Q2 2026 Market Analysis and Economic Outlook

Prepared for nonprofit leaders and board members by our fiduciary team

July 7, 2026

As Q2 2026 draws to a close, nonprofit leaders are navigating an unusual mix of encouraging and challenging news arriving at the same time. Equity markets just delivered their strongest quarter since 2020, and 2025 was a record year for U.S. charitable giving. At the same time, inflation has climbed to its highest level in nearly three years, the Federal Reserve has shifted from cutting rates to signaling a possible increase, and federal funding for nonprofits remains under real and ongoing pressure.

We know it can be disorienting to hold both of these realities at once: markets performing well while costs and uncertainty rise for the organizations you lead and the communities you serve. This report is meant to help you make sense of that tension, translate it into practical implications for your reserves, investments, and donor conversations, and give your board a clear, current picture as you head into Q3.

Executive Summary

Here's a quick recap for nonprofit leaders on financial trends from the last quarter:

U.S. equity markets posted their strongest quarter since 2020, with the S&P 500 gaining nearly 15%, though investor sentiment has since cooled.
Inflation reaccelerated meaningfully, with consumer prices up 4.2 % year over year in May, driven largely by energy costs tied to the Middle East conflict.
The Federal Reserve held rates steady at 3.50 to 3.75 % at both of its Q2 meetings, and under new leadership signaled in June that its next move may be a rate increase rather than a cut, a reversal from the cutting cycle in late 2025.
The labor market cooled notably; June job growth came in at just 57,000, well below expectations, with the two prior months revised down.
The Middle East conflict that began in late February continued to deescalate unevenly; oil prices are well off their peak, but the situation remains fragile.
2025 charitable giving reached a record $617.2 billion dollars, but the gains were concentrated in bequests and major gifts, while the broader base of everyday donors continues to shrink.
Federal funding disruptions continued, with a significant proposed rewrite of federal grant rules introduced in late May adding new uncertainty for grant-dependent organizations.

Bottom line: This is a quarter of contrasts. Strong markets and record-giving headlines sit alongside real cost pressure and policy uncertainty. Discipline, diversification, and clear board communication matter more than usual right now.

Economic Activity

Growth

The U.S. economy grew at a stronger pace in the first quarter of 2026 than initially thought. The Bureau of Economic Analysis's final estimate, released June 25, put annualized GDP growth at 2.1%, an upward revision from the 1.6 % second estimate and the 2.0 % advance estimate. The revision mainly reflected a smaller drag from imports than first calculated.

Early tracking suggests a slower second quarter. The Federal Reserve Bank of Atlanta's GDPNow model, a running estimate rather than an official government figure, stood at 1.2 % as of July 1, down from a peak above 4 % in late May. The Bureau of Economic Analysis will not release its official Q2 growth estimate until July 30, so this figure should be treated as a directional signal rather than a confirmed result.

Labor Market

Hiring slowed through the quarter. The unemployment rate held at 4.3 % in April and May before easing to 4.2 % in June, though that decline reflected fewer people participating in the labor force rather than stronger hiring; labor force participation fell to its lowest level since March 2021. Monthly job growth was 148,000 in April, 129,000 in May, and just 57,000 in June, well below expectations, with April and May revised down by a combined 74,000 jobs.

What this means for nonprofits: A cooling labor market combined with still-elevated prices can squeeze household budgets from both directions, which historically shows up first in smaller, more discretionary gifts. Organizations that rely heavily on broad-based individual fundraising may see continued softness, while those with strong major donor and planned giving pipelines are typically more insulated.

Geopolitical Risk: The Middle East Conflict

The conflict between the United States, Israel, and Iran that began February 28, 2026 continued to shape the economic backdrop through Q2, even as it gradually deescalated. Ceasefire efforts advanced and stalled multiple times over the quarter, and the Strait of Hormuz, a critical global oil shipping route, was closed and reopened more than once. By mid-June, a memorandum of understanding aimed at ending the conflict and a related ceasefire between Israel and Hezbollah were announced, though isolated strikes and reported violations continued into early July.

The clearest economic effect has been on energy prices. Oil, which spiked above 120 dollars a barrel at the height of the crisis in the spring, has since fallen roughly 20 % toward the 95 to 105 dollar range as the situation calmed. That decline came too late to prevent a meaningful runup in energy-driven inflation earlier in the quarter, discussed in the next section. The overall situation remains fluid, and further escalation or a durable resolution would each meaningfully change the inflation and growth picture in Q3.

What this means for nonprofits: Rising energy and transportation costs affect nonprofit operating budgets directly, from utilities to program delivery and vehicle fleets. Organizations with international programs or partners in the affected region should continue to monitor supply chain and safety implications.

Building a small amount of flexibility into Q3 budgets for continued energy cost volatility is a reasonable precaution.

Replay our recent webinar with our volunteer Investment Committee to learn more.

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Inflation and Interest Rates

Inflation

Inflation moved in the wrong direction this quarter after a period of improvement in late 2025. According to the Bureau of Labor Statistics, the Consumer Price Index rose 3.8 % year over year in April and 4.2 % in May, the largest 12-month increase since April 2023. Core inflation, which excludes food and energy, was more contained at 2.8 % in April and 2.9 % in May. Energy costs were the primary driver of the headline increase in both months. June CPI data will not be released until July 14, after this report's data window.

The Federal Reserve's preferred inflation gauge, the Personal Consumption Expenditures price index, told a similar story for May: up 4.1 % year over year overall and 3.4 % on a core basis, both the highest readings since 2023, according to the Bureau of Economic Analysis.

Federal Reserve

The Federal Reserve held its benchmark rate steady at 3.50 to 3.75 % at both of its meetings this quarter. The April 29 decision saw an unusually divided 8-to-4 vote, the most dissents on a policy decision since 1992, with some members preferring a cut and others opposed to even hinting at future easing.

The June 17 meeting, the first led by new Federal Reserve Chair Kevin Warsh, was unanimous, but the tone shifted meaningfully. Updated projections released alongside the decision raised the median expected year-end 2026 rate to 3.8 percent, up from 3.4 % in March, indicating that most policymakers now see a modest rate increase, not a cut, as more likely by year-end. This is a notable reversal from the rate-cutting cycle of late 2025 and reflects the Committee's concern about persistent, energy-driven inflation. The next FOMC meeting is scheduled for July 28 and 29.

This is an important shift for nonprofit reserve planning.

Cash and short-term instruments continue to earn attractive yields, and that window may not close as quickly as many expected entering the year. At the same time, the case for extending duration to lock in today's rates is weaker than it was last quarter, since rates may not fall, and could rise, over the balance of 2026.

Current Treasury Yields

As of July 2, 2026, according to U.S. Treasury data: the 3-month Treasury bill yields approximately 3.82%, the 2-year Treasury approximately 4.14%, the 10-year Treasury approximately 4.49%, and the 30-year Treasury approximately 4.98%. Yields have risen across the curve since mid-April, most notably at the 2-year point, as markets have repriced toward the possibility of a Fed rate increase rather than further cuts.

Market Conditions

Equities

U.S. equity markets had their strongest quarter since 2020. The S&P 500 gained approximately 14.9 % in Q2, closing near 7,499 on June 30, up from roughly 6,529 at the end of Q1. The rally was led decisively by technology, which gained roughly 32 percent, and semiconductor stocks in particular, which had their best quarter on record. Nine of eleven market sectors posted gains for the quarter.

That strength has not translated into calm investor sentiment. The CNN Fear and Greed Index, a widely followed measure of market mood, stood at 32, in fear territory, as of July 2, down sharply from a reading near 70, in greed territory, in mid-June. The swing reflects a market still working through the combination of strong headline returns, a hawkish Federal Reserve, and lingering geopolitical uncertainty.

Fixed Income

Investment-grade corporate bond spreads remained historically tight, meaning investors are being paid relatively little extra yield for taking on corporate credit risk compared to Treasuries. Municipal bonds performed well, with the broad municipal bond index returning approximately 2.4 % for the quarter, aided by strong investor demand and a rally in Treasury prices earlier in the period. Given tight corporate spreads, high-quality Treasuries and municipal bonds continue to offer an attractive combination of safety and yield for nonprofit reserves relative to reaching further down the credit spectrum.

Federal Funding Landscape

Federal funding disruption remained a defining challenge for many nonprofits in Q2. An October 2025 Urban Institute survey found that roughly one in three nonprofits had experienced some form of government funding disruption, whether a lost grant, a delay or freeze, or a stop-work order, and this pattern has continued into 2026.

On May 29, the Office of Management and Budget proposed sweeping changes to the federal Uniform Guidance that governs most federal grants, including provisions that would allow political appointees to review awards for alignment with administration priorities and would make it easier to terminate active grants mid-performance. Earlier in the year, a large batch of federal mental health and addiction treatment grants was abruptly clawed back in January before largely being reversed following public pushback, illustrating how quickly funding conditions can change with little notice.

What this means for nonprofits: If your organization receives federal funding, now is the time to build, or refresh, a clear picture of which grants are secure, which are at risk, and what a partial or full loss of that funding would mean for your budget. This is not a hypothetical exercise.

Organizations with diversified revenue, including strong major donor and foundation relationships, are consistently better positioned to absorb these disruptions than those that are heavily grant-dependent.

Nonprofit Giving Trends

Giving USA 2026, released June 23 by the Indiana University Lilly Family School of Philanthropy, reported that total U.S. charitable giving reached a record 617.2 billion dollars in 2025, up 5.7 % in current dollars and 3.0 % after adjusting for inflation, the first year giving has surpassed 600 billion dollars.

The composition of that growth is worth understanding. Bequests grew 19.7 % the strongest growth of any giving source and roughly a third of the total increase, while individual giving, still the largest category at 64 % of all gifts, grew a more modest 4.1%. Individual giving as a share of disposable personal income has fallen to 1.7% down from 2.4% in the early 2000s, and separate research from the Fundraising Effectiveness Project points to a continued decline in the overall number of donors, with growth increasingly concentrated in larger gifts.

What this means for nonprofits: Record total giving is genuinely good news, but the underlying trend, fewer donors giving larger amounts, has real implications for how organizations should invest their fundraising effort.

This is a good moment to deepen major donor and planned giving programs and to make sure your brokerage account, donor-advised fund registrations, and gift acceptance policies are current so you can receive appreciated stock and bequest gifts smoothly when donors are ready to give.

Download the State of Nonprofit Asset Gifts report to learn more

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Q3 2026 Outlook

The base case for Q3 2026 is continued below-trend but positive growth, with early tracking data pointing toward a slower pace than the first quarter's 2.1%. Inflation is likely to remain elevated in the near term, with the trajectory heavily dependent on whether energy prices continue to normalize. The Federal Reserve has signaled it is unlikely to cut rates while inflation runs meaningfully above its 2% target, and markets will be watching closely for signs of whether a rate increase later in the year becomes more or less likely.

There are three near-term data points worth watching that could shift this picture meaningfully: the June CPI report on July 14, the official Q2 GDP estimate on July 30, and the Federal Reserve's next meeting on July 28 and 29. A durable resolution to the Middle East conflict that allows oil prices to settle further would also meaningfully ease inflation pressure and improve the outlook for both markets and nonprofit operating budgets.

Implications for Nonprofit Portfolios and Reserves

Here are high-level considerations for nonprofits when it comes to managing reserve funds:

‍Cash and Short-Term (0 to 12 months)

Yields on money market funds and Treasury bills remain attractive, and the shift in Fed expectations means this window may stay open longer than previously anticipated. Maintain your policy liquidity buffer, typically six to 12 months of operating expenses. Also consider a T-bill or short Treasury ladder to continue capturing current front-end rates as appropriate, depending on your time horizons, operational needs, and potential restrictions.

Intermediate Reserves (12 to 36 months)

The case for extending duration is more mixed than it was last quarter. With the Federal Reserve signaling a possible rate increase rather than further cuts, locking in longer maturities carries more interest rate risk than it did when the Fed was clearly on an easing path. A measured approach, favoring high-quality Treasuries and municipal bonds over reaching for yield in corporate credit, remains appropriate given how little extra compensation corporate bonds currently offer for their added risk.

Long-Term and Endowment (36-plus months)

Maintain strategic equity targets in accordance with your Investment Policy Statement rather than reacting to a single strong quarter. The Q2 rally was concentrated in a narrow set of technology and semiconductor stocks, and sentiment has already cooled meaningfully since the June peak; disciplined rebalancing back to policy targets is more appropriate than chasing recent performance. Within fixed income, investment-grade Treasuries and municipal bonds remain the anchor of a conservative endowment allocation.

Gift Readiness

With equity markets near record levels for the year, donors holding long-appreciated stock may have significant embedded gains. Remind major donors about tax-efficient non-cash gifts, including appreciated securities and donor-advised fund distributions, and confirm that your brokerage accounts and gift acceptance policies are current so your organization can receive these gifts promptly.

Strategic Recommendations

As we enter into H2 2026, nonprofit leaders should consider the following next steps on the path to financial sustainability?

Reaffirm your tiered reserve policy. Match cash to near-term operational needs, position intermediate reserves to earn income while preserving capital, and keep endowment assets aligned with your long-term Investment Policy Statement.
Stress-test your federal funding exposure. Build budget scenarios around partial or full loss of any at-risk federal grants, particularly in light of the proposed changes to federal grant rules introduced in May.
Hold duration steady rather than extending it for now. With the Federal Reserve signaling a possible rate increase, favor high-quality, shorter-duration instruments over locking in today's longer-term rates.
Favor quality in fixed income. Investment-grade Treasuries and municipal bonds continue to offer an attractive combination of safety and income; corporate bond spreads are historically tight and do not currently compensate investors well for additional credit risk.
Deepen major donor, bequest, and planned giving programs. The growth in 2025 giving came disproportionately from these sources, not from broad-based individual giving, and that pattern is likely to continue.
Communicate proactively with your board. Use this report and your Advisor relationship to make sure your board has a clear, current picture of your financial posture heading into Q3.

Infinite Giving remains committed to guiding nonprofits through this environment and helping you steward the resources entrusted to your mission. Please reach out to schedule time with a dedicated nonprofit financial advisor with any questions about this report.

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DISCLOSURE

Infinite Giving Advisory Services Inc. is a registered investment adviser. Registration does not imply a certain level of skill or training. Advisory services are only offered to clients or prospective clients where Infinite Giving and its representatives are properly licensed or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Infinite Giving unless a client service agreement is in place. This content is provided solely for informational purposes. Investors’ experiences may vary from the content. This presentation encompasses general educational information; not individualized advice or any recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific organization. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Infinite Giving manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary.

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