Mid-Year 2026 Market Update: AI, Seasonality, and Staying Grounded

Dear Reader,

As we cross the midpoint of 2026, I wanted to share a fuller look at how markets and the economy have behaved through the first half — along with the trends we're watching most closely and how we're positioning portfolios from here.

The headline: markets have proven resilient through a choppy and uncertain environment, even as the picture underneath grows more nuanced.

Where the market stands

U.S. large-cap stocks have continued to set record highs — the S&P 500 first closed above 7,600 on June 2, extending a powerful run [1] — and roughly 84% of companies beat first-quarter estimates. [2] That strength has held up despite real crosscurrents: Q1 GDP was revised down to 1.6% annualized, [3] inflation re-accelerated to 3.8% in April (core 2.8%), [4] and the labor market stayed firm — employers added 172,000 jobs in May, with unemployment holding at 4.3% and prior months revised higher. [5] The Federal Reserve kept its policy rate unchanged at 3.50%–3.75% through the spring; [6] after May's strong jobs report and a renewed rise in oil prices, markets expect it to hold again at the June 16–17 meeting — the first under new Chair Kevin Warsh — with some now even debating a possible rate hike later this year. [7] The 10-year Treasury yield has pushed up to around 4.55% [7] — keeping borrowing costs elevated, but also making high-quality bonds a real source of income again.

Markets have also been notably resilient in the face of geopolitical tensions and the conflict with Iran, even as those tensions flared again in early June. As the saying goes, markets climb a wall of worry — and that dynamic has continued to support stock ownership through the first half of the year.

The trends we're watching

AI and the workplace. This is the trend we're tracking most closely. Our thesis is that while AI will bring displacement in some industries, our hope and expectation is that it will be used to increase efficiency rather than simply replace workers. Over time, that should drive improvement in overall business economics — which we believe is ultimately supportive of stocks.

The IPO pipeline. We're watching closely for the possible public listings of Anthropic, OpenAI, and Elon Musk's SpaceX. Any of these would be a significant market event and a window into how investors are valuing the next wave of AI and technology leaders.

Are we near "peak AI"? For all our long-term optimism, we're mindful that enthusiasm can run ahead of fundamentals. The rush of marquee AI-related names toward the public markets — and AI's growing prominence on magazine covers, including a recent cover of The Economist — are the kinds of signals that have historically accompanied a peak in short-term excitement more often than the start of one. (The long-standing "magazine cover indicator" holds that by the time a theme dominates the front page, it tends to be widely understood and largely priced in.) We're not alone in watching for froth: several prominent investors have recently flagged bubble-like conditions across AI. [8] None of this changes our long-term thesis — but it does reinforce our caution about chasing the trade at these levels, and our preference for discipline over a fear of missing out.

Inflation and jobs. Inflation re-accelerating while the labor market stays firm keeps the Fed cautious and rates restrictive — a backdrop we expect to persist until inflation moves closer to target.

What we expect over the coming months

Seasonally, stocks tend to be weak or range-bound during the summer. We think the market may use this period to pause — and possibly correct slightly — as it gears up for what could be an eventful Q3 and Q4 of 2026.

We'd also flag a shift in the commodities picture: the gold trade looks to have run its course. Gold and silver are no longer outperforming U.S. stocks. That's an important reminder that asset-class leadership rotates, that chasing recent performance is risky, and that this reinforces the case for caution when making tactical moves — and for remaining disciplined, long-term investors.

How we're positioning

Our base case is slower growth, sticky inflation, and a range-bound but supportive equity market. The main risks are renewed inflation pressure, softer consumer demand, and tighter financial conditions; the opportunities lie in AI-driven productivity, earnings resilience, and broader participation beyond the megacaps. Practically, that means emphasizing quality, being selective with duration in fixed income, favoring earnings-driven stock selection, staying diversified, and rebalancing with discipline rather than reacting to headlines.

A note on what we've been doing on your behalf: with markets at all-time highs, we've been actively rebalancing — and it's worth remembering that rebalancing works both ways. It means harvesting from positions that have enjoyed extended gains — in this case, stocks — and redeploying into other asset classes that haven't run as far. There's an old saying that no one rings a bell at the exact top or bottom; our principle is simply to sell into strength and stay disciplined. The market will always be unpredictable in the short term, but for the long-term investor it has proven remarkably resilient and upward-sloping over time.

Our 3 Knows of Investing

We close, as always, with the principles that anchor everything we do:

• Know yourself. Understand your own behavioral biases and urges. They tend to surface during volatility and market corrections — not during good markets — and managing them is often the difference between good and poor long-term outcomes.
• Know your strategy. It's always important to assess your portfolio relative to your goals and the strategy being employed, so you understand both what you own and why you own it.
• Know who you're working with. Working with a 100% fiduciary is always an important goal. If you aren't, make sure you're aware of any conflicting incentives in the relationship.

None of this changes the long-term plan we've built together — it simply informs how we navigate what's ahead. I'd welcome the chance to review your specific situation, so please reply here or call me to set up a time.

Warm regards,

Grounded Wealth

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