Six months into 2026, the market’s central storyline has flipped. In January, investors were debating how many interest rate cuts the Fed would deliver. Today, the conversation is about whether the Fed’s next move is a hike.
That shift owes less to overheating growth than to geography. Renewed conflict in the Middle East has kept oil prices elevated, and the resulting energy-driven inflation has pushed core price growth back above 3%. New Federal Reserve Chair Kevin Warsh used his first meeting at the helm to signal a harder-nosed, more data-driven posture: shorter statements, less forward guidance, and a dot plot showing most policymakers now expect rates to hold or rise before year-end. Markets have taken the hint and talk of cuts has quieted considerably.
None of this has derailed the rally so far. Second quarter earnings season is on pace to deliver a second straight quarter of profit growth above 20%, and unlike prior cycles, this advance has been earnings-led rather than multiple-driven. That is a genuinely healthy dynamic, but it is also a demanding one. Expectations are high, valuations leave little room for disappointment, and the market’s enthusiasm remains concentrated in artificial intelligence and the infrastructure being built to support it. Recent wobbles in semiconductor stocks, alongside a sharp guidance cut from a major legacy technology name, are early evidence that even the AI trade is not immune to scrutiny once spending assumptions get tested.
We see a market at an inflection point rather than an ending point. Broadening participation into small caps, financials, and value names is encouraging, and it suggests investors are looking past the narrowest version of this bull market. At the same time, a hawkish Fed, a fragile ceasefire in the Middle East, and stretched valuations in the market’s leadership group are real risks worth respecting.
Our approach remains consistent: stay invested and diversified, resist the urge to chase last quarter’s winners, and keep enough flexibility to act when volatility, which has been unusually absent, inevitably returns.
This is a market that rewards patience and discipline over conviction and leverage. We intend to keep both firmly in place.
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