Your Second Quarter Newsletter

QUARTERLY NEWSLETTER | Q2 2026 | ISSUE 26

A Note From the President

Summer is here! Even though the official start was June 21, it seems like the end of June, when all the schools have wrapped up and people begin talking about their 4^th of July plans, that summer really begins. And the temperature has certainly put an exclamation point on that. As I write this, it’s 87℉ in downtown Boston with the possibility of breaking 100℉ later this week.

Boston is a host city for the World Cup and in all the years I’ve worked downtown, I have never seen the level of excitement and energy that this event has brought to town. With our office so close to South Station where the trains run to the stadium on game days, it’s been a little chaotic, but any inconvenience is far outweighed by the sheer joy on the streets amongst locals and visitors alike.

After the Bruins and Celtics both exited the playoffs earlier than expected, the World Cup seems to be just what we needed. Sentiment in the market has improved as well since the last time I wrote. At the end of March, the Iran war had just begun and investors were worried about the price of oil and geopolitical uncertainty, but those fears have given way to optimism related to the possibilities of AI and the profits that come with this explosive growth.

Hopefully, these summer months will give you time to slow down and enjoy a more relaxed pace. We will continue to monitor current events and economic trends as we work to keep you invested in a diversified and balanced way.

I hope everyone has an enjoyable Independence Day holiday. Next up, the Tall Ships!

Warm Regards,

Dan

2026- Second Quarter Review

Coming out of Q1 of 2026, the first down quarter in three years, discipline in taking the long view towards quality and diversification was once again rewarded. The market recovered quickly to new highs, recording its best first half since 2021.

The second quarter saw the June 14^th Memorandum of Understanding to hopefully end the Iran war and reopen the strait of Hormuz. Brent crude is back in the $70 range from its peak near $120. Domestic natural gas remains cheap and abundant – an increasingly valuable competitive advantage for US energy production with data centers projected to consume 12% of U.S. electricity by 2028.

Growth has continued to prevail through short-term volatility, while the oil price shock affected the Consumer Price Index (CPI) which reached 4.2% in May – the highest level since 2023. Analysts including Moody’s, Goldman, and Wilmington project a “no recession” consensus, pivoting away from the downside scenario projected back in Q1. Continued economic resilience is supported by the Q1 GDP print of +1.6% growth and unemployment levels hovering around 4.3%.

SpaceX went public on June 12^th – a flawless capital-markets event wrapped around a company priced for a decade of perfect execution. The record IPO raised $75B on a $1.75T valuation with no earnings on the horizon, providing the first real benchmark for the burgeoning ‘Space Sector.’ Time will tell whether we are experiencing a generational platform shift or a tenuous momentum trade priced for perfection.

The second quarter also brought long-anticipated changes to the Federal Reserve Board with the installment of its new chair, Kevin Warsh. A rate hike scenario has solidified in June, driven in part by the May CPI report and continued labor market strength, all but eliminating the likelihood of rate cuts this year.

Given little room for Fed-easing, we remain vigilant around valuation and market concentration in market leaders with the S&P 500 forward price-to-earnings at ~22x versus a ~17x thirty-year average. Earnings continue to display historic strength with AI stocks leading the charge and fueling the recovery from Q1. The S&P consensus growth rate for 2026 has been revised to upwards of 25% from under 16%.

To paraphrase the investor and writer Howard Marks, you cannot predict the future, but you can plan for it. This quarter was a useful reminder of why that distinction matters. Few would have forecast in March, amid war and rising recession odds, that markets would close this year’s first half at record highs. Our work is not to call the next move but to own well-managed companies with growing earnings and durable balance sheets across every sector, so that your portfolio is positioned to perform under all scenarios. At Penobscot, we remain dedicated to maintaining high-quality, diversified portfolios tailored to meeting your long-term goals.

As we enter the second half of 2026, the Penobscot team wishes you a happy and peaceful summer.

Sources: FactSet, WSJ

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