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Dear Friends,
Fortunately, we operate in a market that historically rises more often than it falls. In fact, in a calendar year snapshot, the S&P 500 index rises over 70% of the time. It’s also true that the average decline intra-year remains at -14%. Volatility and declines are part of the price we must pay to win over the long term. Since the -20% decline in 2022, the market has experienced several bumps and seemingly meaningful declines of -20% or more, but consistently shown swift comebacks. This phenomenon was true last year during the Trade Wars and it happened again this year during the closing of the Strait of Hormuz. In this year’s case, even oil prices per barrel have come back down to pre-conflict prices (stabilizing around $70/barrel).
To date, the S&P is having a nice year in 2026 so far with gains of near +7.5%, but what’s under surface is bothersome to me and has given us some reason for pause. While the broader domestic equity market indexes are doing well in 2026, much of the heavy lifting is coming from companies outside of the infamous Magnificent 7 stock group. The clear winner so far for this group is Alphabet (Google) who is about to join the Dow Jones Industrials index with a gain of +8.6% this year. On the other hand, Microsoft, Meta, and Tesla are dragging the group down considerably with losses of -20% on average. While we don’t own too much Meta or Tesla for most clients, we do own a considerable amount of the legacy mega-cap technology stocks like Amazon, Apple, and Microsoft. It truly pains me to see these hyper-scalers suffering in an up market.
So, if the leaders over the last decade or so aren’t leading, who is? You could say in some regard it’s their younger siblings – these are also technology companies and also heavily impacted by the rise of AI innovation and adoption over every industry sector and many components of our everyday lives now. A short list of such companies include AMD, Marvell, Micron, GE Vernova, Vertiv, and Lam Research – most of which are highly connected the semiconductor chip and/or data center space within the ecosystem of AI.
When I survey the landscape for non-technology names dragging in performance this year the list is short and not representative of our holdings. Noteworthy exceptions to this statement are our holdings in GLD and SLV which were notable winners that that have declined since February 2026. So, any drag in account performance isn’t coming from “bad core or value” stocks, rather it’s heavily influenced by the ownership of lagging Mag 7 stocks, cash/money market funds and fixed income ownership.
So what’s next and what do we do from here? And, just as important from an investor’s perspective, “Are we ok?”
Will the selling pressure on the hyper scalers (many of which are Mag 7 companies) continue? Will the chip and data center companies continue to the moon? Will everyone wish they were buying SpaceX here at $151 after a rise and fall of $70/share? Will new Federal Reserve Chair Kevin Warsh be a dove or a hawk? Note, if hawkish this is put additional pressure on the Mag 7 names due to their financing of capital expenditures in the race to AI adoption and more importantly, profitability. When will the historically weak period before a midterm election take shape? How severe will this forecasted decline be? How fast and furious can the market rally come in response to a decline? These and many many more are the questions we ask ourselves every day and put in the time and effort to come up with a disciplined approach on how to position portfolios for each scenario.
Fortunately, we’re not a static money management firm. We don’t prescribe to “set it forget it” or “hope it works out like last time” philosophies. We manage portfolios through thick and thin. We stay active, engaged, educated and curious to market moving news and events. We’re in client portfolios daily. If you’re a client, you’ve likely received several trade confirmations over the last few weeks. We engage with your portfolios for your financial future and success. Where we believe a buy or sell is necessary to meet your needs and goals, we act on it. Currently several of these Mag 7 stocks have entered an area of interest. They’ve fallen to a point on their individual stock charts where some could make the case their “oversold” technically. Others can make the case that their “undervalued” from a quality and fundamental perspective. In both cases, this would bring renewed energy and buying into these stocks. I’d be hard pressed to believe the market can rise another 5-10% or more without meaningful participation from these legacy technology companies and behemoths in market capitalization size and market share.
We may see further decline in the near-term. I believe this would be driven by additional testing to the downside of these Mag 7 stocks, but I do believe there is light at the end of the tunnel. I can see value seekers and cash investors finding an opportunity to own these not only large, but profitable and sustainable company stocks and come to them a long-term investments – as we do too.
Historically, the period following midterm elections has often been favorable for equity markets regardless of administration. While history never guarantees future results, it remains one of many data points we monitor.
From the Midterms to Presidential Election the market has averaged near 20% a year. While this is just one data point to consider, it is a notable one. If investors start to identify the Mag 7 as worthy investments this can fall right into play with the Presidential election cycle and the momentum that comes with those data points.
No matter what the market delivers in the months ahead, our commitment remains unchanged. We will continue to monitor developments closely, make adjustments when appropriate, and keep your long-term financial objectives at the center of every decision. Thank you for the trust you place in us.
Emory
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