As the nation lights the candles on its 250th birthday this Fourth of July, American markets have supplied fireworks of their own. The second quarter ignited equities to record highs and capped the strongest first half in years, a fitting salute to the enterprise and resilience that have animated the American experiment for two and a half centuries. In this commentary, we carry the wise words of our nation’s founders as we reflect on a remarkable quarter, survey a wider world also setting records, and chart how we are positioning your portfolio for the pursuit of happiness.
Benjamin Franklin held that diligence is the mother of good luck and patient investors were rewarded this quarter. Consistent with the bull market thesis we carried into the year, equity markets reached record highs. In the second quarter, the market provided us the following highlights:
- The S&P 500 rallied 14.9% during 2Q26 and up 9.6% year to date, just shy of 7,500 (1.5% off the record high of 7,620).
- The festivities spread across the major indices, as the Dow closed out its strongest first half since 2021, while the Nasdaq notched its best quarter since 2020 (CNBC, June 2026).
- International markets were led higher by chip stocks, most notably in South Korea and Japan which are the two best performing markets year to date. We took note of this opportunity and raised our international exposure at the beginning of the year.
The rally rested on a sturdy foundation, with second-quarter earnings growing more than 23% year-over-year, the strongest pace in several years and a continuation of the broad-based strength that has defined this cycle. Despite some unease and doubts across markets, the strong fundamentals show that John Adams was correct … “facts are stubborn things”.
Most telling was who led the parade, and who did not. The Magnificent Seven (“MAG 7”), now roughly 38% of the S&P 500, collectively trailed the broader index. Much as the Revolution was won not by a few generals but by the broad ranks of citizen-soldiers, this rally advanced with its largest names on the sidelines, as investors grew more discerning about AI capital spending and rotated toward banks, industrials, energy, and healthcare. We regard this broadening of leadership as a healthy development, one that loosens the index’s dependence on a handful of mega-cap names and reaffirms the logic of PB FAM’s equity strategy: owning high-quality businesses across a diverse range of sectors rather than crowding into the familiar few.
Beneath the gains, the quarter was a story of rotation. Leadership turned decisively toward memory and storage semiconductors, the stars of the period as an AI-driven memory “supercycle” took hold, with supply shortages and surging data-center demand sending pricing and margins bursting in air across the group. Fittingly for a rocket company, SpaceX’s June 12 debut, the largest IPO in history, was a shot heard round the world, commanding enormous investor attention and lighting a powder keg of volatility across the market before it settled. Within the AI build-out, we see three bottlenecks that should drive prices higher: chips, memory, and energy. Having already witnessed surges in chips and memory, we will play Paul Revere and sound the alarm for the next to arrive, as the energy bottleneck is coming. In the AI revolution, most companies must join or die.
We expect the bull market to continue through 2026. Our sentiment is supported by durable earnings growth, accelerated adoption of artificial intelligence tools, and a steadily improving backdrop of softer oil prices and stabilizing inflation. The IPO pipeline reinforces that optimism. Both Anthropic and OpenAI have filed confidential S-1s and are on tap to go public in the next 6-12 months. We take note of Anthropic whose Claude tool has been taking market share (particularly with enterprise) and is of high interest for investment. The summer calm, however, is likely to yield to scattered market storms. We anticipate greater volatility in the back half of the year as the Iran conflict lingers in the headlines, interest-rate policy grows murkier (the chatter has shifted from cuts toward the possibility of hikes) under new Fed Chair Kevin Warsh, and the midterms demand a growing share of attention.
The celebration was not confined to American shores. This first half experienced global market fireworks. South Korea’s KOSPI was the standout, soaring toward a near-doubling on the year as the world’s appetite for its memory chips proved insatiable; Japan’s Nikkei vaulted to a string of all-time highs; and Germany’s DAX, fresh off a banner 2025, pushed past 25,000 for the first time in its history (CNBC; Trading Economics, June 2026). Just as the young Republic secured its independence with French ships at Yorktown, today’s portfolios are strengthened by allies abroad. No nation, however exceptional, holds a monopoly on opportunity, which is why international exposure remains a core pillar of our strategy. It captures growth wherever it springs up, cushions portfolios when domestic leadership narrows, and provides ballast against a richly valued home market.
Two and a half centuries after the founding, Americans will again perform the Republic’s defining ritual at the ballot box, and the November midterms loom as one of the year’s defining market catalysts. We expect volatility to build into Election Day. History sets a clear expectation: in 18 of the 20 midterms since 1946, the president’s party has lost House seats, surrendering an average of roughly 26 (The American Presidency Project, 2026). With the House widely projected to go “blue,” markets may at first read Democratic gains as a threat to pro-growth Republican policy. We expect any such reaction to be short-lived. The founders engineered gridlock on purpose, with James Madison arguing in Federalist No. 51 that “ambition must be made to counteract ambition,” and markets have learned to love it. Divided government tends to mean steadier policy and fewer Washington-driven swings over the administration’s final two years. Of course, as astutely framed by Madison, “if men were angels, no government would be necessary.”
The longer-term record is reassuring for mid-term elections and their impact on markets. Regardless of which party prevails, the S&P 500 has not posted a negative twelve-month return following any midterm since 1962, with average gains in the mid-teens over that span (U.S. Bank Asset Management, “How Do Midterm Elections Affect the Stock Market?,” 2026). Past performance is never a guarantee, but the pattern affirms a sturdy axiom: in politics as in markets, the crowd is loudest just before it is wrong, and disciplined investors are wise to tune out the fireworks of the campaign and their own sentiment alike.
With the shifting landscape in view, we are recalibrating portfolios, declaring a measured independence from the crowd. Our equity overweight had grown to between 5% and 6% above neutral as markets rallied, a good problem to confront. Accordingly, we have trimmed our positioning back to a 2% overweight within retirement accounts, where rebalancing carries no tax consequence. In taxable accounts we tread more deliberately; We apply the adage of Patrick Henry, who said “I have but one lamp by which my feet are guided, and that is the lamp of experience.” Based on our past experiences, this approach has greatly benefited our clients in previous cycles. We will continue to work through opportunities with each client individually, including setting tax budgets to guide any realized gains.
Franklin warned that nothing in this world is certain but death and taxes; this year we would add a third certainty, that Congress will do little about before a November mid-term. We expect tax legislation to stay largely dormant through year-end, as the mid-terms make substantive changes unlikely and the Capitol recesses for a long summer of its own. Our planning posture therefore assumes continuity of the current rules, and we will update our guidance promptly should the picture change. Perhaps this is when we harken to Franklin’s desire to have the turkey (which he deemed a “bird of courage”) as the national bird, since he considered the bald eagle to be a bird of “low moral character”. This seems fitting as applied to the government’s pastime of pocket picking.
Looking ahead, we hold one truth to be self-evident: the path to higher prices is seldom a straight one. While the journey will likely experience stretches of red glare, we believe the bull market will still be there! As a firm, we believe 2026 will be another year where the S&P 500 closes 10%+ higher from its starting point as the fundamentals reflect today. Uncomfortable as such pullbacks feel, they are the hallmark of a healthy market, and we will treat them as opportunities rather than threats. For all the barrage of negative headlines, the market, which trades independently of the line-level economy, marches forward with genuine momentum at its back.
We manage our client’s portfolios with a long horizon and a steady hand, and we always welcome the opportunity to discuss these views in the context of your objectives. Jefferson wrote that he liked the dreams of the future better than the history of the past, and so do we. This Fourth of July, as the nation marks 250 years of independence, ingenuity, and enduring enterprise, we hope you and your family find time to gather, reflect, and enjoy the fireworks. Thank you, as always, for the privilege of working alongside you and your family. Happy Independence Day and America 250 from all of us at PB FAM Private Wealth!
Securities and Advisory services offered through LPL Financial, a Registered Investment Advisor. Member FINRA & SIPC.
The opinions voiced in this material are for general information only and are not intended to provide speciļ¬c advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.