflation expected to be between 4.0% and 4.2%. However, business confidence improved during June, and economists suggested this may reflect expectations that inflation pressures could begin to ease.

Despite weaker economic activity, the Reserve Bank increased the Official Cash Rate to 2.5% in June to help bring inflation back under control.

The New Zealand bond market also delivered positive returns, gaining 2.8% during the quarter. Performance was supported by expectations that domestic monetary policy would remain accommodative as economic growth stayed subdued. Government bond yields generally declined across much of the quarter, resulting in capital gains for existing bondholders, while investment-grade corporate bonds benefited from resilient credit fundamentals and continued investor demand for income

In late May, the New Zealand Treasury also reduced its planned government bond issuance for the 2026/27 financial year to $34 billion, $6 billion lower than previously forecast.

How did markets affect FireSuper’s investment options?

After suffering falls in Q1, the subsequent recovery in equity markets and solid returns from bonds meant that all member options delivered positive performance in Q2. The Conservative option returned 3.3%, Balanced 7.2% and Growth 10.3% after the deduction of fees and tax. The Cash option delivered a 0.5% return over the same period.

Over the last twelve months the Conservative, Balanced and Growth options have returned 5.8%, 12.5% and 17.9% respectively, after the deduction of fees and tax.

Looking ahead

If the first half of 2026 has reinforced one lesson, it is that markets are more resilient than many anticipate. New sources of friction have emerged, including geopolitical tensions, supply chain pressures, and heightened interest-rate volatility, increasing the complexity of the risks facing investors.

Yet resilience has prevailed. Strong market fundamentals continue to support a constructive outlook. For investors, this environment reinforces the importance of maintaining portfolio durability through market regimes, balancing participation in growth opportunities with the diversification needed to withstand periods of stress.

Halfway through the year, the good news is that markets appear to have passed the pressure test. Now the focus is on sustaining it.