The Transcript 2Q26 Letter
Reviewing the key themes from Q2 2026 through C-suite quotes
The 2nd quarter of 2026 is over. Here’s a recap of some of the themes that we’ve seen and are watching going forward at The Transcript.
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Macro
The macro economy continues to be resilient despite uneven headlines. Conflict with Iran led to higher gas prices, but the consumer was undeterred. At the end of the day, employment is high, and consumers are likely to keep spending as long as this remains the case. Business investment is also very strong, led by unprecedented spending on data center construction to support the AI boom.
“I would start with the fact that I am probably more constructive on the consumer than what one would glean from reading the headlines of news publications.” - Walmart (WMT 0.00%↑) CFO John Rainey [13th Apr – The End of Civilization]
“...consumers and businesses are actually in great shape.” - Apollo Global Management (APO 0.00%↑) CEO Marc Rowan [18th May – Not Your Grandma’s Economy]
The stock market surged in Q2 thanks in large part to signs that the Iran conflict would not continue to escalate. While the Strait of Hormuz is still not fully open, markets are giving the benefit of the doubt that Trump will yield to economic pressure.
“In the aggregate, corporate earnings are going gangbusters. S&P 500 companies’ earnings grew more than 25% in Q1 compared with a year earlier. While tech companies experienced some of the strongest growth, gains remain widespread. The median S&P 500 companies’ earnings rose 14% year on year.” - Dallas Fed President Lorie Logan [8th Jun – Staying Out of the Rough]
The biggest medium-term change in the macroeconomic outlook during the 2nd quarter was arguably a change at the Federal Reserve. Kevin Warsh took over as the new chair from Jerome Powell. In his first press conference, he communicated that he wants to see the Fed give less forward guidance during his tenure. This could be a fairly significant shift depending on how it plays out.
“What we’ve given markets is a new chapter for the central bank, some fresh thinking...We’ve dropped forward guidance...as a general proposition, forward guidance isn’t the business we should be in.” - Fed Chair Kevin Warsh [22nd Jun – A New Chapter]
Markets have become accustomed to a Fed that is extremely transparent about future policy expectations. Kevin Warsh appears to want to change this. If the Fed becomes more opaque in its reasoning and communication, it could create uncertainty. Uncertainty tends to lead to a higher cost of capital and therefore weighs on stock prices.
“I think financial markets perform best when they react to incoming data. I think the financial markets work less efficiently when they ask a question: How will the Federal Reserve react to that incoming information? The more that markets are paying attention to what’s happening in the real economy, deciding what’s good data and what’s less good data, the more financial markets can price what they believe is the most likely and what the tail risks are” - Fed Chair Kevin Warsh [22nd Jun – A New Chapter]
The one thing that Warsh has tried to be firm in communicating is that his Fed will not accept inflation. Earlier in the year, Warsh was expected to implement a dovish policy in keeping with Trump’s desires. At this time, it’s not as clear as it used to be how the Fed will react to any changes in the economic environment. At some point, Warsh will certainly be tested.
International
The European economy remains on a path of lackluster sentiment punctuated by periods of hope for decreased regulatory burden and industrial recovery. At the moment, the environment in Europe appears to be status quo.
“And yes, I mean, we don’t -- I mean, Europe is -- and the U.K. is an even worse than the U.S., right? And it’s even getting hit more than the U.S. from the war and stuff like that.” - RH (RH 0.00%↑) CEO Gary Friedman [15th Jun – The Enterprise Strikes Back]
There are signs that the Chinese economy is rebounding from a long period of malaise since COVID. Companies have voiced a more positive tone on consumer sentiment, and inbound travel is increasing. Chinese exports, especially automobiles, are taking market share around the world.
“Overall, the macroeconomic and policy landscape is showing signs of stabilization, which will provide a favorable environment for the steady development of the consumer credit industry.” - Qfin Holdings (QFIN 0.00%↑) President Haisheng Wu [8th Jun – Staying Out of the Rough]
Sovereign AI has been a topic of conversation, particularly in China. The government has incentivized the creation of a domestic semiconductor industry that would decrease reliance on Western GPUs. The Chinese government has established a track record of success in executing plans like this one.
“If the United States hadn’t forced our country, our companies, and our industry, we wouldn’t have done something like this. But we are also grateful to the US for enabling our country’s semiconductor industry chain to truly grow. Now the momentum is very good, and everyone recognizes and supports it.” - Huawei Chair Liang Hua [8th Jun – Staying Out of the Rough]
“You know, as a result, the country has really been, you know, short of GPU or ASIC capacity. You know, that’s now being addressed because the China-designed ASICs are seeing, you know, more supply from fabs within China, as well as more supply from fabs in neighboring countries.” - Tencent (TCEHY) Chief Strategy Officer James Mitchell [18th May – Not Your Grandma’s Economy]
Financials
As the stock market surged, capital markets were wide open. SpaceX led a wave of IPOs and successfully raised $80B at a nearly $2 trillion valuation, the largest IPO in history. Alphabet also raised $85B in a secondary offering during Q2, highlighting the immense capital needs of the AI industry.
“It is certainly hard to believe that a little company that started in a warehouse in El Segundo is now going public with the largest IPO ever.” - SpaceX (SPCX 0.00%↑) CEO Elon Musk [15th Jun – The Enterprise Strikes Back]
These two transactions alone are enough to exceed the size of the entire ECM industry’s new issuance volume in most years before 2026. Anthropic and OpenAI are also still expected to come to market this year, in addition to other IPOs. There is an outstanding question as to whether capital markets will be able to absorb all of this volume at the expected valuations.
“The reason these companies are going public now is because they have to they have capital needs that are so voracious that it is not prudent for them to try to do 100% of it in the private market and not have a public currency. It’s just not prudent.” - Goldman Sachs (GS 0.00%↑) CEO David Solomon [8th Jun – Staying Out of the Rough]
“These are numbers that we’ve never seen before.” - Bank of America (BAC 0.00%↑) Co-President James DeMare [15th Jun – The Enterprise Strikes Back]
Consumer
As mentioned above, the consumer has remained resilient even while oil prices rose. While gasoline prices have some psychological impact on the consumer, they represent a relatively low percentage of wallet share for the average consumer and even less among higher-income consumers.
“Consumer spend is growing on a year-over-year basis, week over week over week, anywhere between 5% and 7%. They’re spending more money on gas, but making adjustments in some of the other categories, which is what, you know, you would have expected.” - Wells Fargo (WFC 0.00%↑) CEO Charlie Scharf [27th Apr – Final Bite of the Apple]
“So I think gas or energy cost is something like 3% of the typical consumer’s expenditure, at least in our portfolio. So it’s not nothing, but it’s not overwhelming” - JPMorgan Chase (JPM 0.00%↑) CFO Jeremy Barnum [20th Apr – Resilient in the Aggregate]
The high-income consumer continues to be the core driver of spending in the US. Travel and entertainment are leading categories among this consumer and remain in high demand even as airline ticket prices directly rose with the cost of jet fuel.
“High-end consumers continue to prioritize experiences and supply across our markets, and chain scales remain at historically low levels.” - Host Hotels & Resorts (HST 0.00%↑) CEO James Risoleo [11th May – 80x Growth]
“Clearly, the upper-end consumer is doing very well..” - Simon Property Group (SPG 0.00%↑) CEO Eli Simon [18th May – Not Your Grandma’s Economy]
The rest of the consumer economy continues to exhibit signs of a K-shape. Lower-income consumers are trading down and delaying purchases as they continue to feel pressure from rising prices. Still, there are signs that even the lower-income consumer continues to increase spend at a healthy rate.
“...we’re operating in what we would describe as a K-shape economy” - Lowe’s Companies (LOW 0.00%↑) CEO Marvin Ellison [26th May – Among the Stars]
“We probably are seeing both sides of that K-shaped economy that is often referenced” Winnebago Industries (WGO 0.00%↑) CEO Michael Happe[29th Jun – Short Memory]
Technology
The AI industry seems to evolve every week, and the second quarter saw multiple significant shifts in the narrative around AI spending. Agentic AI has been the focus of the industry throughout 2026, and the adoption of agents, particularly for coding, has led to a surge in token usage. This growth in token usage has led to a commensurate surge in spending on AI services among traditional technology companies.
“...forecasting token usage and cost is really hard right now, even for us as a software company, right?...The cost associated with, you know, tokenization and what’s happening is really hard. I think we’re still not even we haven’t even started the game yet, or the top of the first inning, around token optimization.” - 8x8 (EGHT 0.00%↑) CEO Samuel Wilson [1st Jun – Tokenomics]
“We see token usage exploding. Agent now consumes 1,000x more tokens than single event reasoning.” - Intel (INTC 0.00%↑) CEO Lip-Bu Tan [8th Jun – Staying Out of the Rough]
Early in the quarter, this surge in spending was seen as proof of the ongoing adoption of a world-changing technology. Semiconductor stocks, especially memory suppliers, surged throughout the quarter.
“So, on memory and storage, and the supply chain, I think everybody knows that the cost of these components, particularly memory, has skyrocketed. We’re just in a stage where there’s just not enough capacity for the amount of demand.” - Amazon (AMZN 0.00%↑) CEO Andy Jassy [4th May – Strong Growth]
However, toward the end of the quarter, concerns about the return on AI spending have re-emerged across the industry, and companies have become more focused on “tokenomics.” It remains to be seen whether this will slow revenue growth for the core AI research labs. If there is, then it could threaten to destabilize the AI trade.
“I think the next big topic, we were talking about it on our earnings call, is gonna be tokenomics because the cost of all this and driving the productivity of your people up by using these tools, the token usage is getting pretty crazy right now.” - Cisco Systems (CSCO 0.00%↑) CEO Chuck Robbins [26th May – Among the Stars]
Healthcare
GLP-1 adoption is an interesting storyline in the healthcare space. We published one quote during the quarter that up to a billion people worldwide could end up on a GLP-1.
“....despite the fact that we have millions of people on these medicines in the United States, maybe tens of millions more outside the United States, there are plausibly a billion that could benefit from these medicines. So we’re like in the infancy of this space.” - Eli Lilly (LLY 0.00%↑) Executive VP Kenneth Custer [22nd Jun – A New Chapter]
“Consumers are continuing to lean into health and wellness, GLP-1 adoption continues and is accelerating.” - Hershey (HSY 0.00%↑) CEO Kirk Tanner [13th Apr – The End of Civilization]
Industrials
Industrial activity has rebounded from a long period of recessionary performance thanks to the general buoyancy of the economy. The ISM PMI survey has been consistently back above 50 for several months. Freight markets have even shown signs of green shoots from one of the deepest recessions in the history of that industry.
“...on the industrial side, PMI has been hovering in 49 to 50 PMI start clicking above 50. So these are all signs, not just operational of our business, which are the KPIs I talk about, but from a PMI perspective, it’s more of an industry or a market inflection.” - ON Semiconductor (ON 0.00%↑) CEO Hassane El-Khoury [15th Jun – The Enterprise Strikes Back]
Energy
The closure of the Strait of Hormuz and the progression of peace talks have led to volatility in energy markets. Still, there has been limited disruption to the global economy despite losing access to a meaningful percentage of global oil production. In part, coordinated release of strategic oil reserves appears to have kept a ceiling on oil prices; however, as reserves dwindle, the ability to pull this lever has diminished.
….there’s a couple of reasons for that. Number one, we came into this year with above normal levels of inventory globally...The second is we had more than the normal amount of oil on the water...And then you’ve had releases from strategic reserves. And so the net deficit in oil production versus supply has been somewhat offset by those three mechanisms. And prices have gone up, but not as much as they could or as much as they may go up.” - Chevron (CVX 0.00%↑) CEO Michael Wirth [8th Jun – Staying Out of the Rough]
Iran likely recognizes that time is on its side in negotiations and has been determined to maintain de facto control of the Strait of Hormuz. Unless war re-escalates, the country seems poised to dictate how traffic will flow through the Strait going forward. All this means that it may take a long time to return to more normal volumes through the Strait even once the conflict ends.
“So, the best case would be the end of the conflict like today, no more shots fired. Even in that situation, you’re going to have several months of major disruptions to energy markets before they can kind of normalize” - Expeditors International of Washington (EXPD 0.00%↑) Chief Economist for Onyx Strategic Insights Adam Karson [20th Apr – Resilient in the Aggregate]
Thoughts for Q3
We’ll be keeping an eye on the narrative around AI spending and the Warsh Fed as potential big drivers of capital markets in Q3. The most likely outcome is that AI spending continues to surge and the perennial “Fed put” remains in place, but uncertainty over either of these themes could disrupt capital markets.
It’s also worth keeping in mind that 2026 is a midterm election year. Democrats are favored to win control of the House and potentially the Senate. Strong performance by Democratic Socialist candidates could weigh on capital markets as we begin to look towards presidential elections in 2028.