Hey everybody, Dave Denniston here. Hey, just wanted to take a few minutes today to give you a quick 2026 Q2 update. Well, here we are, halfway through the year, and the market, of course, has had a really strong start. Of course, if we look back last handful years, we had a pretty darn difficult 2022, but then we had a great 2023, great 2024, great 2025, and now we're on a really good start to 2026.
This is absolutely encouraging. But I want to be clear this kind of run does not last forever. Now, I also want to be clear this doesn't mean we should panic. This doesn't mean we should go to cash. This doesn't mean we should try and call the exact top, because nobody I have ever met or talked to or heard of does that consistently. But what I do see successful investors doing is staying disciplined.
So a as we get to the end of June, stocks had a very strong second quarter, particularly April and May. SP was up nicely, NASDAQ was up even more, which was driven by our favorite thing of technology, semiconductors, AI. ⁓ of course, a lot of talk about data centers and all the hardware to support all of this artificial intelligence spending. Which has absolutely been one of the biggest stories. AI, AI, AI. That's all we seem to talk about, right?
Companies connected to chips, servers, data centers, energy demand, infrastructures, all major winners. And because of that, this is also one of the areas why personally I'm getting a bit more cautious. In the case of some clients, I've sold out of some of the hardware stocks. But of course, we still have exposure. If you own the SP 500, if you own the DAO, if you own NASDAQ, as many, many, many, many, if not
Most, if not all of my clients have, you still have exposure to this stuff. So if it keeps going up, hey, you're still participating in it. And this is not to be some doomsday scenario, meaning they're gonna collapse tomorrow. There these are legit, incredible businesses and there is demand. But when expectations are so high, valuations are so stretched, as we've seen, and a group of people crowds into the same theme and they're using leverage.
Risk is going up. Now, guess what? The market, well, it it can keep running longer than most people and certainly myself may expect. But at some point, we are going to have a double digit correction.
And it may not be this year. I I'm not predicting an exact date, but it is coming at some point because hey, that's how markets work. We do not move in straight lines, as cool as that would be to just keep moving up, up, up, up, up. And if you look at the numbers, we are almost four years in the current bull market cycle. Historically, bull markets tend to last a little over four years on average. Some last longer, some are shorter. But the further and further we get into this cycle,
the more important it is to pay attention to risk. Now I will say, besides AI and everything we're talking about there, one of the encouraging signs we've seen this year has been small cap stocks. And you've probably heard me talk about this before. For a long time, small caps have really lagged behind the big tech names. Finally, finally, this year we have seen more strength from small cap stocks.
Now this matters because a healthier market is not just five or six giant companies carrying everything. A healthier market has broad participation. Large companies, small companies, value stocks, growth stocks, international stocks, and all different parts of the economy all contributing. We're not perfectly there yet, but broadening is a really good sign. On the bond side, in comparison, interest rates are still a major focus.
The Federal Reserve is really interesting. They're in a tough spot. What we know is, and all of us feel it in our pocketbooks, right? Inflation hasn't gone away. And that's making it harder for Fed to cut rates aggressively. If inflation stays stubborn, they might keep rates higher for longer. For those of us that that have money in the bank and we have money market, we have CDs, we have short-term bonds, that's great because they're paying much more than they did for most of the last 10 years.
But of course, we gotta be careful. If those rates come down, some of those shorter-term yields may not be available forever. So I've been talking about that, hey, if rates go higher, particularly on more intermediate-term bonds, something like the aggregate bond index, we might want to move some of our short-term money out of money market, for example, or short-term bonds into more intermediate-term stuff. So, ⁓
But on the other hand, I don't think we should take a huge swing and move everything longer term, because what if rates significantly higher than they are today? So, overall, this is an environment where I feel like we need to be thoughtful, we need to be measured. ⁓ what should we be watching as we go into this environment? Number one, inflation.
If inflation does move lower, the Fed has more flexibility.
If inflation is staying meanwhile, the Fed has to stay tighter for
longer. Number two, interest rates, tied to everything we just talked about there with inflation. If inflation rates continue to be high, it affects
housing, which we've seen housing in a number of different areas get a little bit weaker. It affects businesses, those of us that like to borrow to finance our purchases and expand our businesses. And of course, it affects consumers with credit, and of course, the bond.
Number three, earnings. Well, here we are, July. Earnings season is about to start again. And stocks follow earnings. We look at price to earnings ratio. We're looking for earnings to support all this great expansion we've got on multiples. If earnings disappoint, especially in AI, semiconductors, tech, that may not be so good. On the other hand, hey, if they're meeting or exceeding expectations, good reason to think that things could go a lot higher. And number four,
Small caps and to a degree mid-caps. Are these smaller companies and these middle-sized companies continue to participate? Is the Dow Jones participating in this growth? As we've seen this year, it's been a lot better for the Dow and it's even outperforming the SP. That would be a healthier sign for the market. In general, I want us to stay invested. I want us to stay disciplined. If this run continues and the market is up,
Double digits, particularly somewhere more in the teens, 13, 14, 15%, our timing models may change and we may get a step more conservative. Not all at once, not emotionally, not selling all out of stocks because of a scary headline, but gradually, thoughtfully, in stages. My goal is, I know we can't avoid every downturn. Impossible. But my goal is to protect your precious retirement savings while still giving it the opportunity to grow over time.
So, overall, my friends, my message is this: First half 2026, hey, been good, been a good run. Small caps encouraging, AI leading. it's not gonna last forever. Volatility will come back, and I'll be right here to guide you every step of the way. Have questions? Wanna take a look over your investments together? Let me know, my friends. Take care. Bye-bye.