Q2 2026 Investment Report

As of June 30, 2026

The Twists and Turns of the Global Stage

The first half of 2026 reminded investors that long-term investment success depends less on predicting every short-term market move than on staying disciplined through uncertainty.

Dear Valued Client,

Every four years, the World Cup shows us that success is rarely achieved in a straight line.

Teams enter the tournament with elite talent, carefully developed strategies, and high expectations. Yet the tournament often produces surprises. Favorites stumble, underdogs emerge, and momentum shifts. The teams that continue to advance are usually not those that dominate every match, but those that adapt, are disciplined, and find ways to navigate uncertainty.

For investors, the first half of 2026 felt remarkably similar.

Investors entered the year with optimism. Economic growth remained positive, corporate earnings were healthy, and enthusiasm surrounding artificial intelligence fueled investment and innovation. As the months unfolded, however, the path forward quickly became more complicated. Geopolitical tensions intensified, energy markets turned volatile, inflation concerns resurfaced, and investors were forced to reassess assumptions about interest rates, global trade, and economic growth.

Like the World Cup, the first six months of the year produced both expected and unexpected outcomes. Some investment themes that dominated previous years continued to play important roles, while others lost momentum.

The result was a powerful reminder that successful investing, much like advancing through a tournament, isn’t about winning every match. It’s about maintaining a disciplined, diversified strategy capable of succeeding across a wide range of market conditions.

A Challenging Global Backdrop

The first half of 2026 unfolded against a backdrop of rising geopolitical uncertainty. In fact, measures of the World Uncertainty Index reached their highest levels since 2018 during May, underscoring the complex environment facing businesses and investors.

Conflict in the Middle East escalated, disrupting important energy shipping routes, while the Russia-Ukraine conflict remained unresolved. Trade tensions continued to influence relations among major economic powers, particularly between the U.S. and China. Throughout the world, elections, fiscal policy debates, and shifting alliances added another layer of uncertainty for businesses and investors.

Despite these challenges, the global economy proved more resilient than many expected. Consumers remained active, labor markets generally stayed healthy, and corporate earnings continued to exceed expectations across many sectors. First-quarter S&P 500 earnings per share grew 28.6%, the strongest quarterly growth since 2021, while only 15% of companies missed earnings estimates. Consensus forecasts call for 23.3% year-over-year earnings growth in the second quarter. Although markets experienced periods of volatility, they repeatedly looked beyond the headlines and refocused on longer-term economic fundamentals.

Markets have long shown an ability to climb walls of worry. Some of the strongest periods of long-term wealth creation have occurred when uncertainty was high, and confidence seemed scarce. Investors who wait for perfect clarity often discover that markets have already begun moving ahead.

The AI Investment Boom Continues

If one theme defined the first half of 2026, it was the continued acceleration of artificial intelligence investment.

What began as a technology story has become a broader economic one. AI is driving spending on data centers, power generation, networking equipment, cloud infrastructure, semiconductors, cooling systems, and the many industries that support them. Companies across nearly every sector are investing aggressively to improve productivity, lower costs, and strengthen their competitive position. It is estimated that 93% of the last four quarters’ GDP increase is due to this technology spending, eclipsing the 60% high during the late 1990’s technology, media, and telecom era.

The scale of AI-related capital investment is extraordinary. Estimates of AI’s potential global economic impact vary widely, ranging from approximately $2.5 trillion to more than $15 trillion. That range reflects both the magnitude of the opportunity and the uncertainty surrounding how quickly AI will be adopted, how broadly it will be applied, and which companies will ultimately benefit.

AI Infrastructure stocks such as Micron and NVIDIA reported strong first-quarter earnings and are expected to contribute nearly 60% of S&P 500 earnings growth this quarter. This wave of investment has become an important driver of both economic growth and corporate earnings. At the same time, periods of technological transformation often create both opportunity and uncertainty.

One issue receiving attention is the interconnected nature of AI investment. Many of the companies benefiting from AI spending are also investing in, financing, partnering with, or purchasing services from one another. A cloud provider may purchase chips from a semiconductor company, while that semiconductor company depends on the cloud provider as one of its largest customers. Big technology companies are also investing in AI startups that may use some of that capital to buy computing capacity, software, or services from those same providers.

None of this is inherently problematic or unethical. Strategic partnerships are common during periods of rapid innovation. They can, however, make it more difficult for investors to distinguish between demand driven by end users and demand circulating within the AI ecosystem itself. Investors find themselves asking not only whether revenues are growing, but also where those revenues originate, whether they are recurring, and whether they represent sustainable economic demand.

Another factor worth watching is how accounting dynamics may be creating a near-term perfect storm for earnings across the AI ecosystem.

Companies supplying AI infrastructure, including semiconductor manufacturers, cloud providers, networking companies, data-center operators, and equipment suppliers, generally recognize revenue as products are delivered and capacity is deployed. Investors have rewarded these businesses because that revenue growth is visible, measurable, and immediate.

At the same time, many of the companies purchasing this infrastructure experience a very different accounting outcome. While they are investing substantial amounts of cash in AI initiatives, much of that spending is classified as capital expenditure rather than an immediate expense. Cash leaves the business today, but those costs are generally not reflected in earnings until the assets are placed in service and depreciated or amortized over many years.

The consequence is that both sides of the transaction can appear to benefit simultaneously. Suppliers record revenue and earnings today, while purchasers often report only a modest impact on earnings despite a substantial cash outlay. From an accounting perspective, much of the AI ecosystem can appear highly profitable at the same time. Economically, however, the costs associated with those investments will be recognized over future periods through depreciation, amortization, and return-on-investment requirements.

This does not imply that the investment is misguided. Many of history’s most important technological advances required years of upfront spending before their economic benefits fully materialized. It does suggest that today’s reported earnings may not capture the long-term economic costs of the AI buildout. At some point, investors may transition from asking who is spending on AI to asking which companies are earning attractive returns on those investments. That distinction is likely to become more important as this investment cycle matures.

History suggests that this is often the stage where investing becomes most difficult.

During the late 1990s internet boom, it was easy to recognize that the internet would transform commerce, communication, and society. The harder question was identifying which businesses would ultimately create lasting value. AOL was once viewed as the dominant gateway to the internet. Yahoo was among the most influential technology companies in the world. Yet over time, Google emerged as one of the defining businesses of the digital era, while early leaders faded from prominence.

AI may present a similar challenge. The direction of technological change appears clear. The eventual winners, however, are far less obvious. Some companies will create extraordinary value. Others may invest enormous sums pursuing AI capabilities without ever earning an adequate return on their capital. For investors, distinguishing between the two may become one of the defining investment challenges of the next decade.

The lesson is not that AI represents another technology bubble, nor that today’s leaders are destined to disappoint. Rather, it’s that transformative technologies and successful investments are not always the same thing. A powerful secular trend does not guarantee that every company associated with it will deliver attractive long-term returns.

Returning to our World Cup analogy, AI may be the most talented player on the field. But even the world’s best player doesn’t win a tournament alone. Strategy, execution, discipline, endurance, and adaptability ultimately determine who lifts the trophy.

An encouraging development in the first half of 2026 was that markets did not depend exclusively on AI. Leadership broadened, and diversified investors were rewarded across several areas that had lagged in prior years.

What Worked During the First Half of 2026

For much of the past decade, market returns were influenced by a relatively small number of large U.S. technology companies. While those businesses remain powerful drivers of innovation and growth, market leadership broadened during the first half of 2026, rewarding investors who maintained diversified exposure across multiple asset classes and regions.

One of the year’s biggest surprises was the strength of international equity markets. After lagging U.S. stocks for years, the trend began to reverse in 2025 as attractive valuations, improving economic conditions, and renewed investor interest supported returns abroad. So far this year, international markets have returned approximately 13.7% compared to the U.S. market’s year-to-date 10.9% return.

Even after that outperformance, international stock markets continue to trade at meaningful valuation discounts relative to the U.S. market. International developed and emerging markets have trailing twelve-month price-to-earnings ratios of 19.0 and 18.6, respectively, compared with 27.6 for the U.S. market. While valuation differences alone do not predict future returns, they may provide a favorable starting point to support future relative performance over time.

Small-cap stocks returned approximately 22.57% year-to-date, outperforming large-cap stocks while reversing a trend that had favored mega-cap companies for several years. Much of that strength, however, was driven by lower-quality companies with weaker earnings rather than businesses with consistently stronger fundamentals. Even so, broader participation beyond large-cap technology represented a notable shift in market leadership during the first half of the year.

Value stocks also outperformed growth stocks. The Russell 1000 Value Index returned 16.26% year-to-date, compared with 5.33% for the Russell 1000 Growth Index. After several years in which investors strongly favored growth-oriented companies, 2026 brought renewed appreciation for companies that generate strong cash flow, maintain healthy balance sheets, and trade at reasonable valuations.

Outside of traditional equity markets, natural resource and energy-related investments also performed well. Geopolitical tensions, supply concerns, and renewed inflation pressures reminded investors that real assets can continue to play an important role within diversified portfolios. Companies providing the world’s energy, raw materials, and infrastructure found themselves back on the field after years of being overlooked.

Another standout was reinsurance, which has returned 10% this year. Strong pricing, disciplined underwriting, and higher investment yields strengthened industry fundamentals. Like a veteran team quietly advancing while attention was on the tournament favorites, reinsurance generated attractive returns without attracting significant headlines.

What Didn’t Work as Well

No investment performs well under every market condition. The first half of 2026 provided another reminder that market leadership continually evolves, and investments that excelled in recent years experienced more challenging conditions.

Private credit, one of the strongest-performing asset classes in recent years, faced a difficult environment and negative headlines driven by high retail investor redemption requests. Rising interest rates, constrained bank lending, and strong investor demand created exceptionally favorable conditions for private lenders over the last several years. In 2026, competition increased, spreads compressed, and investors became more cautious as headlines focused on lending practices and credit quality within parts of the market.

While the extraordinary tailwinds that fueled recent performance have moderated, we continue to believe private credit can play an important role within a diversified portfolio. Importantly, we have not seen any deviation in yields or an increase in default rates in the private credit strategies our clients own.

Gold and gold-mining companies also underperformed after delivering exceptional returns in 2024 and 2025. That outcome was not entirely unexpected. Gold entered the year with strong momentum, supported by central-bank purchases, geopolitical uncertainty, concerns about sovereign debt, and demand from investors seeking portfolio diversification.

As 2026 progressed, several factors worked against the precious metals complex. Real interest rates moved higher, increasing the appeal of income-producing alternatives. Periodic strength in the U.S. dollar also weighed on precious metals, while improving economic sentiment reduced some of the fear-driven demand that had supported gold prices during prior years.

Gold-mining companies faced additional challenges. Although miners generally benefit from higher gold prices, they must also manage labor costs, energy prices, operational risks, and ongoing capital investment requirements. As a result, periods of volatile gold prices often produce greater volatility among mining shares.

Even so, we do not believe the long-term investment case for gold has fundamentally changed. Government debt levels remain elevated, fiscal deficits continue to widen globally due to rising entitlement and defense spending, central banks remain active buyers, and geopolitical uncertainty persists.

Rather than signaling the end of the cycle, the first half of 2026 may simply represent a period in which expectations have recalibrated after several years of exceptional performance.

Playing the Long Game

As the World Cup progresses, every match becomes consequential.  Teams rarely advance because they dominate every minute of every game. More often, they succeed because they remain disciplined, adapt as conditions change, and stay committed to a long-term strategy despite short-term setbacks.

For investors, the lesson is similar. Markets continually evolve, leadership changes, and periods of uncertainty often create both risks and opportunities. Long-term investors can be better served by being disciplined enough to stay invested through all of them.

Looking ahead, we continue to be constructive yet realistic. Economic growth continues, corporate earnings remain healthy, and innovation, particularly in artificial intelligence, is creating significant opportunities. At the same time, geopolitical tensions, fiscal pressures, inflation risks, and elevated valuations in certain areas remind us that uncertainty is a permanent feature of investing.

We believe client portfolios are well-positioned today, and we are in the final stages of due diligence on a couple of new investment opportunities. If those strategies are appropriate for you and your specific goals, your Wealth Advisor will discuss them with you at an upcoming meeting. As always, we remain vigilant, looking for new opportunities while continuously assessing current holdings in client portfolios.

Thank you for the continued trust and confidence you place in our team. We appreciate the opportunity to help guide your family’s long-term financial future.

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