- On the last day of the quarter, U.S. stock markets were on track for record growth.
- Nasdaq and S&P 500 are set for the best three-month runs since 2020
- While markets are up, many investors will not see the same returns on their own investments.
Major U.S. stock indexes were all in the green as of midday Tuesday, the last day of a record quarter that saw the S&P 500 and Nasdaq Exchange riding growth not seen since the pandemic recovery six years ago. Also, the Dow Jones Industrial group of companies is closing out its best three-month run since 2022.
As of Monday, the S&P 500 was up 14% for the second quarter of 2026 and the Nasdaq had seen a 20% uptick.
Growth in the tech-heavy Nasdaq has been driven mostly by investor enthusiasm for public firms in the artificial intelligence sector, including makers of microchips and hardware like servers as well as the companies vying to lead out on the development of AI software tools.
The S&P 500 represents a more diverse range of businesses and is considered by many to provide a better reading on the overall vitality of U.S. investment markets, though both markets are heavily impacted by movements in the so-called Magnificent 7 companies. That group of high-growth companies is Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla.
Recent volatility in tech sector stocks more broadly, and AI-focused firms in specific, have been mostly propelled by emerging concerns over the level of capital outlays being made by firms looking to build out computing infrastructure to accommodate AI software’s growing hunger for processing capacity.
“We are going through another ‘gut check’ few weeks ahead for the tech trade as tech investors await a very important 2Q earnings season in July to further validate the AI Revolution buildout,” Wedbush tech analyst Dan Ives said in a note, per a report from Yahoo Finance. “In the meantime jitters will continue as worries around the costs of this once-in-a-generation tech buildout hit its next gear of growth.”
Why most investors don’t beat the average market gains
Those invested in funds that are focused on the S&P 500 or Nasdaq often wonder why the returns on their own investments fall short, sometimes markedly short, of the performance of the overall markets.
Here are some of the main drivers of the underperformance, per a report from Yahoo Finance:
Not in it for the long haul
Data gathered by J.P. Morgan Asset Management revealed that between 1998 and 2017, the S&P 500 delivered an average annual return of 7.1%, while the average investor earned just 2.6% per year. The differential is mostly due to individual investor behavior, including getting caught up in market fluctuations like buying when valuations are high or reacting to valuation declines by selling off stocks. Investors who hold on for the long term have a much better chance to match or exceed market trends.
Timing the market
Investment markets typically undergo a correction of 10% or more roughly every 2.5 years, while bear markets, defined by a drop of at least 20%, generally happen about every six years, according to American Century Investments.
Investors who can anticipate those changes, buying in the troughs and selling at the peaks, can outperform the market but the reality is timing those changes with any kind of precision is extremely difficult. And those who try typically lose money.
From Jan. 1, 1999 through March 31, 2025, a $10,000 investment in the S&P 500 index would have grown to $71,309, according to FactSet. But missing even a few of the best market days would result in considerably lower returns. Here’s how much you’d have if you missed the best 10, 20, and 30 best days in the market over those past 26 years:
- Missing 10 best days: $32,682
- Missing 20 best days: $19,242
- Missing 30 best days: $12,298
Fees eat into earnings
Even a low-cost S&P 500 index fund that charges a minuscule 0.03% management fee will significantly eat at returns over time, per Yahoo. A $100,000 investment into such a fund that earns a 10% average annual return for 30 years, would still come up about $15,000 short of the index. If you paid a 1% annual fee, which many actively managed equity funds charge, the shortfall would reach over $418,000.
