Posted 07/24/2026

 Not ideas about the Thing but the Thing itself. 

- Wallace Stevens
 

The Thing Itself…..The first half of the year has highlighted a notable dynamic for investors: Despite ongoing geopolitical risks, elevated inflation, and shifting Fed expectations, markets have remained well supported by resilient U.S growth and the continued expansion of AI.  

In Q2, the benchmark S&P 500 rose 14.9%, the tech-laden NASDAQ surged 21.4% while the MSCI World Index increased 13.3%.  Most equity indices rose amid heightened volatility in alternately short-lived bouts of technology euphoria and heart-stopping swoons.  The major indexes recorded their best quarterly gains since Q2-2020.  While technology stocks have been key contributors to performance, gains have broadened, with the equal-weighted S&P 500 performing in line with the market-cap-weighted index YTD, underscoring this improved breadth. 

The U.S. economy remained robust through the first half of 2026, supported by strong private demand, tax cuts, and still-accommodative financial conditions. At the same time, inflation has proven more persistent, with recent data reflecting continued pressure from energy, tariffs, and AI-related demand. As a result, the Federal Reserve has turned more hawkish than expected, adopting a prolonged “wait-and-see” stance.  We expect the Fed to remain on hold through 2026, with rate cuts beginning in 2027 and continuing later in the year as growth moderates and inflation gradually eases. Overall, this backdrop remains supportive for stocks.  

In fixed income, elevated yields continue to offer attractive income opportunities, particularly as the Fed is likely to remain on hold through 2026. We see more compelling risk-reward in short- and medium-duration high-quality bonds, where investors can lock in yields while limiting exposure to duration-related volatility. High-quality bonds remain supported by solid fundamentals and elevated all-in yields. We also favor higher-rated U.S. and European high yield bonds. 

The current bull market has delivered outsized gains for U.S. equities, but leadership within the benchmark index has been unusually concentrated. Since the rally began on Oct. 12, 2022, just two of the 11 sectors in the S&P 500 have managed to outperform the broader index, underscoring the dominance of growth-oriented industries: Information Technology and Communication Services.  Both sectors have benefited from relentless investor demand tied to artificial intelligence, cloud computing, and digital advertising trends. 

However, exposure to the AI revolution argues for portfolio diversification and ruthless discipline.  The bull case requires AI to move beyond capital expenditures and chips into broad productivity, lower inflation, stronger real wages, and economy-wide earnings growth.  Stock market history has amply demonstrated that real technological revolutions end in tears when leverage and exuberance overwhelm valuation reality. 

U.S. equities, AI-linked industries, and defense stocks are positioned to outperform over the coming years as geopolitical fragmentation and demographic shifts reshape global markets. Knowledge-intensive sectors such as technology, media, telecommunications, and healthcare should benefit most from accelerating artificial intelligence adoption and productivity growth.  

In international markets, the MSCI World, EAFE and Emerging Market indices all rose in Q2.  In particular, Asian markets such as South Korea, Taiwan and Japan spurted up 101%, 59% and 39%, respectively. In contrast, the MSCI China Index tumbled 15%, as consumer spending in China continues to weaken, and investor preference for chipmakers over hyper-scalers in the ongoing AI boom puts China at a disadvantage due to its lack of prominent hardware manufacturers.  Still, even after their run-up, emerging-market stocks look relatively cheap compared to U.S. shares. Companies in the MSCI Emerging Markets recently traded at around 18.4x their past 12 months of earnings, compared with a PE ratio of 28.9x for the S&P 500.  

Oil remains an important variable for U.S. markets. While elevated energy prices present a tail risk, the U.S. economy continues to demonstrate resilience, supported by steady consumer spending, a solid labor market, and sustained AI-driven investment. Unless oil prices move sharply higher for an extended period, the broader economic and corporate earnings growth outlook remains constructive. In summary, staying diversified remains essential in navigating an extremely uncertain environment. Gold and broad commodities remain useful hedges against macro uncertainty 

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In Search of the “Real”….. Why does so much of our digitized, post-industrial, post-modern world seem so fake, so contrived?  A routine stroll through social media takes us on a disconcerting tour through a fragmented landscape of real and fake, authentic and phony.  This unbridled artificiality is bleeding into other areas of culture. With sudden and unanticipated speed, AI has already seeped into the fabric of our everyday existence. It’s in our love lives, our health care, our schools, and of course, on our screens. The line between reality and fiction is becoming increasingly blurred: Is this video real or AI?  Is ChatGPT reliable?  What news online is indisputably  true? 

We may be tempted to distill out the falsehoods and artificialities of our daily life, to discern the real and unreal in our quotidian existence.  Often, there seems to be a gulf between our perceptions of the world and the one that we want to fully believe in, even a distance between ourselves and our idealistic conception of our very self.  In our most private moments, authenticity is what we want from our world, from others and from ourselves.  The question is how do we find it? 

Our celebrity culture offers a paradigm of how to distinguish authenticity from artificiality.  For example, the distinction between “fame” and “celebrity”:  fame is a product of achievement, whereas celebrity is manufactured, dependent as much on image as on accomplishment.  Social media has now enabled an entire cohort of celebrity influencers to become “famous for being famous,” available for millions of followers to indulge in their most prurient interests.  Our tabloid minds are spurred on by voyeurism and a desire to connect effortlessly with a world certified to be real. 

In a related venue, the ubiquitous role of dating apps provide another lens into how most adults today find and sustain intimate connections.  Subscribers assiduously shape their own public profiles in order to attract compatible potential partners into their private lives.  Both sides consciously style and preen, hoping that image and carefully curated personal qualities might photoshop away the less flattering aspects of their interior realities. 

The problem of what we want - how to know what we want - is more complex than it appears.  In a world where our most insidious urges are reined in by conventional morality, what we think we want is often undermined by what we actually want.  This is especially true in an algorithm-driven attention economy which directly shapes what we want and transforms the shape of the world we see. 

The mind sometimes cannot seize hold of the ultimate nature of reality that faces it, and reality retreats before the imagination that shapes and orders it. However, the problem with acquiescing to an all-embracing doctrine of a subjective world is that one can impute a “construct” for everything, relieving us of any ultimate responsibility for our actions.  In an AI-driven click-bait world, we can be aware of more and nevertheless know less.  We are exposed to more data, but often in the absence of history, context, depth and experience. We confuse data with information, information with knowledge, and knowledge with wisdom.  We become engorged with pseudo-knowledge supplied by the commentariat, pundits and influencers.  This excess of data or noise has negative value and diminishes the probability of insight. 

In my primary livelihood of investment management, I presumably add value by allocating capital into individual stocks that rise over time.  Conversely, I sell or avoid stocks that go down in market value.  Is this kind of work more valuable or “real” than a factory worker manufacturing a widget on an assembly line, or a plumber fixing a leaky pipe?  It quickly becomes apparent that what constitutes value or reality is a function of individual subjectivity, ruthlessly reinforced by the financial marketplace. 

The major investment asset classes - stocks, bonds, gold, commodities, real estate - all presupposes the principle that they each represent some true underlying value.  But they are also just social constructs that represent value because we all collectively agree that they do.  They all rely on varying degrees of institutional trust, historical consensus, scarcity, or tangible utility.  Even the latest emerging asset class - cryptocurrencies - is embraced by its believers because it relies on a controversial creation myth that touts its value as more than merely financial.   

How “real” one asset class is versus another is largely a function how large and established the underlying monetary base is and the ease of monetization.  For example, real estate seems more real than gold because we can live in our homes and real estate sales are commonplace transactions.  In turn, stocks seem more real than crypto because the latter is much more widely held,  traded and quoted than the latter.   We turn to the physical world for immediacy, but also sometimes just for the reassurance of our own reality. 

Alternatively, in my secondary profession as a practicing psychoanalyst, I allocate out my time to patients who share their psychic and emotional lives with an experienced professional in the pursuit of empathy, relief, insight and hopefully useful counsel.  Yet, even the clinical discipline itself is subject to the ambiguities of  “what is real?”  The primary realm of psychoanalysis is not only reality per se but psychic reality, that is, what is true for the subject. Psychoanalysis is thus the science of these subjective states.  Sometimes the result is what Lacan termed méconnaisance, the refusal by the patient to accept the truth.  Again, is this kind of product or service a logical outgrowth of our search for the “real”, or is it the result of the cumulative frustrations and anxieties of modern culture and its discontents?  

Finally, what is the “real thing” we are all looking for?  Remember that a Thing is the sum of its effects, wherein the whole and its parts are indissolubly connected.  In the active investor’s pursuit of what is real, the relationship between whole and part is hermeneutical.  In the end, both the vicissitudes of market action and subjective sentiment cries out for some accountability, a governing principle for action.  In this sense, Warren Buffet’s famous aphorism for stock market pricing applies here:  in the short term, the stock market is a voting machine driven by investor sentiment, noise and the falsity of ephemeral emotions (“Not ideas about the Thing…..);  in the long term, it is a weighing machine, quantifying the cumulative value of a business (“but the Thing itself”). 

 No man is so harmlessly occupied

as when he is making money.

- Samuel Johnson
 

Our National Passion…..Markets continued to set new records in 2025, and the combination of solid earnings growth, AI tailwinds, and further Fed easing should support global equities in the coming year. AI and big tech stocks once again drove the rally, on the back of robust demand for AI infrastructure and cloud services. The Nasdaq Composite rose 20.4%, the Dow gained 13.0%, and the S&P 500 advanced 16.4%.

Current valuations are high compared to long-term averages. The S&P 500 forward price-to-earnings ratio, is at 22.6x, and remains heavily concentrated, with the top 10 stocks by market cap making up 40% of the index weight. The bullish sentiment extended beyond equities as credit markets and commodities enjoyed strong gains Gold, historically a contrarian hedge, soared 64.5%. 

Concerns about the U.S. economy’s growth prospects and a continuing trade war led more investors to look overseas for stocks at attractive prices. International stocks outperformed their U.S. counterparts by the widest margin in 16 years. The MSCI All Country World ex-USA Index, which tracks developed and emerging market stocks, was up around 35% in 2025 on a U.S.-dollar basis. That beat the S&P 500, which was up 16%. In contrast, South Korea’s Kospi was up 64%, Germany’s DAX increased 22%, Japan’s Nikkei 225 climbed 24% and the U.K.’s FTSE 100 rose 18%. Compared to the S&P 500’s 23x projected earnings over the next 12 months, Japan’s Nikkei 225 recently traded at 21x and Hong Kong’s Hang Seng multiple was about 12x.

Our sector preferences remain unchanged, with constructive views on financials, information technology, communication services, health care, and utilities. Investing in U.S. markets is tantamount to a concentrated bet on the development and proliferation of AI. The market faces a high-risk, high reward environment driven by AI disruption, weakening labor demand, and concentrated earnings in a few mega-cap tech stocks. Cyclical sectors and consumer stocks are in an earnings recession, while AI hyper-scalers and related sectors outperform, creating a top-heavy, fragile market.

The Fed and government is shifting from fighting inflation to stimulating cyclical growth, with potential balance sheet expansion and lower rates despite persistent inflation. Diversification is challenging, but unloved cyclicals may become embraced again, expecting a market-broadening trend as AI capital flows accelerate and policy support increases.

In fixed income, we expect the coming months to be shaped by slowing growth, the Fed’s pivot toward easier monetary policy, and fiscal pressures that could heighten volatility. While the yield curve steepened in 2025, the curve may flatten in the short term given a more dovish Fed outlook. With spreads at their tightest in recent years, yield is a key driver of returns. We continue to prefer high yield and investment grade bonds in the intermediate area of the yield curve, allowing investors to lock in yields at historically attractive levels.

In 2026, questions about AI-driven growth and affordability pressures are set to affect large parts of the economy, driving wider divergences across markets. The past year marked a coming-of-age moment for building AI value, alongside tariff shocks, a divided Federal Reserve, rising public and private debt burdens, and sharper economic polarization. Heading into the new year, our view is generally constructive, supported by cautious central-bank normalization, front-loaded fiscal support, and elevated cash on the sidelines, even as disparities across markets, consumers, and the economy widen.

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Technology and the Human Psyche..… Although we live in a digital world connected by undersea cables pulsating with bandwidth, wireless signals bouncing off satellites, and large portions of human knowledge encapsulated in silicon chips, what we need and want remains very basic and enduring. The power of the physical, the material and tactile qualities of human interaction maintain its hold over us and reaches deep into our hearts and minds. In crucial situations, the personal connection – direct contact with a human touch – remains the most compelling and reliable.

The technology revolution has profoundly transformed our society and economy; it also provides a catalyst for us to react to market information. In the current context, our infatuation with technology has altered the nature of human relationships, driving workers out of factories and office buildings, and dispersing them back into decentralized clusters and into their homes. However, digital communications leave much less opportunity for the kind of subtle, physical communications that we relied on in the past. Moreover, instant accessibility demands instant responses and thus alters mutual expectation in a fragmented, over-saturated and hyper-specialized world.

As in prior periods of great technological advancements, technology brings material progress, but it also threatens man’s psychic connection to each other and to nature. The many advantages of modern telecommunications and information innovations simultaneously create the disadvantage of disconnection. Such fundamental changes results in the uncomfortable adjustment of many economic, social, and psychological certainties.

Technological connectivity challenges our concepts of effective communications. In an era of fiber-optic networks and computerized transactions, we still nevertheless value physical and mental proximity. This quality is hard to quantify, much less replace. We are not robots with preconditioned responses and no amount of sophisticated technology will make us so. However, we do more than tune in and listen to the worldwide transmission and exchange of information; we interact with it. This worldwide electronic nexus informs, entices, and seduces us and we, in turn, respond to it.

For better or for worse, techno-consumerism now drives major sectors of global free market capitalism. Technology and the endless gadgetry that it brings offer a powerful narcotic to the masses. There is a sharp acceleration in the amount of discretionary time people are now connected to technology. The information age has made so much information available to consumers. So much information, but so little knowledge. The pace of our modern, technology-driven life compresses attention spans and creativity. As more and more megabytes of data are compressed onto microscopic bits of silicon, the more we realize that good answers demand even better questions. Information has replaced knowledge while data gathering supplants human understanding. The convergence of the silicon chip, digital transmission technology and the human brain has dictated that information, however excessive and irrelevant, must constantly be placed in front of us for processing. The ubiquity of technology in our lives sets up a constant tension between productivity and frenetic busyness.

In many ways, we are laboring under the shadow of a burnout society. Under the illusion that the more information we have, the better off we will be, most people are willing to browse the digital landscape for news, entertainment, gossip, and otherwise mindless excreta. We are compulsively drawn to the stimulation of ever-changing incoming data. The electronic apotheosis of our mass media culture persuades us that a constant flow of information leads to understanding and that frequent communications create a sense of community. The volatility of this information barrage has also changed our sense of time and priorities.

With limited time for each incoming bit of data, we react to data rather than reflect on what is important. But information, whether real or fictional, has a seductive power to engage its recipient. It has the power to inform and bemuse us, but also the capacity to deceive and distract. The more information we process, the more difficult it is to act thoughtfully on any part of it. Banality and superficiality are the predominant qualities for what passes as information these days. This becomes more widespread as we sink deeper into the age of technology and mass telecommunications.