From the desks of Stanley Katz & Lauren Madera
HAPPY 250TH BIRTHDAY TO THE UNITED STATES OF AMERICA! IN CELEBRATION OF JULY 4TH, WE WILL NOT BE PUBLISHING OUR WEEKLY HIGHLIGHTS & COMMENTARY NEXT WEEKEND.
MAY THE SPIRIT OF FREEDOM AND UNITY INSPIRE US ALL TO A BETTER FUTURE TOGETHER.
Markets diverged sharply for the week ending June 26th (DJIA: +0.60%, S&P 500: -1.95%, Nasdaq: -4.60%). According to T. Rowe Price, the sell-off reflected renewed concerns about AI valuations and the sustainability of AI infrastructure spending, with investors rotating toward more defensive areas of the market as large-cap growth shares came under pressure. Separately, the week’s inflation data told a mixed story. The May Personal Consumption Expenditures (PCE) index — a broad measure of what Americans spend on goods and services, and the Fed’s preferred inflation gauge — rose to 4.1% year-over-year, its highest reading since April 2023. Core PCE, which excludes volatile food and energy prices, edged up to 3.4%. Both readings fell roughly in line with expectations, and 10-year Treasury yields responded accordingly, falling below 4.40% for the first time in over a month. Geopolitical tensions also resurfaced late in the week. Iran’s Revolutionary Guards struck a cargo ship in the Strait of Hormuz with a drone on Thursday, prompting U.S. retaliatory strikes on Iranian targets on Friday. Despite the escalation, oil prices ended the week lower as tanker traffic through the Strait continued largely unimpeded.
The resilience in oil prices and tanker traffic is a thread Argus Research picks up directly in “Economy on Solid Footing as Negotiations Continue.” Director of Research Jim Kelleher argues that the U.S. consumer has once again demonstrated remarkable adaptability in the face of a significant energy shock. One of the piece’s more interesting arguments concerns gasoline demand. Conventional economic wisdom long held that driving behavior is largely inelastic, meaning consumers keep driving regardless of price. During the peak of the war’s energy disruptions, however, demand proved more flexible than expected. Consumers reduced discretionary driving, carpooled, shifted to more fuel-efficient vehicles, and found other ways to adapt, preventing worst-case oil price scenarios from materializing. Gasoline has since fallen below $4.00 per gallon from a peak of more than $4.55, meaningful relief heading into the summer spending season. Nonetheless, the piece ends on a note of caution. The Strait of Hormuz situation remains fluid, as Thursday’s cargo ship attack and Friday’s U.S. retaliation made clear. This uncertainty may keep a floor under oil prices near current levels. Still, the combination of easing energy costs and a resilient consumer may give new Fed Chair Kevin Warsh more room to maneuver than previously expected.
That question of what comes next sits at the center of Capital Group’s 2026 Midyear Outlook, a comprehensive framework for thinking about the second half of the year. At its core, the report argues that markets have held up better than many expected because corporate earnings have held up better than many expected. Despite wars, energy volatility, and stubborn inflation, revenues are rising, profit margins are expanding, and buybacks are soaring. Capital Group identifies several themes worth following into year-end:
- The AI build-out may be the largest capital investment cycle in modern history. At the current pace, Capital Group argues that AI infrastructure spending may ultimately surpass China’s industrial boom of the early 2000s in total cumulative spending. The comparison underscores just how significant this investment wave may prove to be.
- The “physical economy” stands to benefit. Data centers, power infrastructure, and heavy construction companies are quietly capturing AI-driven demand beyond the semiconductor names dominating headlines. Caterpillar’s construction division, for example, posted 38% sales growth in the first quarter.
- Non-U.S. markets are outperforming. The MSCI All Country World ex-U.S. Index gained 14% year-to-date through May, compared to roughly 11% for the S&P 500. Capital Group sees attractive valuations and strong earnings potential in international and emerging markets.
- Bonds have reclaimed their role as a portfolio diversifier. Starting yields of roughly 4.5% to 5% for the Bloomberg U.S. Aggregate Index provide meaningful income for the first time in years and also offer greater capacity to cushion against equity volatility.
Capital Group’s report also covers the historical market patterns around midterm elections and raises a pointed concern about growing concentration risk in major indexes, where AI now drives the largest companies in both U.S. and emerging markets. It also introduces the concept of the “Emergent Seven,” the seven technology companies quietly dominating emerging markets the way the Magnificent Seven dominate the U.S. Their report is worth reading in full.
Below are links to a number of third-party research reports that we have read and analyzed over the past week. We hope you will find the information interesting, useful, and worthwhile.
Argus:
Capital Group:
T. Rowe Price:
Schwab:
First Trust:
Stanley Katz & Lauren Madera, Financial Advisors
ClientFirst Financial Strategies, Inc.
937-293-5500
Source for weekly stock market returns: Barron’s.
Investing involves risk, including the possible loss of principal. The information contained herein has been prepared solely for informational purposes. Nothing contained herein should be construed as a recommendation to either buy or sell any security or economic sector, or implement any strategy discussed. Please consult with your financial advisor, accountant, and/or attorney before acting on this information. ClientFirst Financial Strategies, Inc. is a DBA of OneSeven, LLC (OneSeven). OneSeven is an investment advisor registered with the U.S. Securities and Exchange Commission (SEC). Registration with the SEC does not imply a certain level of skill or training. Investment Products are Not FDIC Insured, Offer No Bank Guarantee, and May Lose Value.
OneSeven does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third parties.