Q2 2026 Market Commentary

Q2 2026 Market Commentary

BULLY!

A lesson in perspective from Theodore Roosevelt

“Bully!” was Theodore Roosevelt’s favorite expression for something excellent, courageous, or worthy of admiration. It also seems an appropriate word to describe the enduring American spirit.

This summer, Leisa and I celebrated America’s 250th birthday by exploring the national parks and monuments of South Dakota, Wyoming, and North Dakota. From Mount Rushmore to the Grand Tetons, we experienced breathtaking landscapes, abundant wildlife, and a renewed appreciation for America’s natural beauty. Our final stop was the new Theodore Roosevelt Presidential Library in Medora, North Dakota.

Over the years, we’ve visited nearly every presidential library, and each one leaves me with the same two impressions. First, I am inspired by the story of an ordinary American who answered an extraordinary moment. Second, I am reminded that every generation believed it was living through uniquely difficult times. Though some periods were unquestionably more difficult than others, Roosevelt’s library reminded me that many of today’s challenges are not nearly as unprecedented as they may seem.

Roosevelt became president during the Gilded Age, a period of extraordinary industrial growth, widening wealth disparities, political division, and rapid technological change. Sound familiar? What inspires me most is Roosevelt’s belief that America’s strength came not from avoiding difficult times, but from meeting them with courage, optimism, and a willingness to act.

When we’re living through history, it often feels like “This time is different.” Looking back, history tells a different story. America has repeatedly endured wars, financial crises, political division, economic upheaval, and profound social change. Yet time and again, the nation has adapted, innovated, and moved forward.

As investors, we face the same challenge. Successful investing often requires the same qualities Roosevelt admired: courage when uncertainty is high, optimism grounded in evidence, and the discipline to look beyond today’s headlines. History reminds us that progress has never followed a straight line. Progress has always been built through resilience, innovation, and the willingness to look beyond the crisis of the moment. That’s true of great nations, great businesses, and successful investors alike.

As America marks its 250th year, it is worth celebrating one of our nation’s greatest achievements, not simply its longevity, but an economic system that rewards innovation, entrepreneurship, and investment. Headlines come and go, but the enduring strengths of innovation, productivity, and free enterprise continue to attract talent, capital, and opportunity from around the world.

Figure 1. The United States represents approximately 60% of global public equity market capitalization despite accounting for roughly one-quarter of global GDP. This reflects the depth of U.S. capital markets, strong property rights, entrepreneurial culture, and continued ability to attract talent and investment from around the world.

Markets, Rates, and the Cycle

The second quarter was a reminder that strong market performance can occur even amid an uncertain economic backdrop. While investors contended with trade tensions, debate over interest rates, and conflict in the Middle East, markets remained focused on what ultimately drives long-term returns: corporate earnings, productivity, innovation, and economic growth. Since the sharp repricing of stocks and bonds in 2022, resilient consumer spending, continued economic expansion, and an AI-driven wave of capital investment have supported a broad market recovery. The S&P 500 and Nasdaq posted their strongest quarters since 2020, while the Dow recorded its best first half in five years ⁽¹⁾. Concerns about valuations and periodic volatility
persisted, but the underlying strength of the economy and corporate profit engine continued to provide a solid foundation for equities. Attached is our Second Quarter 2026 Market Review foryour reference ⁽²⁾.

Several developments helped reinforce investor confidence as the quarter progressed. Easing tensions in the Middle East and a ceasefire in the Strait of Hormuz reduced concerns about prolonged disruptions to global
energy markets, while strong corporate earnings continued to exceed expectations. The bond market remained volatile as investors reassessed the outlook for inflation and Federal Reserve policy, but the gradual normalization of the yield curve is a constructive development for consumers, lenders, and the broader economy. We continue to believe higher borrowing costs are cooling demand while allowing markets, not central banks, to play a larger role in pricing capital.

Price Stability Takes Center Stage

Before becoming Federal Reserve Chair, Kevin Warsh was widely viewed as favoring a smaller Federal Reserve footprint and greater reliance on market forces. At his first policy meeting, he made clear that restoring price stability is his top priority, even if that requires keeping monetary policy tighter for longer.
Markets initially reacted negatively, but a credible commitment to fighting inflation helps anchor long-term inflation expectations and creates a healthier environment for businesses, consumers, and investors.

Expect a Warsh Fed to be more data-driven and quieter in its communications, encouraging investors to spend less time interpreting Fed signals and more time focusing on inflation, economic growth, and corporate
earnings. A quieter Fed, however, is not an inactive one. Warsh has already launched five task forces, led by 15 outside experts, to modernize the Federal Reserve’s communications, balance sheet management, economic data, labor market analysis, and inflation framework.

June’s inflation report offered encouraging evidence that price pressures are easing. Driven primarily by lower energy prices, the Consumer Price Index fell 0.4% from May, the largest monthly decline since April 2020. Year-over-year inflation slowed to 3.5% from 4.2%, while core inflation was unchanged for the month and declined to 2.6% over the past year, suggesting broader inflation pressures continue to moderate even as shelter and food prices remain elevated. With energy prices still in flux with every cease-fire negotiated and broken, Warsh cautioned against declaring victory after a singlereport, noting, “There might be some that look at this morning’s data and say, ‘Mission accomplished, everything is swell.’ That is not my view.”

The Economy in Two Speeds

The K-shaped economy remains firmly in place. Higher-income households and financially stronger businesses have generally managed higher interest rates well, while many lower-income consumers and smaller businesses that depend more heavily on borrowing continue to feel the strain of elevated interest costs and persistent inflation. This divide helps explain why economic headlines can look encouraging even as many Americans still feel financially stretched. Recent labor and inflation data suggest a slowing but still healthy economy: job growth has moderated, wage pressures have eased, and inflation continues to cool. Together, these trends reduce the risk of another price surge while suggesting the labor market is losing momentum without showing significant stress.

One of the country’s most important long-term challenges remains its growing federal debt. While the debt itself is unlikely to create an immediate market crisis, the rising cost of servicing it deserves greater
attention. As interest rates have normalized, federal interest expense has climbed sharply, increasing competition for capital and leaving fewer resources available for other priorities. 

Figure 2. Rising Interest Costs on the National Debt: As interest rates have normalized, the federal government’s interest expense has climbed to its highest level in decades, highlighting why debt sustainability is increasingly tied to economic growth and productivity gains.

Over time, higher government borrowing could place upward pressure on interest rates and crowd out private investment. The most durable solution is not simply spending restraint, but stronger economic growth driven by higher productivity. In that respect, artificial intelligence may become one of the most important contributors to economic expansion over the coming decade.

AI and Real Investment

Artificial intelligence represents the latest chapter in America’s long history of innovation-driven productivity growth. Like the railroad, electrification, and the internet, AI has the potential to reshape industries, improve productivity, and create new investment opportunities. While much of the attention has focused on software developers and semiconductor companies, the opportunity extends far beyond technology. Building AI requires enormous investment in computing power, data centers, electric utilities, power generation, transmission infrastructure, cooling systems, networking equipment, and industrial materials. In our view, AI is not simply a technology story; it is a broad capital investment cycle with the potential to influence nearly every sector of the economy.

We continue to believe this investment cycle has considerable runway. Corporate capital spending remains strong, supported by growing demand for AI infrastructure, domestic manufacturing, supply chain reshoring, and modernization of the nation’s electric grid. At the same time, we are beginning to see leadership broaden beyond the companies building AI models to the businesses providing the infrastructure needed to deploy them. As AI adoption expands across the economy, we expect opportunities to increasingly emerge in industrials, financials, materials, utilities, and infrastructure-related businesses, not just in the largest technology companies. That broader participation continues to shape how we position client portfolios.

Portfolio Positioning

We continue to emphasize long-term fundamentals rather than short-term headlines when positioning client portfolios. Our recent portfolio changes reflect a simple belief: the investment opportunity is broadening. While mega-cap technology companies continue to play an important role, we believe the next phase of the market will be driven by a wider range of businesses benefiting from AI infrastructure, capital investment, reshoring, and productivity gains.

Accordingly, we remain slightly underweight technology and communication services, which together now account for nearly half of the S&P 500. Instead, we have increased exposure to industrials, financials, materials, and infrastructure-related businesses that we believe are well positioned to benefit from the ongoing capital spending cycle. We also trimmed positions that had become extended or overly concentrated, allowing us to reallocate to AI-driven growth while reducing reliance on a relatively small group of market leaders. Our goal is not to predict tomorrow’s market leader, but to own a diversified portfolio of businesses positioned to benefit from the long-term forces shaping the economy while managing risk through disciplined rebalancing and thoughtful diversification.

Tax and Planning Notes

As part of our recent portfolio rebalancing, some clients with taxable accounts, particularly those who have been invested with us over the past several years, may realize capital gains that will be reflected on their year-end 1099 tax reports. While we are always mindful of taxes and each client’s unique circumstances, allowing highly appreciated positions to grow unchecked can increase concentration risk and ultimately reduce portfolio flexibility.

We encourage clients to view portfolio management and financial planning as an ongoing process rather than a series of isolated decisions. Thoughtful rebalancing, tax-aware investing, retirement planning, estate planning, and cash flow management all work together to support long-term financial success. Markets will always experience periods of uncertainty, but disciplined planning and consistent decision-making remain among the most effective ways to build and preserve wealth over time.

Final Thoughts

As America celebrated its 250th birthday, we’re reminded that every generation has faced moments that felt uniquely uncertain. Theodore Roosevelt believed those moments called for courage, optimism, and action rather than fear. Investors have historically been rewarded by taking the same approach. Temporary events create noise, but enduring institutions, innovation, disciplined planning, and patient long-term investing remain the true builders of wealth.

As we move through the summer, we want to thank you for your continued trust and partnership. We are scheduling reviews and encourage you to schedule a 30-minute Mid-Year Planning Review to discuss any changes in your goals or circumstances and proactively prepare for year-end planning opportunities. These conversations help ensure your investment strategy, tax planning, retirement goals, and estate considerations remain aligned as we move toward December.

We wish you and your family a safe and enjoyable summer. 

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1. The DOW,  NASDAQ, S&P 500 and Russell 2000 –  are unmanaged groups of securities considered to be representative of the stock market in general

2. Broadridge Quarterly Market Review: April-June 2026