Happy 4th of July!
I hope you and your family had an opportunity to celebrate the 250th birthday of this great nation. For us? For Erika, the boys and I, we enjoyed fireworks and being serenaded by this country’s top Elvis impersonator. Top That!
A little update, due to unpopular demand, I am splitting this year’s letters into 2, instead of my usual 4. This letter will cover; economics, markets and some capital markets investments. End of year will be more of a round up, looking forward and tax strategies.
Equity Markets
So far 2026 has been a banner year for equities. Most major indices posted double-digit returns for Q2 and delivered their best quarter since COVID or Global Financial Crisis recoveries.
There is a new group of stocks leading the US equity markets.
· SandDisk
· Micron Technology
· Intel
· Western Digital
· Seagate Dell
This group benefits from the A.I. buildout and are concentrated in the Semiconductor and tech hardware industries. From 2023-2025 the Mag 7 stocks accounted for almost half the S&P 500’s returns and 31.6% of the market weights but have been a non-factor so far in 2026. Compare that with these new top 6 stocks accounting for only 4.4% of market weight. This is still somewhat an issue as there are significant buildups and overweight in portfolios across the world in the Mag 7 names, which if liquidated, would create significant market turmoil and a tax issue for the owners.
I have had several conversations about an overbought market and expecting some correction, however historically bull markets last 5.6 years, and this market is only 3.8 years old. This of course doesn’t guarantee anything, but it is a positive detail. It is also helpful to understand that historically, after the markets make these new highs, the next 12 months show more growth, not necessarily pullbacks. Again, a detail and certainly not a guarantee.
Another positive note is the valuations of this market (otherwise known as the P/E Ratio or Price divided by earnings). The Nasdaq peaked at near 80 p/e and the S&P 500 peaked over 45 but currently are valued at 34 and 27 respectively. There is also price momentum in Small Cap Stocks with improving fundamentals and attractive valuations vs. large caps, in which small caps outperformed large caps by nearly 20%.
Elections
It can’t be a mid-year review without talking about politics. Midterms are coming up and several key states will decide on a new Governor. Historically, markets are “choppy” in midterm years, with volatility peaking around October, which so far this year bears out. Once elections results are in, volatility tends to ease throughout the rest of the year as spending and rhetoric stop. Noteworthy – since 1950, a year after every election, the market is positive, no matter the political affiliation of the winners.
Portfolios
Our managed portfolios continue to stay diversified and outweigh Small Cap and International with a healthy slug of industrials and tech in the Tactical Portfolios. As a reminder, most accounts are made up of Core Equity and Tactical Equity buckets.
Looking forward to some items to be aware of or:
1. Inflation and it’s effect on new FOMC Chairman Kevin Warsh. If we see inflation tick higher, that could mean higher interest rates over the short and intermediate term (think 1-7 years), which would be a headwind for the equity market.
2. Energy prices and the energy sector considering war with Iran and the strait of Hormuz blockade.
3. Market Volatility: Relatively low currently vs historical numbers and currently getting lower. If you believe (like me) that reversion to the mean is a real thing, then this may see some change. Staying diversified is how to combat.
4. Home prices: Heading into election season many governors’ races are being fought along the cost-of-living battlegrounds. The current home supply of 4.4 months of supply, compared to 5-6 months for a more “balanced” market.
5. Consumer Sentiment: May 2026 reading is the lowest level since we started to track this number. Lot’s of people unhappy about purchasing anything.
Portfolio changes:
I am looking to rebalance portfolios going into the end of summer and adding in more Small Caps, International and Emerging markets. Sectors wise I am taking a hard look at Defense and Healthcare sectors. Healthcare is interesting because it has been vastly underperforming the overall market and we have stayed generally away from it, however multiples look very attractive. I just cannot see how healthcare companies have such poor earnings and margins considering the aging population and the explosion of GLP-1s. Nothing to report yet, just thinking.
There are 2 positions I am looking at trimming across the board based on risk and relative performance statistics. Again, I’ll let you know when we make a change.
What I am watching:
1. 1 Month away from College Football Season
2. I have never been a big social media person, but I am avoiding a lot of brain rot on my phone by switching to Chess. Give it a try if you have that issue, but it can be addictive.
3. Start of school in August. Summer has flown by!
Enjoy the rest of summer!!
The views stated in this letter are not necessarily the opinion of Cetera Investment Services LLC and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results. Investors cannot invest directly in indexes. The performance of any index is not indicative of the performance of any investment and does not take into account the effects of inflation and the fees and expenses associated with investing. Additional risks are associated with international investing and emerging markets, such as currency fluctuations, political and economic stability, and differences in accounting standards. Diversification does not guarantee a profit or protect against loss in declining
markets. All investing involves risk, including the possible loss of principal. There is no assurance that any investment strategy will be successful.