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Q2 2026 Market Commentary: The Treachery of Markets

Separating appearance from reality

Insights

Written by

Rhonda Shafei

Published on

August 10, 2026

René Magritte, The Treachery of Images (1929): a painted pipe above the handwritten words Ceci n'est pas une pipe — René Magritte, *The Treachery of Images* (1929)

In 1929, René Magritte painted a pipe on a canvas and wrote beneath it: “Ceci n'est pas une pipe." This is not a pipe. He titled the piece “The Treachery of Images”. Perturbed, many maintained that the image is, of course, a pipe. Magritte retorted: try filling it with tobacco. His surrealist provocation was that the image of a thing is not the thing. The representation is not the reality.

Today’s market feels like a gallery of pipes. This past quarter, several marquee hedge funds posted large returns based on paper valuations. Banks passed stress tests that were gameable by design. The Federal Reserve decided to stop telegraphing its intentions. This gap between appearance and reality makes today one of the most exciting times to be an investor. When everyone can read the label, there is no edge from literacy. But when the label says one thing and its object is another, the skill of discerning reality from appearance becomes paramount.

Q2 2026 brought the largest IPO in history, an oil shock that took Brent near $120, an Iran peace rally that took it back down, and the first policy meeting under a new Fed chairman. Through it all, AI kept the market ablaze. The S&P 500 and the Nasdaq posted their best quarters since 2020, with the S&P up roughly 15% and the Nasdaq up over 21% for the quarter. Q2 did the heavy lifting for the year: through June 30, the S&P was up ~10% and the Nasdaq up ~13%.

Our Market Musings

Our approach reflects two priorities: above-market returns and downside protection. Both demand the same discipline: verifying that things are what they appear to be. Consider a few examples from the quarter:

Exhibit One: The Fed That Won't Talk

At his first press conference as Fed chairman in June, Kevin Warsh made clear he wants the market to tell the Fed what rates should be, not the other way around. The Fed's first policy statement under him offered no forward guidance, and Warsh declined to submit rate projections alongside his colleagues, saying only that inflation remains "too high" and that July would be decided in July. "When all the financial markets are doing is reflecting back what we've said," he explained, "we're taking the most important source of information, and we're being blind to it." A fair point: a mirror makes a poor telescope. But markets left to find their own way tend toward volatility; volatility can mean higher rates, as investors demand compensation for uncertainty.

For investors, this is a real shift. For nearly two decades the Fed described the road ahead and positioning followed. With no guidance, your own homework and conviction are the only reliable instruments, which is precisely how we prefer to operate.

Exhibit Two: The 20% Quarter That Wasn't

First-half results for a number of blue-chip hedge funds are now trickling in, and a handful of the technology greats printed gains of 20% or more. That is the image. What most coverage does not mention is that the lion’s share of those gains came from illiquid, privately held positions — stakes in Anthropic and OpenAI that were marked up as fresh funding rounds reset the reference price. In the most extreme case, one AI-focused fund is up roughly 270% this year largely on the strength of a single private position. A private mark is an estimate, not a verdict. In a rising market, the distinction may not matter. In a difficult one, investors in those funds may be hard-pressed to convert those marks into cash.

Exhibit Three: The Small-Cap Signal

A related distortion sits in smaller companies, which have performed well this year. The Russell 2000 rose roughly 22% in the first six months — its best first half since 1991, beating the Nasdaq by about nine points. Some investors read this as evidence that the AI rally is broadening beyond the trillion-dollar tech giants. We offer a caveat: the index’s top performers were disproportionately chip and AI-infrastructure names such as MaxLinear, a semiconductor company, whose stock rose more than 600%. The signal may be real, but it is more AI-adjacent than the image suggests.

Exhibit Four: The Test With the Answers Provided

All 32 large banks passed the Fed’s annual stress test in late June, absorbing a hypothetical $708 billion in loan losses while aggregate capital declined only 1.6%; this is the smallest dent in seven years. Worth noting one caveat: under legal pressure, the Fed announced in late 2024 that it would release its scenarios and models before the exam — handing out the answers to its own test — and said in advance that this year's results wouldn't affect banks' capital requirement. This was an open-book exam that didn’t count toward the grade. The banks may well be healthy, but the test tells us less than the headline suggests.

What This Means for OneWell

So what does all of this mean for how we invest your capital? We are constantly teasing reality from appearance: distinguishing short-term blips and passing fads from real, durable shifts, and pressure-testing the resilience of suppliers, customers, and competitors in an environment where volatility itself has become variable.

It also shapes specific actions. Going forward, you should expect us to 1) keep portfolios globally diversified; 2) add strategies that are less tied to the market's ups and downs and designed to hold their ground when markets fall, including market-neutral funds and defensive private-market categories such as healthcare and essential services; 3) treat unrealized private marks with humility, scrutinizing venture valuations against secondary-market pricing and pressure-testing hype rounds before we participate; and 4) favor companies whose edge comes from operational excellence and right-to-win rather than from rising prices alone.

The caption under most of what we are shown in today’s market reads: “this is exactly what it appears to be”. Our job is to verify that caption. That discipline and skepticism is what you have hired us for, and we believe that in an increasingly volatile market it will translate into outsized returns for our clients.

Rhonda Shafei
Head of Investments
OneWell

Important Disclosures

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