SACRIFICE – Market Commentary 2Q 2026
As we prepare to celebrate America’s birthday, let us take the opportunity to reflect not only on our great nation’s history, but also on the enduring values that have driven our country’s democratic and economic success for so many years: perseverance, optimism, long-term vision, and sacrifice. This year’s commemoration marks an outstanding achievement, the 250th anniversary of our nation's founding, which is a remarkable milestone and an appropriate time to reflect on the lessons history continues to offer investors.
Over the past four months, the global economy has navigated heightened geopolitical tensions and uncertainty. Conflict in the Middle East, volatility in energy markets, and evolving diplomatic developments have reminded investors how quickly geopolitical events can influence economic conditions and market sentiment. While recent developments have helped ease some immediate concerns, uncertainty remains elevated as markets continue to adjust to an evolving global landscape.
We remain optimistic that the worst of this conflagration is over and that many of the immediate risks have moderated, although the economic effects of recent events continue to be felt. History reminds us that all wars require sacrifice. Sacrifice of people’s lives, time, financial resources, equipment, energy, and emotion. Beyond the human cost, periods of conflict often result in higher inflation, supply chain disruptions, increased energy costs, and greater economic uncertainty. The foundation of the United States was built by generations willing to endure hardship, uncertainty, and short-term discomfort in pursuit of long-term opportunity and freedom. The willingness of our country’s founders to think beyond immediate circumstances and their own welfare created the prosperity that has benefited generations since.
During World War II, Americans were asked to ration food, groceries, clothing, and fuel to help control inflation and ensure fair distribution of goods. The US government also made significant financial sacrifices, funding the war through deficit spending and bringing the debt to GDP ratio to an all-time high of 119%. Once the war was over, we entered the golden age of the 50s, industry thrived as wartime factories were repurposed, and pent-up demand fueled consumer spending. Americans once again began purchasing more high-end discretionary goods, such as Chevrolets, washing machines, and refrigerators. In addition, like most developed countries we also began consuming more calories and expanding our waistlines.
Fast forward to 2026, and while we have not been asked to ration, many areas of Southeast Asia have, as deliveries of oil and other goods remained stalled in the Strait of Hormuz. Although the direct effects have been less severe domestically than in many other regions of the world, the economic consequences have still required sacrifice, most notably through persistent inflation (May CPI was up 4.2% year over year) and the loss of purchasing power of our dollar. This all began during COVID when supplies were short, and demand and stimulus were high. Restaurants reduced portions and substituted cheaper ingredients, and manufacturers shrank packaging sizes to counteract cost increases and maintain margins. Even GLP1s did their part to help shrink American appetites! Unfortunately, the only thing that has not been shrinking is our national debt.
Despite the Federal Reserve’s attempt to fight inflation with higher short-term interest rates (to which new Fed Chair, Kevin Warsh, held course at his first meeting in June), and notwithstanding greater domestic energy independence, oil prices continue to filter into nearly every corner of the economy. In addition, longer-term rates also remain high, due to our growing deficit (current debt to GDP ratio is 100.2%) and reduction in foreign purchases of Treasuries. As Mark Twain said, “history doesn’t repeat itself, but it often rhymes,” and we have seen this story before. In the late 90’s we saw the default of Russia and the overleveraging of emerging market balance sheets, leading to the downfall of Long-Term Capital Management. The dot-com days saw the overextension of the corporate balance sheet. Next came the fall of the consumer balance sheet, during the subprime lending bubble that led to the Great Financial Crisis. And now we enter a period of overleveraged government balance sheets. Some countries are forced to “inflate” themselves out of this situation, but perhaps there is another solution? Grow.
Will memory chips and Artificial Intelligence continue to provide the economic tailwinds to support our GDP and bring us into our next Gilded Age? Will the long-term vision of the likes of Elon Musk and his explosive SpaceX IPO (the largest IPO to debut in history) be the spark to drive our country’s growth into the next century? While people remain skeptical about technology stealing jobs, we should remember that every disruptor to our economy has come from technological advancement such as banking, the railroads, and energy. In the end, this has not only served to create new and better jobs, but has also led to more efficiencies which ultimately become inherently deflationary … something we desperately need.
Closing Thoughts
For two and a half centuries, the American economy has endured wars, economic cycles, inflationary periods, technological disruption, and moments of political and geopolitical uncertainty – yet innovation, entrepreneurship, and long-term economic growth have continued to advance. Investors who maintained conviction through uncertainty have historically benefited from the enduring strength and adaptability of the American economy.
As we rejoice another birthday, we are reminded that this is not only a celebration, but a remembrance of life. Here in Texas, we are still haunted by last year’s Fourth of July tragedy, which took the lives of 138 souls in the devastating Hill Country floods. We honor their memories and the sacrifice their families, first responders, and volunteers continue to make.
We appreciate the trust you place in us and remain committed to helping you pursue your long-term financial objectives with clarity, discipline, and perspective.
Warm regards,
John P. Ulrich, CFP® Whitney E. Solcher, CFA®
President Chief Investment Officer
2Q Market Commentary
· Global markets delivered strong returns during the second quarter despite periods of heightened geopolitical uncertainty.
· In the U.S., the S&P 500 gained 14.4%, while technology shares continued to lead the market, driving the Nasdaq Composite up 20.2%. Smaller companies also participated in the rally, with the Russell 2000 returning 20.8%.
· International markets were equally strong, as developed and emerging markets benefited from continued investment in artificial intelligence and improving investor sentiment. Japan was a standout performer, with the Nikkei 225 rising 30.5%, while the MSCI Emerging Markets Index gained 19.0%.
· Bond markets experienced a more challenging quarter as higher oil prices and renewed inflation concerns pushed Treasury yields higher, leading investors to scale back expectations for Federal Reserve rate cuts. As a result, the Bloomberg U.S. Aggregate Bond Index returned a modest 0.6%.
· While geopolitical events and inflation headlines created short-term volatility, markets ultimately focused on a resilient U.S. economy, solid corporate earnings, and continued investment in AI-related technologies, which supported broad gains across global equity markets.
MARKET COMMENTARY DISCLOSURE
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