Q2 2026 - In Review

“We have the same problem as everyone else: It’s very hard to predict the future.”

Charlie Munger

They say bull markets are all about stories and bear markets are about balance sheets (1). Currently, we are in the midst of a technological step change. Artificial Intelligence (“AI”) has gripped the world.

History has shown us how technological leaps can impact and change the world. The world coming out of that change looked far different than the one going in. New industries are created. Old ones are disrupted or destroyed. Adapt or die, they say. In many respects, that is true.

Along with these periods comes opportunity and risk. Mankind evolves. We move forward. When new technologies take hold, the end result is never certain. We will come out of this one and have a foggy memory of what life was before ChatGPT, just like we did with cell phones and the internet. In the meantime, it is important to stay grounded in our expectations of tomorrow.

The global economic landscape shifted significantly over the past year as the United States implemented a series of higher tariffs on imported goods, reflecting a broader effort to reshape trade relationships and encourage greater domestic manufacturing. These policy changes were driven by concerns about supply chain resilience, national security, trade imbalances, and the long-term competitiveness of U.S. industry.

Over several decades, many companies moved production overseas to reduce costs, initially concentrating on lower-margin consumer goods before expanding into more sophisticated manufacturing. During that period, China developed a substantial manufacturing ecosystem spanning electronics, industrial equipment, and other advanced industries, becoming an integral part of global supply chains. As a result, many countries, including the United States, became increasingly interconnected through trade and investment.

Recent policy initiatives represent a departure from that model, emphasizing domestic production and reduced dependence on foreign manufacturing in certain strategic industries. Whether these efforts ultimately lead to a meaningful reshoring of manufacturing capacity remains uncertain. Rebuilding industrial supply chains requires significant capital investment, workforce development, and time, while established global manufacturing networks continue to offer meaningful competitive advantages.

Looking ahead, investors should continue monitoring developments in global trade policy, supply chains, and geopolitical relationships. Although recent trends suggest a move toward greater regionalization and diversification of production, it remains too early to determine whether these changes represent a lasting structural shift or a shorter-term adjustment in the global economy.

Meanwhile, industries seem to be getting turned on their heads. Will these large language models (“LLMs”) and agentic AI offerings render industries like call centers or software as a service (“SaaS”) obsolete? During the first half of the year, SaaS companies appear to have come under pressure. Can these models displace their businesses? Are these moats crumbling? For some, yes, and for others, no. That is what happens during step changes. The future is uncertain.

What Is Driving Markets Now?

What is driving markets now, and what should we be on the lookout for? The war in Iran started on February 28th and was initially thought to be a quick victory. The Strait of Hormuz closed for the first time in history, with the exception of a brief period in 1980 (2).

Oil prices moved higher, which may have influenced inflation to pick up again despite our energy supplies being left intact. Oil prices have since receded and have left many scratching their heads. How could prices be lower when the strait remains closed or running at a fraction of its volume prior to the onset of the war?

According to Art Berman, the oil markets had already priced in a risk premium before the war started, and that premium has declined and taken much of the bite out of oil prices (3).

Corporate Earnings and Market Valuations

Corporate earnings are largely moving higher. The only sector expecting an earnings decline in the second quarter is healthcare. Full-year 2026 earnings per share on the S&P 500 are now projected to be around $341, up from $320.60 at the end of March, reflecting improved analyst expectations for corporate earnings. Much of that is led by technology (4).

With the S&P 500 at roughly 7,500, that equates to a price-to-earnings (“PE”) multiple of 22 times, much higher than the long-term historical average of roughly 17 times (5). Profit margins are materially higher than they were at any point in history, possibly influencing the valuations observed throughout the market.

SpaceX went public in June, raising a whopping $75 billion for its coffers at a $1.77 trillion valuation. It currently sports a $2 trillion market capitalization on a base of only $20 billion in revenues. Again, a rich price for its future earnings potential. A lot of good things need to happen for the company to earn that value. It is not for us to say that it cannot happen. It is merely to point out that expectations are ebullient.

Despite the market sitting at or near all-time highs, the notable names that investors have come to own in cult-like fashion sit well below their 52-week highs. As of the end of June, Palantir is down 25 percent, Microsoft is down 20 percent, while Nvidia is up a scant 5 percent. The S&P 500 is up almost 11 percent through the first half of the year, despite the aforementioned struggling bellwethers.

Gold and Emerging Markets

Gold, the high flier of 2025, which peaked north of $5,400 per ounce, is down 4 percent on the year. Emerging markets, as a whole, are up 12 percent through June 20th, despite rising commodity prices like oil and a strong U.S. dollar, two things that typically hurt them.

Why? Semiconductor and memory companies. Taiwan Semiconductor, which makes over 90 percent of the world’s leading-edge chips, is up almost 50 percent. Micron Technology and SanDisk Corp. gained 245 percent and 634 percent, respectively, driving emerging market funds higher in the face of those traditional headwinds.

The Federal Reserve

Kevin Warsh took the reins in June. For those who were concerned that he might be the president’s puppet and cut rates at a time when inflation was gathering steam again, they were sadly mistaken. Mr. Warsh has done no such thing.

The probability of rate cuts is gone for now. The next move predicted is a raise. To further allay fears, the Supreme Court’s ruling last week on the Fed’s independence gave wind to our sails that the Federal Reserve will operate as a separate arm of the government, free of the whims of whoever sits in the Oval Office.

Our Approach at Collier

At Collier Sustainable Wealth Management, we have always been keen on diversification. We added to our international equity exposure in the first half of the year. We also added to our gold position, despite its lackluster performance, because we believe gold has a place in a diversified portfolio.

With the possibility that governments will continue to run up their national debt and currencies’ purchasing power will be inflated away, we believe owning gold and fixed income that yields a real return, defined as a bond’s yield minus the rate of inflation, can mitigate potential market risks.