Market Commentary

• Our regular readers are aware of the artificial-intelligence secular theme that has been a major key in carrying stocks higher.
• But there are other themes out there worthy of our investing dollars.

This is one of those weeks when investors are getting barraged with headlines coming from all directions and from many different sources. Some will have a market impact one way or the other, but the impact will likely dissolve quickly. In an ideal world, the breaking headlines confirm the expectations the financial markets are pricing in, but that doesn’t mean there won’t be any related volatility. But in our view, investors need to try to look beyond the news of the day and focus on trends that are going to assert themselves and drive the economy and markets in coming quarters and beyond. Even though the S&P 500 Index has been setting a number of new all-time record highs in recent weeks while the yield on the 10-year bond remains low near 4%, financial markets still seem ready to respond to anticipated news coming from big-tech earnings reports, Federal Reserve interest-rate adjustments, and trade-negotiation results coming out of tomorrow’s Trump/Xi meeting. But we are not traders. We are asset allocators with a longer-term time horizon trying to lean into themes that will drive profits over the next 12 to 18 months or longer.

Our regular readers are all aware of the artificial-intelligence (AI) secular theme that has been a major key in carrying stocks higher. Don’t forget about other related big-tech trends in cybersecurity and the improvement in factory automation and humanoid robotics that are capturing investment dollars and have huge productivity potential in coming years. But there are other themes out there worthy of our investing dollars. Some have been more on the back burner of late, but all deserve attention. Trends in place and likely to drive the market now and in 2026 include tax cuts and deregulation, much of it coming from the One Big Beautiful Bill passed by Congress and dialed up to really have what we view as a positive economic impact in the new year.

We are investing in these positive trends in a number of different ways. From a high level, we favor domestic large- and mid-capitalization equities and continue to favor Financials. Financials are set to benefit from deregulation, additional loan demand as massive tech capital expenditures filter through economy, and a steepening yield curve. Of course, the Industrials and Utilities sectors should benefit as the data-center buildout ramps up and the U.S. electrical grid is upgraded. We have positive ratings (favorable) on those sectors in addition to the Technology sector.

There are a number of angles to play the broad themes we see further developing. Most are in some way related to the technology AI boom that is currently underway and is likely to gain increased traction in the years ahead.

Investors are hearing a lot of headlines this week, but our suggestion is to look through the noise of the day and focus on the trends in place and those likely to offer attractive returns looking ahead. We continue to see pullbacks, should they occur, as buying opportunities and are targeting 7,400 – 7,600 for the S&P 500 by the end of next year.

Each asset class has its own risk and return characteristics. The level of risk associated with a particular investment or asset class generally correlates with the level of return the investment or asset class might achieve. Stock markets, especially foreign markets, are volatile. Stock values may fluctuate in response to general economic and market conditions, the prospects of individual companies, and industry sectors. Small- and mid-cap stocks are generally more volatile, subject to greater risks and are less liquid than large company stocks.

Sector investing can be more volatile than investments that are broadly diversified over numerous sectors of the economy and will increase a portfolio’s vulnerability to any single economic, political, or regulatory development affecting the sector. This can result in greater price volatility. Investing in the Financial services companies will subject an investment to adverse economic or regulatory occurrences affecting the sector. There is increased risk investing in the Industrials sector. The industries within the sector can be significantly affected by general market and economic conditions, competition, technological innovation, legislation and government regulations, among other things, all of which can significantly affect a portfolio’s performance. Risks associated with the Technology sector include increased competition from domestic and international companies, unexpected changes in demand, regulatory actions, technical problems with key products, and the departure of key members of management. Technology and Internet-related stocks, especially smaller, less-seasoned companies, tend to be more volatile than the overall market. Utilities are sensitive to changes in interest rates, and the securities within the sector can be volatile and may underperform in a slow economy.

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