Global stocks notch best quarter since 2020 as oil plunges 38%

European and U.S. equity markets closed their strongest quarter in six years, with the S&P 500 surging nearly 15% and the STOXX 600 gaining 10%, as an artificial intelligence-driven rally overwhelmed the biggest oil rout since 2020.

The S&P 500 surged nearly 15% in the second quarter, its best performance since 2020, as an AI-driven rally overwhelmed a historic oil rout that sent Brent crude down 38%.

"Investors can't see an end in sight to this bull run," said David Morrison, senior market analyst at Trade Nation. "Whenever there's a bit of a selloff, we seem to be in a situation where you get a fresh impetus to buy."

The Nasdaq Composite added more than 21% for the quarter, while South Korea's KOSPI jumped 68% and Taiwan's benchmark surged 45%. The MSCI All-World index gained 14% and touched a record high earlier this month. Emerging market stocks rose 23% over the period. On Tuesday alone, the S&P 500 rose 0.87% to 7,505.06, the Nasdaq climbed 1.54% to 26,218.37, and the Dow added 0.32% to 52,347.59.

The rally faces a test in the coming weeks as traders assess whether the Federal Reserve will follow through on rate hikes — nine of 19 policymakers project a hike by year-end — and whether the fragile U.S.-Iran ceasefire holds, which would keep oil supply flowing through the Strait of Hormuz.

The dollar strengthened 1.4% against a basket of developed-market currencies this quarter, its fourth straight quarterly gain, as markets priced in a greater likelihood of Fed rate hikes. The greenback's ascent pushed the yen to a 40-year low near 162.38 per dollar, keeping traders on alert for possible Japanese intervention. Gold posted its largest quarterly drop in more than a decade, falling 14%, as the stronger dollar and higher rate expectations eroded demand for the non-yielding metal.

Brent crude settled at $72.92 a barrel on Tuesday, down 0.3% on the day and 38% for the quarter — its steepest quarterly decline since 2020. The rout followed a gradual reopening of the Strait of Hormuz after hostilities between the U.S. and Iran receded into a fragile ceasefire. "I wouldn't say the market has priced out a risk premium, but previously stranded ships have become available with the increase in ships moving out of the Gulf, creating a temporary wave of new supply," said Giovanni Staunovo, analyst at UBS. Morgan Stanley now models an implied global oil market surplus of 4.8 million barrels per day in 2027.

European equities also posted strong gains, with the STOXX 600 rising nearly 10% for the quarter and advancing every month since March. The index rose 0.88% on Tuesday. Unlike their Asian and U.S. counterparts, European benchmarks have fewer direct AI beneficiaries, yet still delivered double-digit returns as broader investor confidence buoyed the region.

New Federal Reserve Chair Kevin Warsh is scheduled to address the European Central Bank's annual forum in Sintra, Portugal, on Wednesday, where his remarks will be scrutinized for any shift in the central bank's policy stance. Traders are also watching Thursday's non-farm payrolls report, which could provide the next catalyst for rate expectations.

This article is for informational purposes only and does not constitute investment advice.