Money Talk – 2026 Q2

Valuations continue to be tested each quarter, but earnings and revenue growth continues to show strength on the back of the global A.I. growth story. With prices at current levels, the stock market outlook may tend to be more muted. Global markets have enjoyed three and a half years of strong growth above historical averages, and (sadly) not all years can end up being above average. With valuations at the levels they are today, we generally anticipate a lower growth story for the coming years, however, any number of things (many unknown at this moment) may tend to be the driving factors for whether market levels can continue to climb higher or not – particularly if earnings growth shows resilience.

With the closing of the Strait of Hormuz, global oil supplies and distribution have been meaningfully constrained. Yet, countries and consumers are delicately balancing the fine line of whether many regions are or will be able to meet their energy demands during the ongoing conflict.

Tariff policies have caused a whip-saw, and A.I. has triggered a touch-and-go sentiment for the employment situation in the U.S. as numerous jobs were lost in the technology sector. The second quarter had a wave of workforce reductions as companies shifted capital away from traditional operational roles to aggressively fund investments in artificial intelligence infrastructure.

Also notably in the quarter, Kevin Warsh took oath as chair of the Federal Reserve on May 22, so the market is likely to have an adjustment period to different perspectives and policies on the future trajectory of unemployment and inflation. Often, it’s the word choice and signaling mechanisms of the direction of the economy that is very important to watch from the Fed, so new leadership has an extra period of adjustment as market participants re-evaluate the flow of information and dissect each word of the Fed’s signals for Federal Reserve interest rate expectations. Heading into the year, the consensus was for one rate cut this year, and that direction has since changed to potentially keeping rates steady while there is now a possibility for a rate hike.

Read on as we explore factors potentially impacting the economic outlook for the second half of 2026, such as the increasing likelihood of a recession contrasted with the health of the IPO market, artificial intelligence, and geopolitical risk.

Jarring Headlines and Market Uncertainty Abound

The economy continues to show resilience, but the longer we march forward without a recession, the higher likelihood that one could materialize on the horizon. There are almost a daily barrage of factors and headlines that could spook the markets, but it’s equal parts surprising and unsurprising that the markets have largely disregarded the issue-of-the-day, though not to take lightly the significance of many of the developments or issues, despite each one having its own significant long-term implications. The market often tends to be inaccurate at digesting the short-term impact to news and developments by over shooting on the downside and temporarily swinging too high on the upside. In day-to-day decision making that consumers live in, companies, economies and individuals are able to slowly adjust and adapt their behaviors (or expectations) for the long-term picture when viewed through the lens of five to ten years.

With all the market uncertainty, one question we often get throughout all cycles is “is now a good time to invest”? Throughout most time periods and most environments, for those investors seeking long-term wealth accumulation and not just seeking to make a quick-buck, the answer tends to be yes – even as markets continue to make new highs. While it is easy to get lost in short-term volatility that can spike quickly, most of the time the markets end up being impacted in a more positive way over YEARS (versus days / weeks / months / quarters) by things that people tend to underestimate over that five and ten year period of time. We do not purport to time the markets, and our approach to helping our clients to build wealth is to be steady and disciplined, but to be ready and willing to adjust in the short-term if assumptions shift.

During the quarter, we incorporated some inflation hedge, when appropriate, on the bond side of the portfolio. There remains a large amount of uncertainty on the future direction of interest rates, and particularly with rate path uncertainty and whether the Fed may actually end up raising rates this year or early next year. The break-even rates for inflation over the next several years (over U.S. Treasuries) was hovering in the low-to-mid 2%. As such, the scales started to tilt to considering more protectionary holdings given the relatively low hurdle required for inflation to overcome. However, when viewed through a total wealth lens, we believe the best way to help maintain the purchasing power of dollars over a period of decades is through the inflation hedge that holding high quality stocks tends to offer. Since, companies tend to have a strong ability to pass along higher costs and prices to consumers over a full cycle, and we’ve continued to see evidence of this in the recent cycle, and long-term equities tend to shine.

What is the IPO market telling us?

There is never a shortage of news to focus on, and this time is no different. There are so many “big rocks” to evaluate, and each one can have different implications for the near-term picture. One pocket of the market that tends to ebb and flow with the economic cycles that we wanted to highlight this quarter is the IPO market.

Taking a step back to look at the last few years, after a record-setting pace in 2021, the IPO market slowed dramatically as rising interest rates, inflation concerns, and heightened uncertainty caused many companies to delay going public. While activity remained relatively muted through much of 2022 and 2023, the past year has brought a noticeable resurgence, with more companies confidently seeking to enter the public markets. Although today’s IPO environment remains more selective than the exuberance of a few years ago, the increase in new offerings can be an encouraging sign that investor confidence and capital markets have continued to strengthen. Healthy capital markets don’t just benefit companies raising capital since they also reflect a greater willingness among investors to look beyond short-term uncertainty and focus on long-term opportunities and possibilities.

More recently, with the IPO of SpaceX, the broader sentiment seems to have inched closer to the “exuberance” side of the scale. Not to get into the merits or specifics of SpaceX itself, though a member of your team would be happy to discuss our views on this recent example, the general sentiment of participation reads closer to euphoric, regardless of price. However, when it comes to our views on investing, price does matter. Valuations can get stretched in the short-term, but they have a tendency to right-size over the long-term as reality sets in. Some of this risk-seeking behavior is creeping into the marketplace as participants try to “catch-up” if they weren’t participating in the broader market rally over the last three and a half years. Usually, that doesn’t bode well for individuals seeking to “avoid” typical market risks or “hide” in other asset classes – ultimately, almost everything globally is somehow tied to the economy and interest rates, so it’s important not to disregard long-standing wealth creation strategies at the expense of trying to make a quick buck – or worse, to attempt to “hide” from the markets.

Today’s environment seems particularly challenged with how quickly A.I. is changing the jobs landscape almost daily too. Answering questions like what environment we WANT A.I. to thrive in versus where it WILL thrive, which may be different answers, but time will tell. Yet, with the promise of productivity and efficiency, it’s not entirely surprising that all the short-term happenings have not had too much of a material impact on the economic engine that is powered by the global consumer given how (potentially) transformative A.I. could be in a number of areas. But, to quote my middle school daughter, “A.I. is doing too much, and it needs to go away!.” Is she on to something? Has it already gone too far, or is it just getting started?

CLOSING REMARKS

With the impressive rally since the lows in March of this year, it would be prudent to not extrapolate recent positive performance to expect that to continue at the current pace (let alone the pace of the last three years). Markets tend to operate in cycles, and risk-oriented assets have experienced an above-average few years, so the tides could shift at any point. We humbly hope the positives continue to outweigh the negatives in the global economy, but we also remain grounded in historical context for the challenges that often are thrown at the markets – with most material events being things on few people’s radar at the time (COVID in late-2019/early-2020 for example). And, we believe that the best way to be positioned is through a well-crafted, globally diversified portfolio that is rooted in a client’s timeline and risk tolerances.

Between uncertainty on the future path of interest rates and a large amount of global geopolitical uncertainty, risk-oriented assets remain resilient, as evidenced with a strong IPO market and healthy earnings growth in many sectors, but the tides of investor preferences and risk-taking appetites can shift swiftly.

The reopening of the IPO market is a reminder that confidence doesn’t return all at once – it builds gradually, often while uncertainty still exists. Investors who wait for every question to be answered may find that markets have already begun moving forward, reinforcing the value of staying invested through periods of uncertainty.

It’s easy to mistake today’s headlines for tomorrow’s reality, but successful investing has rarely been about reacting to the loudest news. More often, it comes from remaining disciplined, focusing on what you can control, and allowing time – not emotion – to work in your favor.

It doesn’t seem like we are quite there yet, but it’s important to be mindful that when growth-at-any-cost starts to become the default, investors are typically rewarded by tip-toeing and proceeding cautiously instead of jumping head first into the deep end. Investing seldom rewards those who let the fear-of-missing-out take over healthy, long-term decision making as patience frequently rewards the disciplined investor.

Wishing you and your family a great close to the summer break and a pleasant start to fall.