Investment Insights by Alan F. Skrainka, CFA

Monthly Market Commentary | September 3, 2026

Alan F. Skrainka, CFA — Thu, 03 Sep 2026 14:03:06 GMT

Stocks recovered broadly in August. The S&P 500 gained 2.7 percent, and the technology names that had just been marked down led the way back. The more consequential news came from Wyoming, where the new Federal Reserve Chairman told the world’s central bankers that if inflation does not move toward 2 percent “clearly and at sufficient speed,” the Fed has “work to do.” The bond market, which spent July pushing long-term rates higher precisely because it doubted that resolve, responded immediately: short-term yields rose to price in possible rate increases, and long-term yields stopped climbing.

● S&P 500: The index returned 2.7 percent in August and stands up 13.1 percent for the year and 20.2 percent over the past twelve months. The Dow Jones Industrial Average added 1.5 percent and is up 11.6 percent year to date.

● Growth vs. value: July’s rotation reversed but did not undo. The Russell 1000 Growth index gained 3.7 percent on the month against 2.0 percent for the Russell 1000 Value index. For the year the gap remains wide: value up 23.0 percent, growth up 3.9 percent. By style box, large-cap value leads at 19.0 percent year to date versus 8.8 percent for large-cap growth.

● Technology and the Nasdaq 100: The Nasdaq 100 rose 4.2 percent, recovering much of July’s 6.5 percent decline, and is up 17.0 percent for the year. The information-technology sector gained 6.4 percent on the month and is up 29.9 percent year to date, second only to energy.

● Small- and mid-caps: Both lagged. The Russell 2000 rose 0.9 percent and the S&P MidCap 400 was essentially flat at 0.1 percent. For the year they remain up 19.9 percent and 14.5 percent respectively — both well ahead of large-cap growth.

● Sectors (year to date): Energy leads at 45.0 percent, followed by information technology (29.9 percent), materials (17.1 percent), and industrials (13.5 percent). The month’s laggards were the rate-sensitive corners: utilities fell 4.8 percent, industrials 2.6 percent, and real estate 2.1 percent. Communication services (−4.8 percent) and consumer discretionary (−2.0 percent) remain the year’s only losers.

● International: Emerging markets led all major categories with a 4.6 percent gain — the chip-heavy Asian markets recovering alongside technology — and are up 23.1 percent for the year. Developed international markets (EAFE) rose 1.8 percent and are up 13.7 percent.

● Bonds and rates: The yield curve flattened. The 2-year Treasury rose from 4.28 to 4.34 percent while the 10-year finished unchanged at 4.75 percent and the 30-year eased from 5.27 to 5.25 percent. The broad investment-grade bond market returned 0.4 percent on the month and high-yield bonds 1.0 percent. Investment-grade corporate bonds yield roughly 5.5 percent and high-yield 6.6 percent.

Key Observations

● The Fed answered July’s question, and the curve responded. In July, long-term rates rose because the market doubted the Fed’s resolve. In August, after Jackson Hole, the 2-year rose and the 30-year fell. Short rates pricing in increases while long rates hold steady is what restored credibility looks like on a chart.

● The rotation reversed, and no one was rewarded for reacting to July. The Nasdaq 100 fell 6.5 percent in July and rose 4.2 percent in August; emerging markets fell 6.3 percent and rose 4.6 percent. An investor who sold into the July decline bought back higher or is still waiting.

● Higher policy rates are not the same as a bad bond market. The broad investment-grade index gained 0.4 percent in August even as the market moved to price a September increase, because rate increases do their damage at the short end while the long end held.

● Gold and silver fell about 11 percent. Precious metals do best when investors believe a central bank has lost its nerve. August delivered the opposite message. Gold is now down 5.0 percent for the year and silver 5.6 percent, after leading for much of it.

● The Fed is preparing to tighten into a softening labor market. Employers cut 23,000 jobs in July and revisions erased another 103,000 from May and June, while core PCE inflation held at 3.3 percent.

Market Commentary

Last month this commentary described a bond market that had asked the Federal Reserve a question and received no answer. Chairman Kevin Warsh had affirmed the 2 percent inflation target without describing how he intended to reach it, and long-term interest rates rose on their own — the 30-year Treasury climbing 36 basis points in a single month — as investors priced in the possibility that inflation would not be dealt with promptly. The conclusion then was that a market will fill a silence itself.

On August 28, in his keynote at the Kansas City Fed’s Jackson Hole symposium, Warsh filled it.

Warsh answers the question

The sentence that moved markets was short. “We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed,” the Chairman said. “Otherwise, we have work to do. That’s our job, that’s our mandate.”

In central-bank language, “work to do” means rate increases. Warsh did not promise one. He was explicit that he was committing “to a discipline, not to a decision,” and he again rejected formal forward guidance on the grounds that it “risks creating ambiguity in the name of clarity.” But he supplied the two things his July press conference lacked: the standard by which policy will be judged, and evidence that the standard is not currently being met.

The evidence was specific. Warsh noted that 54 percent of the components of the personal-consumption price index have risen more than 3 percent over the past year, against roughly 32 percent before the pandemic — inflation that is broad, not the work of a few noisy categories. He observed that unemployment at 4.1 percent sits close to most estimates of full employment, which removes the usual argument for patience. And in the line that probably did the most work, he said he “would be hard pressed to describe broad financial conditions as restrictive,” which is a polite way of saying that policy may not be tight enough.

Markets took the point within minutes. Futures-implied odds of a quarter-point increase at the September meeting jumped to roughly 59 percent from about 35 percent the day before, and prediction markets went higher still. The 2-year Treasury yield rose 9 basis points on the day. Stocks slipped that Friday, yet the S&P 500 still finished both the week and the month higher.

What a flattening curve is telling you

Now compare the two months, because the contrast is the most useful information August produced.

In July, the 2-year Treasury yield rose 14 basis points, the 10-year 31, and the 30-year 36. Long rates rising faster than short rates — a steepening curve — is the market’s way of saying it doubts inflation will be handled and wants more compensation for holding bonds far into the future.

In August, the 2-year rose 6 basis points to 4.34 percent, the 10-year did not move at all, finishing at 4.75 percent, and the 30-year actually fell 2 basis points to 5.25 percent. Short rates up, long rates flat to lower, is the mirror image: a market pricing a Fed that will act sooner and, because it will act sooner, has less to fear about inflation later.

That is not a small thing. Long-term interest rates are the price of the market’s confidence in the currency. When they stop rising while the central bank talks tougher, credibility is being repaired — and credibility is the Federal Reserve’s most valuable asset and the most expensive one to replace once it is spent. Anyone who lived through the late 1970s can tell you what the bill looks like.

There is a second lesson buried in the bond returns. If you had been told on August 1 that the market would spend the month moving to price in a rate increase, you might reasonably have expected bonds to lose money. They did not. The broad investment-grade bond index returned 0.4 percent, high-yield bonds 1.0 percent, and only municipals slipped, by 0.2 percent. Rate increases do their damage at the short end of the curve, where maturities are brief and prices barely move. A diversified bond fund holds intermediate and long maturities, and those held steady. Higher policy rates are not automatically bad news for a bond investor — what happens at the long end matters far more, and in August the long end behaved.

The metals took the message hardest

The clearest casualty was precious metals. Gold fell about 11 percent in August, from roughly $4,588 an ounce to $4,074, and silver fell about 12 percent, from $66.70 to $58.80. Both are now modestly negative for the year — gold down 5.0 percent, silver down 5.6 percent — after leading for much of it.

This should not surprise anyone. Gold pays nothing. It competes with interest-bearing assets, and it does best when investors believe a central bank has lost its nerve, when real after-inflation yields are falling and paper currency looks unreliable. Warsh’s speech was the opposite message, and the metals repriced accordingly. There is a distinction here worth holding onto: a long-term store of value is one thing, and a position that depends on a central bank failing is another. August was a poor month to be holding the second one.

Energy went the other way. Crude oil added another 1 percent to $87.03 a barrel and is up 52 percent for the year, which makes it the single largest source of the inflation the Fed is now confronting. Gasoline at the pump eased slightly in August to $4.21 a gallon, but it remains almost 25 percent higher than a year ago.

Positioning for potential rate hikes

What should a long-term investor actually do with all this?

Start with what the market already knows. A September increase is close to even odds in the futures market and nearer two-in-three in prediction markets. That expectation is already reflected in the price of every bond and every stock you own. Positioning for a rate increase, properly understood, is not an attempt to profit from an event that is already largely priced. It is making sure the portfolio is built so that the outcome does not matter much either way.

On bonds, a rising short rate is a benefit to a saver and a modest inconvenience to a bondholder. If the Fed raises rates, the yields on money-market funds, Treasury bills, and newly issued bonds rise with them. The temporary price decline on bonds you already hold is recovered over a holding period roughly equal to the fund’s duration — for a typical intermediate-term bond fund, about six years. If your horizon is longer than that, higher rates leave you better off, not worse. What deserves more caution is reaching for yield at the very long end of the curve, where the risk is less about the Fed than about the volume of Treasury debt that has to be sold in the years ahead.

On stocks, August already showed which parts of the market feel higher rates most directly. Utilities fell 4.8 percent, industrials 2.6 percent, and real estate 2.1 percent, while technology rose 6.4 percent and energy 7.4 percent. The bond-proxy sectors — the ones investors buy primarily for yield — are the ones that struggle when the risk-free rate rises. That is an argument for holding a broad mix of sectors, not for selling any of them. Those same rate-sensitive sectors tend to be the first to recover when the cycle turns.

On the balance of the portfolio, this is a rebalancing environment rather than a repositioning one. Stocks are up double digits for the year and bond yields are the most attractive they have been in the better part of two decades. If a strong equity year has pushed your stock allocation above where you intended it, trimming back into bonds captures the gain and buys income at yields that were unavailable for most of the last fifteen years. Do it by policy — a set date, a set tolerance band — rather than by conviction about what the Fed will decide in two weeks.

And keep the risk on both sides in view. The Federal Reserve is preparing to tighten into a labor market that is losing momentum. If the Chairman is right that inflation is broad and financial conditions are loose, higher rates are the correct medicine. If growth rolls over first, they will look like a mistake. Nobody knows which, including the Fed — Warsh said as much when he explained that economic knowledge “just doesn’t extend that far.” A portfolio that owns high-quality bonds alongside a broad mix of stocks does not need to know.

Economic Roundup

Inflation

The Consumer Price Index rose 0.1 percent in July and 3.4 percent from a year earlier, according to the report released August 12 — a shade better than June’s 3.5 percent and a second consecutive month of improvement. Core inflation, which excludes food and energy, rose 0.2 percent on the month and 2.5 percent over the year. Shelter, still the largest single component, rose only 0.1 percent and is up 3.2 percent over twelve months.

The problem remains energy. Gasoline fell 2.9 percent during July but is still 24.6 percent higher than a year ago, and the broader energy index is up 14.7 percent. With crude oil up 52 percent for the year and still climbing, the arithmetic that has been pulling headline inflation lower is running short of room.

The Federal Reserve’s preferred measure was less encouraging. The July personal-consumption-expenditures price index, released August 28, rose 0.2 percent on the month and 3.7 percent over the year, with core PCE at 3.3 percent — unchanged from June and well above the 2 percent objective. Personal income rose 0.4 percent, spending 0.2 percent, and the saving rate held at 3.0 percent.

Labor Market

The July employment report, released August 7, was the month’s genuine surprise. Nonfarm payrolls fell by 23,000, against an average gain of 34,000 over the prior twelve months, and revisions took another 66,000 off May and 37,000 off June. Local government education (−50,000) and retail trade (−19,000) accounted for most of the weakness, while health care added 22,000, more slowly than in recent months. The unemployment rate held at 4.1 percent and average hourly earnings rose 3.2 percent over the year — wage growth that is no longer adding much to inflation pressure.

Economic Growth

The Commerce Department’s second estimate, released August 26, left second-quarter real GDP growth at 1.5 percent at an annual rate, down from 2.1 percent in the first quarter. An upward revision to consumer spending was offset by higher imports. Corporate profits from current production rose $400.9 billion in the quarter, a sharp acceleration from the first quarter’s $74.4 billion — a reminder that a slowing economy and healthy corporate earnings can coexist, and part of why the stock market has held up.

Federal Reserve Policy

The Federal Open Market Committee did not meet in August. The month’s policy news came from Jackson Hole on August 28, where Chairman Warsh delivered the clearest statement of his tenure: inflation must move toward 2 percent “clearly and at sufficient speed,” and otherwise “we have work to do.” He described the 2 percent objective as “a firm, fixed target,” reaffirmed that short-term interest rates remain the Fed’s predominant tool, and declined to offer a mechanical reaction function, saying he was committed “to a discipline, not to a decision.” Markets responded by moving the odds of a September increase from roughly one-third to roughly six-in-ten.

Outlook

Nothing in August argues for a change of course. The S&P 500 is up 13.1 percent for the year and 20.2 percent over the past twelve months. Value stocks are up 23.0 percent, emerging markets 23.1 percent, and small-caps 19.9 percent. Leadership has rotated repeatedly — growth to value in July, value to growth in August, precious metals to energy over the summer — without the broad market suffering for it. An investor who owned the whole market has been paid well for doing very little.

The one adjustment worth making is the unglamorous one. A yield to maturity of 5.0 percent on the broad investment-grade bond index is the most attractive income available since before the financial crisis, and a stock market up double digits has probably pushed equity weightings above target. Rebalancing addresses both at once, and it is the discipline that earns its keep precisely when the outcome is uncertain — which, with a Federal Reserve openly weighing higher rates into a softening job market, describes the next six months well.

The Chairman said he is committed to a discipline rather than a decision. That is not a bad description of how a long-term investor should approach the same stretch. Decide what you own and why, write down the rules for when you will change it, and then let a noisy market and an unpredictable central bank do what they will. The investors who did that in July, when the Nasdaq 100 dropped 6.5 percent in a month, spent August being paid for their patience.

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Alan F. Skrainka, CFA, is the founder of Alan Skrainka, LLC and the author of Principle-Based Investing. Over a career of more than 40 years in the investment industry, he spent 28 years at Edward Jones, where he served as Chief Market Strategist and a General Partner. His work is published at InvestmentInsights.com and on Substack at Investment Insights by Alan Skrainka.

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Copyright © Alan Skrainka, LLC 2026. All rights reserved. InvestmentInsights.com is owned and operated by Alan Skrainka, LLC. The information on this website and in all published articles is for general informational and educational purposes only and should not be considered personalized investment guidance, a recommendation, or a solicitation to buy or sell any security. Neither Alan Skrainka, LLC nor InvestmentInsights.com are registered investment advisors, broker-dealers, or financial planners. The content published on this site is taken from sources that are believed to be reliable, and efforts are made to ensure accuracy; completeness and timeliness are not guaranteed. All model portfolios, mutual fund reviews, and ETF commentaries express the views of the author at the time of publication. Such materials are illustrative, are not tailored to your personal situation, and should not be relied on for investment decisions. Investing involves risk, including the potential loss of principal. Past performance is not indicative of future results. Securities and ETF values fluctuate, and investors may receive more or less than their original investment upon redemption. ETF shares are traded at market prices and may trade at a premium or discount to net asset value. Brokerage commissions and other costs may apply. Diversification does not guarantee profit or protect against loss. The author may hold personal positions in some of the investments mentioned herein; however, there are no financial arrangements or compensation agreements with any mutual fund company, ETF, or security discussed on this website. All content is the intellectual property of Alan Skrainka, LLC and may not be reproduced, transmitted, distributed, broadcast, or modified without prior written consent. This content is intended for U.S. residents only. InvestmentInsights.com does not provide personalized investment guidance or establish a fiduciary relationship. Readers are strongly encouraged to consult a licensed investment professional before making financial or investment decisions.

Asking the Wrong Questions

Alan F. Skrainka, CFA — Mon, 31 Aug 2026 14:00:57 GMT

When I hear a conversation about investing, I rarely hear the questions I wish people would ask. Instead, I usually hear questions that reflect anxiety about the future and require a crystal ball. Consumer sentiment surveys confirm people are generally pessimistic and expect conditions to worsen (Pew Research Center, “Americans’ Evaluations of the Economy Remain Negative,” July 23, 2026; University of Michigan Surveys of Consumers, July 2026).

Here are just a few of the questions I hear daily:

How will artificial intelligence change our world and specifically the outlook for jobs?

When will war in the Middle East end?

What is the outlook for inflation?

Why can’t young people afford to buy a house?

Will technology stocks continue to be the big winners, or are they in a bubble that is about to burst?

How will tariffs impact the economy?

What will be the Federal Reserve’s next move?

Will interest rates go up or down?

How might the mid-term elections change policy?

Will the stock market be higher or lower by the end of the year?

Unfortunately, I don’t have the answer to these questions. Nor does anyone else. Fortunately, you don’t need the answers to these questions to be a successful investor. Instead, these questions matter far more to your financial future and, unlike the ones above, you can actually answer them with just a basic grasp of investment principles:

Have I invested an appropriate amount of my portfolio in the stock market?

For investors with long-term goals, like saving for retirement, stocks represent the best opportunity to build wealth over time because owning stocks means owning a small piece of real businesses, and over the long run those businesses grow, earn profits, often pay dividends, and become more valuable over time – and you can share in that growth. Over the short term, stocks can be very uncomfortable to own. Historically, the stock market can drop 20-30% at any time for any reason and, on rare occasions, has fallen by half or more – five times over the past century (declines of about 48% to 83%), in 1929–1932, 1937–1938, 1973–1974, 2000–2002, and 2007–2009 (Yardeni Research, “S&P 500 Bull & Bear Markets”). While the stock market has always recovered from big drops, recovery can take months and even years. However, over the long term, the average annual return on stocks (including dividends) has been about 10 percent and the stock market has experienced positive returns in 84 of the 89 rolling 10-year periods since 1928, or 94% (author’s analysis of Aswath Damodaran, “Historical Returns on Stocks, Bonds and Bills: 1928–2025,” NYU Stern School of Business). An appropriate amount in stocks depends on your time horizon and tolerance for risk. For that reason, you should never invest money in the stock market you think you might need within the next five years.

Have I also properly diversified my portfolio by owning high quality bonds?

Unlike stocks, bonds offer attractive current income and a promise to pay your money back when the bond matures. For that reason, bonds tend to be less volatile than stocks. Experts commonly recommend a 60/40 portfolio, with 60% invested in stocks and 40% in bonds. Data from J.P. Morgan shows that a balanced stock-and-bond portfolio never lost money over any 5-year rolling period in the last 70 years (J.P. Morgan Asset Management, Guide to the Markets, “Time, Diversification and the Volatility of Returns,” 2026). Aggressive investors with a longer time horizon may want a higher percentage in stocks, older investors who are more conservative may want less.

Do I have a plan to manage the weightings by rebalancing my portfolio back to its target percentage on a regular basis?

Rebalancing is a much better strategy than market timing. Rebalancing means selling a little bit of your stock money if the percent of stocks in your portfolio rises above your target range and buying a little more if the percent falls below your target range. This strategy of “sell high buy low” tends to reduce risk and may even enhance returns over time.

Have I eliminated, or significantly reduced exposure to single security risk by owning stocks and bonds through broadly diversified, low-cost mutual funds or ETFs?

Picking stock winners is much more difficult than people realize. The landmark study on this topic is from Hendrik Bessembinder at Arizona State University (”Do Stocks Outperform Treasury Bills?“ Journal of Financial Economics, 2018). He found that the majority of individual stocks – about 58% – didn’t even beat one-month Treasury bills over their lifetimes, and the single most common outcome for a stock was a total loss. All of the stock market’s wealth creation (roughly $35 trillion) traced back to just 4% of companies. If you missed that tiny handful of big winners from 1926-2016, you would have been better off in Treasury bills.

Have I taken full advantage of opportunities to reduce taxes on my portfolio?

Remember, it’s not what you make, it’s what you keep. Qualified accounts, like IRAs and 401(k)s, provide the opportunity to dramatically increase how much wealth you build over time. In a taxable account, you owe taxes along the way as your investments pay dividends and earn capital gains. In a qualified account, nothing is taxed along the way, which lets you compound at a higher rate. Many employers even match the amount an employee invests in a 401(k), which means your money can compound even faster.

Is this a good time to invest?

That’s a question I can answer. Yes. It is a good time to invest. In fact, the best time to invest is when you have the money available and you have long-term goals you are trying to achieve.

Could investing really be this easy? Warren Buffett, probably the greatest investor of all time, once said, “Investing is simple, but not easy.” Investing doesn’t require a crystal ball or a PhD in Finance. It does require patience, discipline, and a sensible, repeatable, principle-based investment strategy that stands the test of time.

Alan F. Skrainka, CFA, is the founder of Alan Skrainka, LLC and the author of Principle-Based Investing. Over a career of more than 40 years in the investment industry, he spent 28 years at Edward Jones, where he served as Chief Market Strategist and a General Partner. His work is published at InvestmentInsights.com and on Substack at Investment Insights by Alan Skrainka.

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Commodities: A Speculative Diversifier, Not a Core Holding

Alan F. Skrainka, CFA — Mon, 24 Aug 2026 14:00:58 GMT

Every time energy prices spike and the cost of living climbs with them, investors start asking the same question: should I own some commodities in my portfolio? It is a fair question, and an honest answer has two sides.

Commodities can help. Oil, metals, grain, and gold move to their own rhythm, driven by the supply and demand for physical goods rather than by corporate earnings, so they often hold up in the very inflationary stretches that punish stocks and bonds at the same time. In 2022, when a diversified mix of stocks and high-quality bonds fell together, a broad basket of commodities was one of the few things that gained.

But there is a downside that rarely makes the headlines. A barrel of oil earns nothing. An ounce of gold pays no dividend. These assets produce no income and no earnings, so they cannot compound the way a business or a bond can. Since 1991, a broad commodity index has returned about 3.6% a year, against roughly 9.8% a year for U.S. stocks over the long run. Stretched over decades, that gap is the difference between a portfolio that grows and one that mostly treads water.

So the case for commodities is real, but narrow. They belong in the conversation as a speculative diversifier, not as a core holding. What follows is a plain-English look at what commodities can and cannot do in a portfolio, and how to size them if you decide they belong in yours.

What counts as a commodity

Commodities are physical goods, and they fall into two broad groups. Hard commodities are mined or extracted: crude oil, natural gas, gold, copper. Soft commodities are grown or raised: wheat, corn, soybeans, coffee, cattle. What unites them is that one unit is interchangeable with the next. A barrel of West Texas crude is a barrel of West Texas crude, wherever it comes from.

Most investors never touch the physical goods. You can, in principle, own commodities directly, trade futures contracts, or hold the shares of the companies that produce them. In practice, the accessible route today is a mutual fund or ETF that tracks a commodity index or a basket of futures. That structure matters more than it first appears, and it comes up again below.

The long-run return record

The reason is structural, not bad luck. Stocks represent ownership of businesses that reinvest, innovate, and grow their earnings. Bonds pay contractual interest. A commodity does neither. Its price can rise with scarcity or inflation, but it throws off no cash along the way, so the only way to profit is to sell it to someone else for more than you paid. That is closer to speculation than to investing, and it is why even long stretches of rising commodity prices have not compounded into stock-like wealth.

Commodities also travel in long, punishing cycles. The 2000s brought a genuine supercycle, as rapid industrialization in China pulled up the price of nearly everything that came out of the ground. The following decade gave much of it back. An investor who bought near the top of one of those waves could wait ten years or more just to return to even.

The path matters as much as the average. The chart below follows a $10,000 investment in the Bloomberg Commodity Index on a total-return basis. Over roughly two decades it grew to about $19,400, an annualized 2.7%, with the exact figure depending on where you start the clock. More telling is the shape of the line. It more than doubled into the 2008 peak, surrendered most of that gain within months, ground down to new lows by 2016, plunged again in the 2020 shock, then spiked in 2022 and once more in 2026. That jagged path is the volatility this guide keeps returning to, and it is the reason a modest, regularly rebalanced position is the only sensible way to hold the asset.

Source: Ycharts. Past performance is no guarantee of future results. All returns shown are historical and reflect the reinvestment of dividends and capital gains. Investment returns and principal value will fluctuate, and investors may experience gains or losses. Performance does not reflect the impact of taxes, advisory fees, or transaction costs, which would reduce returns. Please consult a financial professional before making investment decisions.

Why price gains rarely last

There is a deeper reason commodities struggle to build lasting wealth, and it is worth understanding. High prices in a commodity tend to contain the seeds of their own reversal. When wheat becomes expensive, farmers plant more of it, and the larger harvest pushes the price back down. When oil spikes, drillers bring on new wells and shale that were uneconomic at lower prices, and the added barrels eventually cap the rally. Copper, natural gas, and most of the rest follow the same logic.

This is where commodities part company with stocks. A good business can compound for decades because it reinvests its earnings and grows; a commodity cannot, because its own high price calls forth the new supply that erodes it. Traders put it bluntly: the cure for high prices is high prices. Scarcity and inflation can still drive sharp, genuine rallies, and those rallies are exactly what make commodities useful at the right moment. But the gains tend to be cyclical rather than cumulative, which is why the long-run line goes sideways even as individual prices soar and collapse along the way.

So here is the honest question. If commodities have returned almost nothing over decades, pay no income, and can leave a long-term holder with less than they started, why would a thoughtful investor ever own them? There is a real answer, and it is where this guide turns from what commodities are to how to use them.

The rest of this guide is for paid subscribers. Below the paywall you’ll get the full case for when a small commodity position actually helps and when it does not, the 2022 example, the inflation and gold angle, the real performance record of the major commodity ETFs, the specific costs and traps to avoid, and the practical part: how much to own, which vehicles deliver the exposure without the worst of the drag, the rebalancing discipline that turns commodity volatility into an advantage, and where a commodity sleeve fits alongside the funds and model portfolios in our research library.

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All Gloom, No Doom

Alan F. Skrainka, CFA — Mon, 17 Aug 2026 14:38:26 GMT

Two numbers came out in the last few weeks that should not be able to coexist. The University of Michigan’s index of consumer sentiment finished July at 55.2. That reading is worse than 98 percent of every month the survey has recorded since 1978, and it sits 34 percent below the long-run average of 83.8. In November 2008, with Lehman Brothers freshly bankrupt, the stock market down nearly 40 percent, and the economy shedding half a million jobs a month, the same index read 55.3.

Americans today feel roughly the way they felt during the single worst month of the global financial crisis. By the most basic measure of economic pain, there is very little pain to explain it.

The misery index says conditions are better than usual

The misery index, popularized in the 1970s by economist Arthur Okun, is simply the unemployment rate plus the inflation rate. It is a crude tool, but its crudeness is the point: it captures the two ways an economy most directly hurts a household - no job, or a paycheck that does not keep up with prices.

Today the misery index stands at roughly 7.6, based on July’s 4.1 percent unemployment rate and June’s 3.5 percent inflation rate. J.P. Morgan Asset Management calculates that the index is better today than it has been in roughly 65 percent of all months over the last 50 years. It sits below its long-run average of about 9.2 stretching back to 1948, and it is nowhere near the readings that gave the index its name: nearly 21 in 1980, when inflation ran 13.6 percent and unemployment 7.2 percent at the same time.

Consumers say things are nearly the worst they have ever been

Now the other chart. Sentiment fell to 49.5 in June and recovered to 55.2 in July on cheaper gasoline, and both readings sit in the bottom 2 percent of the survey’s 48-year history. Neither is close to what the 2008-2009 financial crisis produced. Neither is close to the 1990 or 2001 recessions. And neither reaches May 1980, when the misery index hit its all-time high of 22 and sentiment still managed 51.7.

Let that comparison register for a moment. In 1980, with mortgage rates near 14 percent and inflation running in double digits, Americans felt better about the economy than they did this past spring, when unemployment was near 4 percent and inflation was around 3.5.

Why the gloom

J.P. Morgan’s economists built a model to estimate where sentiment ought to be, using unemployment, job growth, inflation, stock prices, and gasoline prices. The model said June’s reading should have been about 88. The actual number was 49.5, a gap of nearly 39 points that the fundamentals cannot explain.

The most convincing partial explanation involves the difference between rates and levels. Economists measure inflation as a rate of change, and by that measure the fever broke years ago. Households experience prices as levels, and the level of consumer prices is up about 28 percent since January 2020. A 3.5 percent inflation rate on top of that accumulated increase does not feel like relief; it feels like an insult that keeps compounding. Groceries, insurance premiums, and rent do not reset to 2019 just because the rate of increase slowed.

There is likely more to it than arithmetic - a steady diet of pessimistic headlines and the lingering financial whiplash of the pandemic years both plausibly play a part - but no one has fully closed the gap. What matters for investors is not solving the puzzle. It is recognizing that the gap exists, and knowing what it has historically meant.

What it means for long-term investors

Consumer sentiment is a measure of how people feel, and how people feel has been more of a contrary indicator than a leading one. Sentiment hit its record high in January 2000, two months before the dot-com bubble burst. It hit record lows in June 2022 and again this year, and the market’s response to the 2022 low was to begin one of the strongest three-year runs in its history.

J.P. Morgan’s analysis of the historical record makes the same point with numbers: months when sentiment was depressed far below what economic fundamentals justified were followed, on average, by stock returns several percentage points above normal over the following year. That is history, not a forecast, and we would never suggest buying stocks because a survey looks gloomy.

Our guidance has not changed, because it does not depend on the national mood. Affordability is still a problem for many Americans, but the economy is in better shape than the sentiment surveys would indicate. Investing is not about maximizing your return; it is about earning a competitive return - one sufficient to reach your long-term goals - while managing risk. Widespread pessimism, by itself, has never been a good reason to sell.

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Knowing the principles is the easy part. The harder, more valuable work is building the portfolio that puts those principles to work. That means choosing the specific, low-cost funds for diversification, the right high-quality bonds for ballast, and a sensible cash reserve, while knowing which products to avoid. That is what our fund research library and model portfolios are built for: an in-depth look at the funds that meet our high standards, plus model portfolios that combine them for broad, low-cost diversification. Explore the research library at investmentinsights.com.

More Investment Insights

This Large-Cap Fund has Outperformed the S&P 500 for 10 years - at an Index-Fund Price - One of our favorite funds

Model Portfolios: Q2 2026 Quarterly Commentary - Featuring our latest models and performance for Q2

Alternative Investments: Are Private Markets Worth It? - The final part of our five-part series.

Monthly Commentary | August 3, 2026 - Market and economic update

New reader? Start with our pinned Start Here guide for how to get the most out of Investment Insights.

Sources

J.P. Morgan Asset Management, Notes on the Week Ahead: Consumer Sentiment and the Stock Market (Dr. David Kelly). University of Michigan Surveys of Consumers. U.S. Bureau of Labor Statistics, Employment Situation (July 2026) and Consumer Price Index (June 2026).

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Important Disclosures

The Boys Will Be Home by Christmas

Alan F. Skrainka, CFA — Fri, 14 Aug 2026 14:00:11 GMT

“They’ll be home by Christmas” may be the most enduring promise in the history of warfare. American leaders have not always used those exact words, but from the Civil War to Korea, Vietnam and Afghanistan, the assumption that a conflict will be short has repeatedly collided with reality.

The photograph above was taken at Wake Island in October 1950. General Douglas MacArthur told President Truman that formal resistance in Korea would end by Thanksgiving, and that it was his hope to withdraw the Eighth Army to Japan by Christmas. Six weeks later, standing at the front on the morning he launched what the press immediately christened the Home by Christmas offensive, he told the men of the 24th Division that he had already promised their wives and mothers they would be back by Christmas. Four days after that he cabled Washington: “We face an entirely new war.” China had entered. The fighting ran another two and a half years.

When a Senate committee read the promise back to him the following May, MacArthur neither denied it nor defended it. He said four words. “That was my hope.”

His words were not an outlier. They were the rule.

The war nobody scheduled

The pattern is running again. The conflict with Iran that began at the end of February is now in its sixth month. On March 2, President Trump described the planning assumption plainly: “Right from the beginning, we projected four to five weeks, but we have capability to go far longer than that.” A fourteen-point memorandum signed in June was supposed to produce a final agreement within sixty days. It collapsed in July, and the Strait of Hormuz has been closed to normal traffic for most of the period since.

This week the administration signaled a shift in approach. The President told Axios he is “low-keying” the conflict and only “semi-negotiating” with Tehran, and described his reasoning this way: “We are just watching Iran with its huge inflation and the fact they have no money.” The machinery behind that comment is real. Treasury has run eight rounds of shadow-banking designations this year, more than a thousand individuals, vessels and companies have been sanctioned, and a July round targeted the marine insurance network operating around the closed strait. A senior official summarized the logic to Axios in late July: the Iranians “are more scared of Treasury than the War Department.”

Whether economic pressure produces a settlement is a question for people who study Iran. It is not a question an investor can answer, and the honest position is that nobody publishing a forecast this month knows how this ends. The market has already decided to look past it.

What the market did instead

The S&P 500 has closed at a record high 26 times in 2026. The most recent came on August 7, at 7,757.64, capping the index’s best week since April. That is 26 records in roughly seven and a half months, against 39 in all of 2025.

The index did not sail through untouched. When the fighting started on February 28, stocks fell about 8 percent over the following month, the Dow entered a correction, and the S&P strung together its longest weekly losing streak in four years. The recovery took about six weeks from the low. The first record close after the war began came on April 15, and the index is up roughly 10 percent from there.

That sequence is worth holding in mind the next time a headline arrives that feels like it should be decisive. The war did not stop. The oil price went considerably higher after the market bottomed. The ceasefire was signed and then abandoned. The index made new highs through all of it.

Oil, and the inflation it carries

Brent crude started the year near $61 a barrel. By the end of March it was $118, and on April 30 it touched $126.41 intraday, a four-year high. The national average price of gasoline reached $4.30 a gallon. Since that peak, oil has fallen by roughly a third. Brent has been trading in the mid-$80s in early August and West Texas Intermediate near $79.

The retreat is already visible in the inflation data. Energy prices fell 5.7 percent in June, the largest one-month decline since April 2020, and that pulled the headline Consumer Price Index down 0.4 percent for the month. The annual comparisons still look poor, because they measure against a period before the spike. Gasoline is 26.7 percent higher than a year ago and headline CPI is running at 3.5 percent. Core CPI, which excludes food and energy, sits at 2.6 percent.

The Federal Reserve left the target range at 3.50 to 3.75 percent on July 29, with three of twelve voters dissenting in favor of a hike rather than a cut. A week later the July employment report showed payrolls falling by 23,000 against expectations of a gain, and the market took that as removing the hike risk. The record close on August 7 followed. The ten-year Treasury ended that week at 4.65 percent.

Earnings are doing the heavy lifting

The stronger explanation for 2026 has less to do with geopolitics than with profits. With 88 percent of the S&P 500 reported, second-quarter earnings are up 50.4 percent from a year ago, the highest growth rate since the second quarter of 2021, on revenue growth of 15.0 percent. Eighty-six percent of companies beat their earnings estimates, against a five-year average of 78 percent. Companies have beaten in aggregate by 29.2 percent, the largest positive surprise FactSet has recorded since it began tracking the figure in 2008.

Those numbers deserve a caveat. Alphabet and Amazon together account for roughly 71 percent of the dollar increase in index earnings this quarter, and Amazon’s figure includes a $53.4 billion gain in other income tied to its stake in Anthropic. Strip both companies out and growth falls to 32.0 percent with an aggregate surprise of 10.9 percent. That is still an excellent quarter by any historical standard. It is simply not a 50 percent quarter, and an investor who repeats the headline number without the footnote will eventually be surprised by the comparison a year from now.

Valuation reflects the good news without being extreme. The forward twelve-month price-to-earnings ratio stands at 20.0, against a five-year average of 19.9 and a ten-year average of 19.0. Analysts expect earnings growth of 30.0 percent for the full year and 13.6 percent for 2027, which is the kind of estimate that tends to come down as the year progresses.

Why war is a poor guide to markets

There is a reason why forecasting when a war will end is so difficult. The forecaster never knows what the other side will do. MacArthur had good intelligence, a brilliant record, and a rational plan. What he did not have was any way to know that Mao would send several hundred thousand men across the Yalu.

Markets are harder still, because the price already contains everyone’s best guess. By the time a conflict is on the front page, the risk has been quickly discounted, argued over, and repriced. What moves the market afterward is the part nobody can predict. In February that meant an eight percent drawdown that a great many people were certain was the beginning of something worse. In the four months that followed, it meant an earnings season that no analyst could have anticipated.

Morgan Housel’s observation is the useful frame. Pessimists sound smart, because pessimism arrives with specifics: a strait, a sanction, a barrel price, a casualty count. Optimism sounds thin, because “things will generally work out” is difficult to dress up as analysis. Yet U.S. stocks have compounded at roughly ten percent a year over the last century, through two world wars, Korea, Vietnam, the Gulf, Iraq, Afghanistan, a depression, more than a dozen recessions and a pandemic. The long arc of human progress continues to bend upward.

What you can control

None of this argues for ignoring the conflict, and none of it argues that the next six months will resemble the last six. It argues for developing a sensible plan and sticking to it.

Hold a diversified portfolio, because you cannot know which asset the next headline will favor. Keep enough in high-quality bonds and cash that a bad quarter never forces you to sell stocks at the wrong moment. Rebalance on a schedule rather than on a mood, which after a run like this one means trimming what has grown furthest and adding to what has lagged.

Some investors back in February concluded that a war closing the Strait of Hormuz was no environment for stocks and stepped aside. That person was not foolish. The reasoning was sound and the premise was correct, because the strait is still closed today. He simply missed twenty-six record highs while being right about the war.

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More Investment Insights

This Large-Cap Fund has Outperformed the S&P 500 for 10 years - at an Index-Fund Price - One of our favorite funds

Model Portfolios: Q2 2026 Quarterly Commentary - Featuring our latest models and performance for Q2

Alternative Investments: Are Private Markets Worth It? - The final part of our five-part series.

Monthly Commentary | August 3, 2026 - Market and economic update

New reader? Start with our pinned Start Here guide for how to get the most out of Investment Insights.

Sources

FactSet, Earnings Insight, August 7, 2026

U.S. Bureau of Labor Statistics, Consumer Price Index, June 2026 (released July 14, 2026) and Employment Situation, July 2026 (released August 7, 2026)

Board of Governors of the Federal Reserve System, FOMC statement and implementation note, July 29, 2026

U.S. Department of the Treasury, Office of Foreign Assets Control, press releases, May 19 and July 29, 2026

U.S. Department of State, “Severing Iran’s Illicit Cash Pipeline,” August 7, 2026

U.S. Department of the Treasury, Daily Treasury Par Yield Curve Rates, August 7, 2026

U.S. Energy Information Administration, Short-Term Energy Outlook and spot price data, 2026

Slickcharts and Advisor Perspectives, S&P 500 total return and record close data, August 7, 2026

Axios, “Trump bets sanctions will beat bombs,” July 27, 2026, and reporting of August 9–10, 2026

Al Jazeera, “Trump says Iran war projected to last 4 to 5 weeks,” March 2, 2026

The Dupuy Institute, “Home Before the Leaves Fall,” February 2021

Forrest C. Pogue, The Supreme Command, United States Army in World War II, European Theater of Operations, chapter 14

U.S. Department of State, Foreign Relations of the United States, 1950, Volume VII, Documents 680 and 888

Harry S. Truman Presidential Library, MacArthur document set, “Home by Christmas,” November 28, 1950

U.S. Senate Committees on Armed Services and Foreign Relations, Military Situation in the Far East, hearings, May 4, 1951

Time, “Battle of Korea: Massive Envelopment,” December 4, 1950

American Presidency Project, White House Statement Following the Return of a Special Mission to South Viet-Nam, October 2, 1963

United Press International archives, Westmoreland address to the National Press Club, November 21, 1967

U.S. Department of Defense, town hall transcript, Aviano Air Base, February 7, 2003

FactCheck.org, “Anti-war Ad Says Bush, Cheney, Rumsfeld & Rice ‘Lied’ About Iraq,” September 2005

The White House, “President Bush Announces Major Combat Operations in Iraq Have Ended,” May 1, 2003

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Important Disclosures

Intelligence is Overrated

Alan F. Skrainka, CFA — Mon, 10 Aug 2026 14:03:13 GMT

Who’s the smartest person you know?

I spent my career in investment research, surrounded by very smart people - analysts with impressive degrees from some of the finest schools in the country. Our firm required new analysts to pass all three levels of the very tough Chartered Financial Analyst exam within five years. Since each level is offered only once a year, that worked out to two strikes and you were out. And by out, I mean fired.

All those years around intelligent people taught me something: the smartest analyst in the room is not always the best investor in the room. Warren Buffett made the same observation years ago: “Investing is not a game where the guy with the 160 IQ beats the guy with the 130 IQ.”

Which brings me to our story, and to a young man who may be the smartest guy in any room he has ever entered: Leopold Aschenbrenner.

A resume like no other

Aschenbrenner was born in Germany, the son of two physicians. He entered Columbia University at 15 and graduated valedictorian in 2021, at age 19, with a degree in economics and mathematics-statistics. After research work at Oxford and a stint at the FTX Future Fund, the philanthropic arm of Sam Bankman-Fried’s crypto empire, which he left before FTX collapsed, he joined OpenAI in 2023 to work on the problem of controlling superhuman artificial intelligence. OpenAI fired him in April 2024 in a dispute over an internal memo; he says the real reason was a warning he sent the board about the company’s security.

Two months later, at 23, he published Situational Awareness: The Decade Ahead, a 165-page series of essays predicting that artificial general intelligence - AI with human-level capabilities - could arrive around 2027, and that a global race over computing power, chips, and electricity would follow. The essays made him famous. One outlet called him the “Nostradamus of AI.”

The fastest-growing fund in the world

Celebrity attracted capital. Later in 2024 he launched a hedge fund, Situational Awareness LP, with roughly $225 million from a remarkable list of backers: Stripe founders Patrick and John Collison, former GitHub chief executive Nat Friedman, investor Daniel Gross, and Jane Street, the famously secretive trading firm that almost never backs an outside manager. Notice who is missing from that list. There were no pension funds, no endowments, and no institutional consultants performing due diligence. His backers were technology insiders who read the essays and believed.

The fund was the essay series made investable: concentrated positions in the infrastructure of artificial intelligence. Its first-quarter 2026 regulatory filing showed about $5.5 billion in U.S. stocks, dominated by a handful of names.

Beyond the public portfolio sat private stakes in AI companies, the largest a position in Anthropic reported at roughly 20% of the fund’s assets. The results were spectacular: returns of roughly 270% after fees through May 2026 and a reported 439% for the first half. Assets swelled from a few hundred million to roughly $20 billion by June, and as AI stocks melted up in early July, reports put the fund near $45 billion - all run by a 24-year-old with no prior professional investing experience. To magnify those returns, the fund reportedly used leverage of as much as 4-to-1, borrowing three dollars for every dollar of investor capital.

One week in July

In late July, AI stocks sold off hard. Worries about debt-financed data centers, swelling capital budgets, and shrinking free cash flow at the technology giants hit the exact stocks the fund owned, all at once. That is what concentration means.

On July 24, Aschenbrenner sent investors a letter describing the downturn as a “buying opportunity.” Within days, Goldman Sachs and JPMorgan were issuing margin calls to funds with concentrated AI positions. By July 30, the Financial Times reported that Situational Awareness was seeking emergency capital, and on or about that same day the fund sold essentially its entire public stock portfolio, reportedly in a single transaction to Ken Griffin’s Citadel. Reporting on the fund’s investor letters put the loss at 67% for July alone, with assets falling from the $45 billion peak to roughly $10 billion after the sale. The fund that set out to own the AI buildout now plans to regroup around its remaining private holdings.

Even after the collapse, the fund’s unaudited figures reportedly showed a gain of about 80% for 2026. Treat that number with care. A reported return measures a dollar invested at the start of the year, and most of this fund’s dollars arrived much later, drawn in by the spectacular results. A dollar that arrived in June experienced only the crash. A fund can post a winning year on paper while the typical investor in it loses badly. Performance chasing has always worked that way.

To be fair, the research behind the fund was in many ways excellent. The essays anticipated the data-center boom, the surge in electricity demand, and the scramble for chips well before these became consensus views, and investors who backed that insight early were paid handsomely for nearly two years. So the research was largely right, and the fund blew up anyway. How does that happen?

What he knew for sure

There is an old line, often attributed to Mark Twain: it ain’t what you don’t know that gets you into trouble, it’s what you know for sure that just ain’t so.

Aschenbrenner knew for sure. Leverage of 4-to-1 is certainty expressed in dollars. A portfolio concentrated in a single theme is certainty expressed in position sizes. A letter calling the worst drawdown in your fund’s history a buying opportunity, written days before the forced sale of everything, is certainty in its purest form. At every point where a humble investor would have left room to be wrong, the fund doubled down on being right.

Concentration is dangerous, and leverage is dangerous, but the real damage arrives when they are combined. A diversified portfolio without leverage can be wrong about many things and recover. A concentrated portfolio at 4-to-1 leverage cannot afford to be wrong about anything, even briefly: at that ratio, a 25% decline wipes out the investors’ capital entirely, and the stocks this fund owned routinely fell that much even on their way to new highs. Experienced investors know this arithmetic, and most learned it cheaply, by watching someone else pay the tuition. Wall Street stages a demonstration every decade or so.

The most famous demonstration came in 1998, when Long-Term Capital Management, a hedge fund whose partners included two Nobel Prize winners in economics, lost $4.6 billion in a matter of months. Its models were celebrated as the most sophisticated in finance, and the fund still required a rescue organized by the Federal Reserve Bank of New York when markets behaved in ways those models said were nearly impossible. Generations of investors studied that collapse and drew the lesson about leverage from a safe distance. Aschenbrenner never had that chance. LTCM failed before he was born, and his entire investing life has unfolded inside a powerful bull market, where nothing ever punished certainty.

Intelligence builds a persuasive case about the future. Humility remembers that the case might be wrong, and sizes the portfolio so that being wrong is survivable. Investing rewards the second trait far more generously than the first, because the future rarely cooperates with even the most persuasive case on schedule. Aschenbrenner may yet prove right about artificial intelligence over the coming decade. His fund, in its original form, will not be there to collect, because at 4-to-1 leverage the market needed only one bad month to take the decision out of his hands.

What it means for your portfolio

You will never run a $45 billion hedge fund, and you don’t need to. But every investor faces smaller versions of the same temptations: the concentrated bet on a company you are certain about, the margin loan that would turn a good year into a great one, the conviction that you see something the market has missed.

The principles of sound investing are acts of humility. Diversify because the future is uncertain. Avoid leverage, because it hands the market the power to close out your positions at exactly the wrong moment. Rebalance by policy rather than emotion, because judgment is least reliable when markets are most extreme. Stay invested for the long term, because no one can know in advance which years will do the heavy lifting.

As I have said before, investing is not about maximizing your return; it is about earning a competitive return - one sufficient to reach your long-term goals - while managing risk. That approach requires no genius. The smartest guy in the room just delivered an expensive reminder of what it does require: humility.

From Insights to Action

Related reading

Experts Are Having Another Tough Year - why even credentialed forecasters keep missing, and what to do instead.

How to Use AI to Make Money - and How People Lose It - the difference between using AI as a tool and betting on it as a sure thing.

This Growth Fund Has Outperformed the S&P 500 for More Than Twenty Years - One of our favorite choices in the category.

New reader? Start with our pinned Start Here guide for how to get the most out of Investment Insights.

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Important Disclosures

Stock Yields hit a 150-Year Low

Alan F. Skrainka, CFA — Thu, 06 Aug 2026 17:17:31 GMT

One chart says a lot right now. It shows the contrast between stock and bond yields. The S&P 500’s dividend yield is about 1%, an all-time low going back to the 1870s. The 30-year Treasury bond pays over 5%, its highest since 2007. All of the excitement right now is in the stock market, and hardly anyone is talking about bonds. That alone is worth noticing. The crowd tends to gather around whatever has already gone up, not what has quietly become more attractive.

Source: YCharts. S&P 500 dividend yield and 30-Year Treasury Rate as of August 6, 2026. Past performance is no guarantee of future results. For educational purposes only; not investment advice. SPY is an ETF based on the S&P 500. The actual current yield of the S&P 500 is about 1.1%.

This isn’t a market call. Part of the low yield reflects the shift from dividends to buybacks, as well as the heavier weighting of fast-growing technology stocks in the index, which tend to reinvest their profits rather than pay them out. It's a reminder of the importance of diversification. Stocks have historically outperformed bonds, and over the long run I expect they will continue to. But the goal in managing money isn't to maximize return. It's to earn a fair return while managing risk, so you can stay invested long enough to reach your goals.

Bonds were painful to own for years because the starting yield, which is a great predictor of future returns, was so low. That has changed. Today, you are finally being paid to own them.

Much of the current discussion around bonds centers on the Fed’s next move, or the next wiggle in the economy. That misses the point. For long-term investors with goals like investing for (or in) retirement, bonds offer the potential for attractive current income and the ability to dampen the volatility of your portfolio.

So check your target weights. After the recent rally in stocks, chances are your portfolio has drifted out of balance. And if you've never owned bonds, today's yields are a good opportunity to step in. Dollar-cost-averaging, investing a set amount each month, is a sensible way to build a fixed-income position.

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Important Disclosures

This isn’t a market call. It’s a reminder of why diversification exists. Nobody knows which asset wins from here, and a principle-based investor doesn’t have to. For the first time in nearly twenty years, you’re paid well to own both.

Monthly Commentary | August 3, 2026

Alan F. Skrainka, CFA — Mon, 03 Aug 2026 16:41:37 GMT

Monthly Market Summary

July looked uneventful and was anything but. The S&P 500 finished almost exactly where it began — up three-hundredths of one percent — yet beneath that flat surface the market staged one of its sharpest rotations of the year: value stocks rallied while technology and chip stocks fell hard, and a broadly diversified portfolio scarcely felt the difference. Long-term interest rates rose as the bond market pressed a new Federal Reserve chairman for a clearer plan on inflation. The details follow, but the lesson is the familiar one — the headline number rarely tells the whole story.

● S&P 500: The index returned essentially zero in July — up three-hundredths of one percent — and stands up 10.1 percent for the year and 19.5 percent over the past twelve months. The calm was deceptive: value-oriented parts of the market rose while growth-oriented parts fell, and the two roughly cancelled. The Dow Jones Industrial Average, heavier in value, added 0.4 percent.

● Growth vs. value: The month’s defining split. The Russell 1000 Value index gained 3.9 percent while the Russell 1000 Growth index lost 4.7 percent — nearly nine points of separation in a single month. For the year the gap is wider still: value is up 20.6 percent, growth just 0.2 percent. By style box, large-cap value leads at 16.4 percent year to date versus 5.0 percent for large-cap growth.

● Technology and the Nasdaq 100: The Nasdaq 100 fell 6.5 percent in July, its weight in mega-cap technology working against it. Even so, it remains up 12.3 percent for the year, and the information-technology sector is up 22.1 percent — a reminder that a rough month need not undo a strong year.

● Small- and mid-caps: Both pulled back with growth in July — the Russell 2000 fell 3.1 percent and the S&P MidCap 400 fell 2.4 percent — but both remain well ahead for the year, up 18.8 percent and 14.3 percent respectively. Small-cap value (up 16.7 percent) and small-cap blend (up 15.2 percent) are among 2026’s quiet standouts.

● Sectors (year to date): Energy leads at roughly 35 percent, helped by a 19 percent jump in crude oil during July. Information technology (22.1 percent), industrials (16.5 percent), real estate (13.4 percent), and materials (12.1 percent) follow. Communication services (−7.5 percent) and consumer discretionary (−2.4 percent) are the year’s laggards.

● International: The split showed up in geography, too. Developed international markets (EAFE) rose 1.6 percent on the month and are up 11.7 percent for the year. Emerging markets fell 6.3 percent — the chip-heavy Asian supply chain feeling the technology selloff directly — yet remain up 17.7 percent year to date.

● Bonds and rates: Long-term yields rose sharply. The 10-year Treasury climbed from 4.44 to 4.75 percent and the 30-year from 4.91 to 5.27 percent, while the 2-year rose only to 4.28 percent — a meaningful steepening of the yield curve. The broad investment-grade bond market slipped about 1.3 percent on the month. Investment-grade corporate bonds now yield north of 5 percent and high-yield near 6.6 percent — still the most attractive income in years.

Key Observations

● A flat headline hid a violent rotation. The S&P 500’s roughly zero return was the net of large-cap value up 3.9 percent and large-cap growth down 4.7 percent. The average hid the story.

● Semiconductors did the moving. The Nasdaq 100 (−6.5 percent) and emerging markets (−6.3 percent) fell together while developed international markets rose — the common thread is chips, not currencies or tariffs.

● 2026 is a value-and-diversification year. Value, small-caps, mid-caps, and international markets are all ahead of the U.S. large-cap growth index for the year. The investor who owned the whole market barely felt July.

● The macro backdrop cooled, but the reprieve may be temporary. June inflation eased to 3.5 percent and second-quarter growth slowed to 1.5 percent — yet crude oil rebounded 19 percent during July, keeping both the bond market and the Fed on guard.

● Kevin Warsh’s second press conference unsettled the bond market. The FOMC held rates a fifth time over three dissents, and by affirming the 2 percent goal without describing how the Fed will get there, the new Chairman left long-term rates to rise on their own — a credibility cost, not a portfolio emergency.

Market Commentary

The S&P 500 rose three-hundredths of one percent in July. For all practical purposes, the index stood still. An investor who glanced at the headline number and nothing else would have concluded that nothing happened. Quite a lot happened.

Beneath that flat tape, the market pulled itself apart. The Russell 1000 Value index gained 3.9 percent while the Russell 1000 Growth index lost 4.7 percent — nearly nine percentage points of separation in thirty-one days, netting out almost perfectly to an index that didn’t move. The S&P 500’s calm was not the absence of action. It was the sound of two large forces pushing in opposite directions. The Dow, heavier in value, edged up 0.4 percent; the Nasdaq 100, where the largest technology companies carry the most weight, fell 6.5 percent. Same month, same economy, a nearly seven-point gap between the two most-watched barometers in the market.

The chip stocks did the moving

If you want to know what actually moved in July, follow the semiconductors.

The clearest fingerprint was in the geography. Developed international markets rose 1.6 percent on the month; emerging markets fell 6.3 percent. That gap was not about tariffs or currencies this time — it was about chips. The emerging-market index is dominated by the world’s chip foundries and memory makers in Taiwan and South Korea, so when the artificial-intelligence trade wobbles, Taipei and Seoul feel it as sharply as Silicon Valley. The Nasdaq 100, roughly a fifth of it semiconductors, gave back 6.5 percent in a month the broad market did not budge.

This is simply the nature of the chip stocks. They are the most powerful earnings story of the decade and among the most volatile large companies in the market, often in the same week. They can deliver — or surrender — a year’s worth of an ordinary stock’s return in a handful of trading sessions. July was one of those stretches: a fast, noisy drawdown in the very names that had led the market higher. Nothing about the long-term case for computing changed. The price simply did what the price of a crowded, richly valued asset does from time to time — it reminded everyone that it can fall as easily as it rises. And note the round trip: even after the drop, the Nasdaq 100 is still up 12.3 percent for the year and the technology sector up 22 percent. A bad month and a very good year are not contradictions. They are the same investment, viewed through two different windows.

Value’s year, and why diversification did its job

Step back from the month to the year, and the rotation looks less like a July event and more like 2026’s defining feature. Through seven months, large-cap value is up 16.4 percent while large-cap growth is up 5.0 percent. Measured by the Russell indexes the spread is even starker: value has returned 20.6 percent for the year, growth just 0.2 percent. Smaller companies joined in — small-cap value up 16.7 percent, the broad small-cap blend up 15.2 percent. The stocks that led for years have paused, and the stocks many investors had written off have quietly done the heavy lifting.

Here is the practical lesson, and July taught it at no cost. An investor who owned only the winners of the last three years — the big technology and chip names — had an uncomfortable month, down high single digits. An investor who owned the whole market, value alongside growth, small alongside large, international alongside domestic, barely felt it. The pieces that fell were offset by the pieces that rose. That is not luck; it is the entire point of a diversified portfolio. You give up the thrill of owning only the hottest thing in exchange for a steadier ride — one that keeps you from being frightened into selling at the wrong moment. Diversification looks like a needless drag in the years technology runs alone. In a month like July, it looks like exactly what it is — the closest thing investing offers to a free lunch.

The Fed asks for patience without offering a plan

The month’s other story came from Washington. Kevin Warsh held his second press conference as Chairman, and it did not go well.

The problem was not merely that the new Chairman has stepped back from forward guidance — the dot plots and running commentary that markets had grown used to. Reasonable people can argue about whether the Fed talks too much. The deeper problem was what he affirmed and what he left out. Warsh told us plainly that inflation will return to the 2 percent target. He did not tell us how.

It is a little like a friend announcing that he intends to lose thirty pounds and then declining to say whether the plan involves eating less, moving more, or simply hoping. The goal is admirable. The absence of a method is what makes you doubt he will reach it. Markets judge a central bank the same way. A destination without a route is not a policy; it is an aspiration — and aspirations do not anchor inflation expectations.

The bond market filled the silence itself. Long-term interest rates, which reflect what investors expect inflation to be for years to come, rose sharply over the month — the thirty-year Treasury climbed 36 basis points to 5.27 percent and the ten-year 31 basis points to 4.75 percent, while the two-year rose just 14. A yield curve that steepens like that is the classic signature of a bond market that suspects inflation will not be dealt with promptly. Thirty-year mortgage rates backed up toward 6.7 percent, and futures markets moved to price roughly a 72 percent chance of a rate increase in September. The message was the one the bond market has sent before: give us a plan, or we will price one in for you.

None of this is a reason to reach for the exits. Credibility is the Federal Reserve’s most valuable asset, and Warsh — able, fiercely independent, and a genuine student of markets — has every incentive to rebuild it. One rough press conference is a data point, not a verdict. But it is a useful reminder that the path of interest rates is uncertain, which is precisely why a portfolio should never be built to depend on a single outcome.

Economic Roundup

Inflation

June’s Consumer Price Index, released July 14, rose 3.5 percent from a year earlier — down sharply from May’s 4.2 percent and below the 3.9 percent economists expected. Core inflation, which strips out food and energy, rose just 2.6 percent over the year. The relief came from gasoline, which fell during the month even though it remained well above year-ago levels. The Federal Reserve’s preferred gauge told the same story: the June personal-consumption-expenditures price index, released July 30, actually declined 0.1 percent on the month, leaving core PCE at 3.3 percent year over year.

The catch — and the reason the bond market did not celebrate — is that crude oil turned back up roughly 19 percent during July itself, to the mid-$80s. June’s good inflation news was written largely by falling energy prices; July’s oil rebound threatens to unwind some of it. Cooling that depends on cheap oil is cooling that can reverse, and the market knows it.

Economic Growth

The economy downshifted. The Commerce Department’s advance estimate, released July 30, put second-quarter real GDP growth at 1.5 percent at an annual rate — down from 2.1 percent in the first quarter and below the 2.1 percent economists had penciled in. Consumer spending, business investment, and exports all added to growth, partly offset by a decline in government spending and a rise in imports. A 1.5 percent pace is slower, not weak: the expansion continued, just with less of the momentum that carried it out of a turbulent first half.

Federal Reserve Policy

At its July 28–29 meeting, the Federal Open Market Committee held the federal funds rate at 3.50 to 3.75 percent for the fifth consecutive time — but not unanimously. Three reserve-bank presidents dissented in favor of a quarter-point increase, the first multi-vote dissent of Warsh’s tenure and a sign that the case for a hike is gaining ground inside the building. The statement acknowledged that inflation “remains above its target of 2 percent” while repeating that “the Committee will deliver price stability” — without saying how. At the press conference, Warsh rejected any soft tolerance for inflation above 2 percent, argued that “markets have done quite a bit” of the tightening themselves through higher yields, and described the moment as “a period of watchful thinking, not watchful waiting.” Investors were unconvinced that a concrete plan stood behind the words: futures-implied odds of a September increase jumped to about 72 percent, and long-term yields kept climbing into month-end.

Outlook

For a long-term investor, a month like July is not a problem to be solved but an opportunity to be used. If a strong year has carried your stocks well above their target weight, and the bond selloff has left high-quality bonds cheaper and their yields more attractive — investment-grade corporates now pay north of 5 percent — this is the situation rebalancing was designed for. Trim what has run the furthest, add to what the market has just marked down, and do it by policy rather than by mood.

Zoom out and the picture is reassuring, not alarming. The S&P 500 is up about 10 percent for the year and roughly 20 percent over the past twelve months. Value stocks are enjoying their best relative run in years, and the investors being rewarded in 2026 are the ones who stayed broadly invested and let leadership rotate underneath them rather than chasing last year’s winners into this year’s drawdown. Stay diversified, stay disciplined, and when the tape looks flat, remember that the average is hiding the story — and that a portfolio built to own the whole story is the one that gives you confidence.

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Rookies Will Break Your Heart

Alan F. Skrainka, CFA — Thu, 30 Jul 2026 16:13:28 GMT

Chris Waller put it about as plainly as a Federal Reserve governor can: staring at inflation with a withering gaze will not make it go away. He meant it as a nudge to his colleagues. This week it read more like a review of the new Chairman’s first performance.

Kevin Warsh held his second press conference as Chairman yesterday, and it did not go well.

His weakest moment came when he told reporters, in so many words, that markets have started watching the ball instead of the referee. What he meant was reasonable enough. He wants investors paying attention to the data and less to the running commentary of Fed officials.

The trouble was what he chose not to say. With inflation running hot and the data pointing toward a hike, the moment called for resolve, and Warsh whiffed. He passed up a clear chance to take a strong stand against rising prices and delivered a lesson on where markets ought to look instead. The room noticed, and the reaction from the bond market was violent and immediate.

Short-term rates fell. Long-term rates shot up. The result was the largest steepening of the yield curve on a Fed day in years. The message from the press, and from the market, was hard to miss: the Fed is not the referee. It is one of the largest players on the field, and it does not get to stand above a game it is helping to shape.

A credibility problem, briefly

Here is why it stung. The recent inflation data clearly warranted a rate hike, and the Chairman declined to signal that one was coming. When a central banker looks at hot inflation numbers and answers with a philosophy seminar instead of a plan, investors are left to fill in the blanks themselves. Some concluded the Fed was reluctant to move in the run-up to the midterm elections. Others guessed it wanted to wait until the work of its various task forces was finished.

Whether any of that is true almost does not matter. The point is that the silence created a vacuum, and the market poured its own theories into it. By declining to show more concern about the recent numbers, and by refusing to signal that a hike was imminent, Warsh handed the initiative to the bond vigilantes. They took long-term rates, which reflect expectations for future inflation, higher on their own. The bond market was sending a message it has sent before: hike, or we will do it for you.

That is a real cost. Credibility is the Fed’s most valuable asset, and it is far easier to spend than to rebuild.

The argument underneath the blunder

Step back from the theater, though, and something more interesting is going on.

Warsh is not confused about inflation. He is making an argument about how the Fed ought to think. He distrusts economic models, which are built on relationships that held in the past and tend to break precisely when the world changes. He trusts markets, which are forward-looking, because they price what people expect to happen next rather than what already happened. In the room yesterday he even nodded to Robert Lucas, a reference nearly everyone missed, whose famous critique showed why models estimated on historical data can mislead policymakers the moment policy itself shifts.

This is an old and serious intellectual tradition. It runs from the University of Chicago, where Lucas taught, to the Hoover Institution at Stanford, where Warsh himself spent the last decade sharpening his critique of the Fed. Both are deeply skeptical of the backward-looking, data-driven mainstream, the world of prominent economists like Olivier Blanchard and real-time gauges such as Claudia Sahm’s recession rule. Reasonable people have argued this for decades, and Warsh sits firmly on the markets side of it.

There is a paradox buried in his own position, and it explains the clumsy referee line. If you believe markets are the best guide, then you also have to worry about distorting them. A Fed that talks constantly, through forward guidance, dot plots, speeches, and a running commentary from a dozen officials, trains markets to trade the referee instead of the game. Warsh wants to talk less so that the market’s signals stay clean. It is a coherent idea. He simply chose a terrible day, and a worse metaphor, to introduce it.

It may take the market and the pundits a while to work out what Warsh is up to. Investors do not need to wait for that verdict to keep their footing.

Rookies will break your heart

Anyone who has followed a gifted young athlete knows the feeling. The talent is obvious. The polish is not there yet. Rookies will break your heart before they ever win you anything.

Fed chairs are no different. Alan Greenspan took office in August 1987 and watched the stock market fall 22 percent in a single day that October, only weeks into the job. Ben Bernanke told Congress in 2007 that the trouble in subprime mortgages looked contained, shortly before it proved to be anything but. Jerome Powell, late in 2018, described the Fed’s balance-sheet runoff as being on autopilot, helped set off a sharp selloff, and then spent the following weeks walking the comment back. Each went on to be regarded, on balance, as a capable steward of the institution.

To be fair to all of them, and to Warsh, communicating monetary policy in real time to a global audience of traders is genuinely hard, and the job offers no practice reps. One bad press conference is a data point, not a verdict. Warsh is exceptionally capable, fiercely independent, and he understands markets better than most who have held the chair. He will find a better way to say what he is trying to say.

What it means for your portfolio

Markets are rarely calm. More often they are drunk with optimism or sick with pessimism, and this week served up a little of each, with equities near their highs and bonds selling off on a Fed misstep. For a long-term investor with a plan, that is usually what opportunity looks like.

If a strong run in equities has carried your portfolio well above its target weight, while the bond selloff has made high-quality bonds cheaper and their yields more attractive, this is exactly the situation rebalancing was built for. Trim what has run the furthest and add to the bonds that are now paying you more to own them, by policy rather than by emotion. As I have said before, if you don’t rebalance your portfolio, the market will likely do it for you - and you may not like the results.

Do not confuse the theater with a change of regime. A noisy, contested, occasionally clumsy Fed is still a Fed disciplined by the data, by the markets, and by its own institutional checks. Your dividends come from the earnings of the companies you own, not from a Chairman’s choice of words at a podium. Stay diversified, stay disciplined, and give the rookie a little time.

From Insights to Action

Related reading

Worried About Fed Independence? Don’t Be. — why law and markets, not personalities, are the real guardrails on monetary policy.

Federal Reserve Credibility Gets a Nice Boost — the case for Kevin Warsh at the time of his nomination.

Understanding the Bond Market — A primer on how a principle-based investor should invest in bonds.

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Alternative Investments: Are Private Markets Worth It?

Alan F. Skrainka, CFA — Mon, 27 Jul 2026 14:01:23 GMT

THE ALTERNATIVES SERIES · PART 5 OF 5

Something unusual happened in the private fund world over the past year. A lot of investors tried to take their money out, and some of them could not.

In the final quarter of 2025, withdrawal requests at non-traded business development companies, one of the most common ways ordinary investors now buy private credit, climbed to roughly 4.7 percent of fund assets. That was almost three times the level of the previous quarter (Wealth Management, 2026). Early in 2026, wealthy clients asked to pull more than ten billion dollars from several of the largest private credit funds, and managers slowed the line by limiting how much they would hand back at once (Financial Times, 2026). Blackstone, the largest manager in the field, raised the quarterly redemption cap on its flagship credit fund from 5 percent to nearly 8 percent to keep up with the demand to get out.

When the only way out of an investment is a small door the manager opens on certain days, you have learned something useful about what you actually bought. So it is a good moment to ask a plain question the marketing rarely answers: have private funds actually delivered the returns and the safety that justify the lockups and the fees?

The Three Promises

Private markets are usually sold on three promises. The first is higher returns than you can earn in public stocks and bonds. The second is a smoother ride, with smaller ups and downs along the way. The third is diversification, the idea that these investments move differently from the public market and therefore steady a portfolio. Each promise sounds reasonable. Each one is also harder to verify than it looks, because private funds do not trade on an exchange and are not priced every day. Instead, the manager estimates what the holdings are worth, usually once a quarter. That single fact shapes everything that follows.

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If you are weighing a private offer right now, or judging one already sitting in your portfolio, the practical part comes next. Below, I show how much money has flooded into these funds, what they have actually returned period by period, how durable the illiquidity premium really is, why a trusted brand name is not the same as a track record, and the specific questions to put to any alternatives pitch.

This Large-Cap Fund Has Outperformed the S&P 500 For 10 Years — at an Index-Fund Price

Alan F. Skrainka, CFA — Fri, 24 Jul 2026 14:44:14 GMT

Executive Summary

· Has outperformed the S&P 500 over the trailing one-, three-, five-, and ten-year periods, and has beaten its large-cap core peer group in every one of those periods — while costing about what a plain index fund costs.

· In our Manager Select Score evaluation, ranks #30 of 214 U.S. Large-Cap Core funds — in the top 15% of its category.

· An enhanced-index strategy: a broadly diversified, benchmark-shaped core with many small, systematic factor tilts layered on top, not a concentrated bet.

· Run by the in-house quantitative team of one of the largest fund families in the country, using a model refined for more than fifteen years, at a fraction of the typical active large-cap fee.

· Behind the paywall: the fund’s name and ticker, the complete performance record, current positioning and factor profile, and the full PDF research report.

The large-cap core category is where most American equity money actually lives, and it is also where the case for paying anything at all is hardest to make. The S&P 500 index fund is the default, it is nearly free, and it has been very hard to beat. Any fund asking to sit in that slot has to answer a blunt question: what am I getting that the index does not already give me, and am I paying too much for it?

Most active large-cap funds answer that question badly. They charge a full active fee, take real bets away from the index, and — after costs — the majority still finish behind the market over a full cycle. Sort the category by last year’s return and the top of the table usually rewards whoever leaned hardest into whatever worked recently. That is not skill you can count on; it is a style that happened to be in season.

Star ratings do not resolve this either, because they are scorekeeping, not analysis. A rating cannot tell you whether a fund beat the market because of a repeatable process or because it was overweight the handful of stocks that carried the index. The only way to tell the difference is to look at how the return was earned — at the organization, the people, the process, the price, and the risk taken to get it — before the next cycle does the looking for you.

That is why we evaluate funds with a system built to look past the noise.

How We Evaluate Funds

Our Manager Selection System evaluates funds across five dimensions — Parent, People, Process, Performance and Price — supported by a comprehensive risk analysis. The goal is to identify funds with structural advantages likely to persist, rather than funds that simply performed well during a favorable stretch. For the full methodology, see our original MSS article:

Beyond Past Performance in Fund Selection

Alan F. Skrainka, CFA

Jan 15

Read full story

In large-cap core, the five dimensions carry a particular weight because the bar is the index itself. Parent matters because beating a nearly free benchmark by a slim, durable margin requires trading, technology, and research resources most firms cannot match at that price. People matter because a systematic strategy should not depend on a single stock-picker’s touch — the edge has to survive personnel changes. Process matters because in a category this efficient, the difference between a real edge and a hidden style bet is a matter of discipline and explicit limits. Performance matters because a single strong year can come from one crowded trade; only a multi-year record shows whether the margin repeats. And Price matters more here than almost anywhere else: when the benchmark is this cheap and this strong, every basis point of fee is a headwind the manager has to overcome before adding a dollar of value.

The Case for Index-Plus Large-Cap Core

Start with the honest baseline. For a long-term investor who wants broad U.S. large-cap exposure, a low-cost S&P 500 or total-market index fund is a legitimate, and often excellent, default. Any argument for owning something else has to begin by conceding that.

The case for index-plus investing is not a rejection of that baseline — it is a refinement of it. An index-plus fund holds a portfolio that looks and behaves very much like the benchmark: similar sector weights, similar size and style profile, hundreds of the same names. On top of that index-like core, it applies systematic tilts — small overweights to stocks the model ranks favorably on valuation, earnings trends, and other measurable factors, and small underweights to those it ranks poorly. The active risk is deliberately modest. The goal is not to swing for a home run; it is to add a thin, persistent margin over the index while staying close enough that the fund never stops being a core holding.

The economics of the approach rest on two things: cost and consistency. Because the strategy is model-driven and benchmark-aware, it can be run at scale for a fee close to a passive fund’s — which means the small factor edge, if it exists, largely reaches the shareholder instead of being eaten by expenses. And because the tilts are systematic rather than discretionary, they can be applied the same way in every market, without a star manager’s conviction drifting over time.

The trade-offs must be stated just as plainly. Index-plus investing is a game of inches. In any given quarter or year, the tilts can go the wrong way, and the fund will trail the very index it is built to resemble; this is a strategy that should be judged over multi-year periods, not quarters. Because the portfolio hugs the benchmark, it also offers essentially no protection in a broad selloff — when the market falls, an index-plus fund falls with it. And it inherits the benchmark’s single greatest structural feature: a large concentration in a handful of mega-cap technology and internet companies. That concentration has been a tailwind for years. It is also the fund’s largest undiversified risk, and no factor tilt of modest size changes that.

Seen clearly, index-plus investing occupies a specific and narrow place: for the investor who has decided that low-cost, broadly diversified large-cap exposure belongs at the center of the portfolio, and who would prefer a disciplined shot at a small margin over the index to simply matching it — provided that shot comes at an index-like price. When the fee is low enough, the question stops being “why not just buy the index?” and becomes “why not buy the index, plus a disciplined attempt to do slightly better?” The category, however, is unforgiving of funds that charge an active fee for index-like results. That makes the selection — which fund, run by whom, at what cost — the entire decision. We believe we have found one worth owning.

The Featured Fund

Source: Ycharts. Past performance is no guarantee of future results. All returns shown are historical and reflect the reinvestment of dividends and capital gains. The hypothetical growth of $10,000 is for illustrative purposes only and does not represent an actual investment. Investment returns and principal value will fluctuate, and investors may experience gains or losses. Performance does not reflect the impact of taxes, advisory fees, or transaction costs, which would reduce returns. Please consult a financial professional before making investment decisions.

The fund we are featuring here is an actively managed, systematic index-plus large-cap core ETF, benchmarked to the S&P 500 and drawn from the broad universe of large-cap U.S. stocks. It is run by the in-house quantitative team of one of the largest and best-known fund families in the country — a firm with the trading scale, technology, and research depth that this kind of thin-margin strategy requires to work at a low price.

The strategy is not new money chasing a trend. Its track record runs back nearly two decades to a predecessor mutual fund, and the model behind it has been refined for more than fifteen years. A few years ago the firm converted that established strategy into an ETF with no change to the investment process or the management team — bringing a long, real record into a more tax-efficient, transparent wrapper. The team that runs it is a group of long-tenured quantitative portfolio managers, not a single individual; the process is designed so that the edge lives in the model and the discipline, not in one person’s judgment.

The process is index-plus investing done with restraint. The team builds multifactor models to rank the large-cap universe on valuation, earnings growth, and technical signals, then expresses those rankings as many small over- and underweights while holding sector weights, size, and style very close to the benchmark. The tilts are measured in fractions of a percent at the individual-stock level, not in bold sector calls. The portfolio holds a couple hundred names, stays fully invested, and uses derivatives and leverage only sparingly. What you get is a portfolio shaped like the index, with a systematic attempt to do modestly better, repeated the same way in every market.

The results are what a disciplined version of this category should produce: not a dramatic margin, but a consistent one. The fund has outperformed the S&P 500 over the trailing one-, three-, five-, and ten-year periods, and it has finished ahead of its large-cap core peer group in each of those periods as well. The edge in any single calendar year is narrow, and it has not beaten the index every year — but across full periods the margin has been positive and steady, and notably it lost somewhat less than the index in the last major down year. The outperformance came with risk characteristics close to the benchmark: a beta near one, similar volatility, and slightly better risk-adjusted returns and shallower drawdowns than the index over five and ten years. In other words, the value-add came from the model, not from taking more risk.

On price, this is the crux of the case. The fund charges an expense ratio in the neighborhood of a plain index fund — a small fraction of what actively managed large-cap funds typically cost — which is precisely why the thin factor margin can reach the shareholder rather than being consumed by fees. Across our five dimensions: a Parent with the scale and resources to run this strategy cheaply; People organized as a long-tenured team rather than an irreplaceable individual; a Process with explicit limits that keep the fund a core holding rather than a style bet; Performance earned across a full cycle with index-like risk; and a Price that leaves the added return with the investor. That combination is why it earns a place on our list.

What Paid Subscribers Get

Below the paywall, paid subscribers get the fund’s name and ticker, the complete performance record against the S&P 500 — one-, three-, five-, and ten-year results plus the full calendar-year history and peer-group percentile ranks — the portfolio’s current sector, style, and factor positioning, the exact expense ratio and how it compares to the category and the full PDF research report. If you have been weighing whether it is worth owning anything other than a plain index fund for your large-cap core allocation, the analysis that follows answers the question that matters: which fund, and why this one.

Get a clear, 5-minute investor briefing every week — free. No forecasts, no hype, just principle-based perspective.

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Alternatives: Do the Best Managers Stay the Best?

Alan F. Skrainka, CFA — Mon, 20 Jul 2026 14:11:35 GMT

THE ALTERNATIVES SERIES · PART 4 OF 5

In public markets, the case for indexing rests on two uncomfortable facts. Most active managers fail to beat their benchmark over a full market cycle, and the ones who win in any given year rarely repeat. The gap between a strong large-cap fund and a weak one is, in the end, fairly narrow, and unpredictable enough that the low-cost index becomes the sensible default for most investors.

Alternative investments invert that picture. Among private equity, hedge fund, and private credit managers, the gap between the best and worst performers is not narrow. It is enormous. A top-quartile buyout fund and a bottom-quartile one can differ by ten percentage points a year or more, sustained over the life of a fund. That dispersion changes the entire question. When the spread is that wide, the average return of the asset class tells you very little about what you will actually earn. Manager selection becomes the whole game.

Which leads to the question a careful investor should ask before committing a dollar to alternatives: if selection matters this much, can the good managers be identified in advance? Or, put more pointedly, do the best managers stay the best, or is last year’s leader simply this year’s disappointment?

The honest answer is layered, and it differs sharply by asset class. There is a real body of academic research here, much of it published in the field’s leading journals, and it rewards a close reading.

The dispersion problem is real

The headline argument for alternatives is a return premium over public markets, compensation for illiquidity, complexity, and the work of finding and managing private investments. But you do not buy the average. You buy a manager. If the dispersion around that average is wide and the average itself is what gets quoted in marketing material, then the gap between the brochure and the outcome can be the difference between a satisfying result and a costly disappointment.

This is why persistence matters more in alternatives than almost anywhere else. If skill is real and durable, then past results carry information, and diligent selection can tilt the odds. If results are mostly noise, then the wide dispersion is simply a wider casino, and no amount of due diligence will reliably help.

The evidence by asset class — private equity, hedge funds, and private credit — the bottom-quartile finding, and what it all means for selection are below for paid subscribers.

Model Portfolios: Q2 2026 Quarterly Commentary

Alan F. Skrainka, CFA — Fri, 17 Jul 2026 14:20:19 GMT

Most quarterly updates tell you what happened in the market. This one tells you whether a disciplined process actually worked — and against a benchmark that matters.

The second quarter of 2026 was a strong one. After a difficult first quarter, when global equities sold off and these five portfolios cushioned the decline, markets recovered sharply and the portfolios participated in full — each returning between 8.22% and 9.40% at the Balanced level. But a single quarter’s return, good or bad, is never the point. The point is whether the process behind these portfolios delivers over a full cycle, measured honestly against the right yardstick.

Most investors know they should diversify and invest for the long term. Knowing what to do and knowing how to build a portfolio that actually does it are two different problems. These five portfolios are the practical application of four decades of building portfolios and evaluating managers — real holdings, real allocations, tracked quarterly, and designed so any self-directed investor can replicate them. What follows is an accounting of whether that work is paying off.

How These Portfolios Are Judged

A balanced portfolio deserves a balanced benchmark. Ours is a passive Blended 60/40 index — a clean, low-cost combination of U.S. and international stocks and investment-grade bonds. It answers a simple, honest question: can a principle-based portfolio match, or beat, what an investor could assemble with a handful of index funds, while carrying less risk than a concentrated bet on any single corner of the market? Matching a well-built passive benchmark at low cost is harder than it sounds. Beating it consistently, without taking on more risk, is the real test.

The Process Behind Every Holding

Every position in these portfolios earns its place. The passive and factor holdings are chosen for breadth, low cost, and rules-based discipline. The active managers each clear the Manager Selection Score, a proprietary process refined over four decades of evaluating funds. It pairs a quantitative screen — track record, style consistency, cost, alpha, and risk-adjusted return — with deep qualitative analysis across six dimensions: Parent, People, Process, Performance, Current Positioning, and Price. The screen narrows thousands of funds to a short list; the qualitative review asks the harder question — does this manager hold a durable competitive advantage, or was the record the product of luck and favorable style winds that may not repeat? I do not believe most active management is worth its fee. A small number of managers are, and those are the only ones that earn a place here. When a change is made, it is made for a documented reason, and you see that reason. When no change is needed — as is the case, by design, for the rules-based models — nothing is touched.

The complete manager selection methodology is published separately in my report on selecting funds and building portfolios — essential reading if you want to know why specific managers made the cut and most did not.

A Portfolio for Every Stage

The suite spans five strategies, from fully passive to actively managed, and five risk levels, from Aggressive to Income Focused. That range is deliberate. An investor in their early thirties building wealth has different needs than one preparing for retirement, and the right portfolio matches the investor’s goals, time horizon, and tolerance for risk — not the other way around. Whether you want to own the market at the lowest possible cost, tilt toward the factors research has rewarded, add tax efficiency in a taxable account, or give proven active managers room to work, there is a principle-based portfolio built for the purpose. Every holding and allocation is tracked in YCharts and can be replicated in an ordinary brokerage account.

What the Full Review Reveals

This quarter’s full review goes well beyond the headline returns. It measures every portfolio against the blended benchmark, for the quarter and since inception. It breaks down how each model was positioned and which holdings drove the result. It shows how the bond allocation shaped a two-quarter round trip — cushioning the first-quarter decline, then giving way to the second-quarter recovery. And it documents every allocation change made during the quarter, with the reasoning behind each one, including two moves made just after quarter-end that reposition the fixed-income sleeves for what comes next.

What Paid Subscribers Get

The complete Q2 2026 quarterly review — and the full library behind it — is available to paid subscribers. This is where the detail lives: the numbers, the positioning, the reasoning, and the research reports on every fund these portfolios hold.

Free — Every week: market commentary, investor education, and principle-based essays. The perspective that makes everything else useful — at no cost.
Paid — $8/month or $80/year — Everything free, plus subscriber-only posts, the complete fund & ETF research write-ups, the “how to use this in a real portfolio” sections, and the full premium archive.
All-Access (Founding Member) — $179/year — Everything in paid, plus full access to InvestmentInsights.com: 90+ in-depth fund & ETF research reports, model portfolios with quarterly updates, the Investment

Start free — you can upgrade to paid or All-Access anytime.

Alternative Investments: The Hidden Risks

Alan F. Skrainka, CFA — Mon, 13 Jul 2026 14:01:31 GMT

THE ALTERNATIVES SERIES · PART 3 OF 5

Most warnings about alternative investments name the obvious hazards: they are illiquid, they are expensive, they are complex. All true, and all disclosed. But the risks that cost investors the most are rarely the ones in bold on the first page. They are the quieter techniques that make a private fund look better than it is — calmer, more profitable, more skillful — until the marks are tested. This piece is about those techniques. Think of it as the companion to the plain risk list in the primer: not the risks a fund admits to, but the way the numbers themselves are built. Part 2 showed the money pouring in, and Part 5 delivers the verdict on the returns; this piece sits in between, on the techniques that make those returns look better than they are.

None of this requires fraud. It is mostly the ordinary, legal machinery of how private returns are measured and sold. But once you can see the machinery, the pitch reads very differently.

The risks that cost investors the most are rarely the ones in bold on the first page. They are the quieter ways the numbers themselves get built.

Six techniques do most of the work. The first shapes everything else, so it is worth seeing in full before the rest.

1. Volatility laundering

A private fund does not trade on an exchange and is not priced every day. The manager estimates what the holdings are worth, usually once a quarter, and tends to move those estimates gradually. The result is a return stream that looks far smoother than the underlying reality. Cliff Asness of AQR gave the effect a blunt name: volatility laundering. The low volatility, he argues, is partly a reporting choice rather than a genuine feature of the asset — and investors, oddly, will pay for the calm even though it is an accounting artifact. Correct for the smoothing and two things happen at once: the apparent calm shrinks, and the measured connection to public markets rises. The diversification benefit is real but smaller than advertised, and part of the “low risk” is simply infrequent pricing.

The remaining five techniques — the IRR illusion, borrowed returns, the fee stack, the wrong-benchmark sleight of hand and voluntary reporting — plus the six questions to put to any pitch, are below for paid subscribers.

This Growth Fund Has Outperformed the S&P 500 for More Than Twenty Years

Alan F. Skrainka, CFA — Fri, 10 Jul 2026 14:17:07 GMT

Executive Summary

Has compounded ahead of the S&P 500 since its launch more than two decades ago — by close to two percentage points per year, the kind of margin that, left to compound, separates a good outcome from a great one.
In our Manager Select Score evaluation, ranks in the top decile of its category— #21 of 212 funds. Its valuation discipline is real enough that Morningstar classifies it as large blend rather than large growth.
A contrarian, research-driven growth strategy that looks three to five years ahead — and that owns very little of what now dominates the typical growth index.
Run by a five-manager team at one of the most respected independent, employee-owned firms in the business, each manager investing an autonomous sleeve of the portfolio, at a cost far below the active-manager norm.
The chart below shows the fund has also outperformed 98% of funds in its category over the past 5 and 10 year periods, and 99% of funds over the past year.

Large-cap growth is the easiest category in the market to look smart in right now, and the hardest to actually judge. A handful of enormous companies — the ones everyone already owns — have driven most of the return in the broad growth indexes for the better part of a decade. The ten largest stocks in the S&P 500 now account for close to 40% of the index, up from roughly 22% in 2020. Sort any list of large-growth funds by trailing return and the top of the table mostly tells you who owned the most of those few names, not who is a better investor.

That is a problem, because the entire point of paying for active management in this category is to own growth that is not simply a leveraged bet on the same seven stocks. Star ratings do not help here. They are scorekeeping, not analysis. A five-star rating cannot tell you whether a fund earned its record through a repeatable research process or through a concentrated tilt that happened to be on the right side of the largest momentum trade in market history. The two look identical in a rising market. They look very different when leadership rotates.

The only way to tell them apart is to look at how the returns were earned — at the organization, the people, the process, and the price — before the market does the sorting for you.

How We Evaluate Funds

In large-cap growth, the five dimensions matter for a specific reason. Parent matters because beating a cap-weighted growth index over time requires the conviction and the institutional stability to look different from it — and most firms are not built to tolerate the tracking error that requires. People matter because growth investing is about judging which companies will grow faster and longer than the market expects, a skill that compounds with experience and full-cycle scar tissue. Process matters because a wide-ranging growth mandate without discipline becomes a momentum fund by accident. Performance matters because a fund that looks different from the index will lead and lag in stretches; only a full-cycle record shows whether the difference reflects skill rather than a favorable run. And Price matters because the growth premium an active manager can add is measured in modest fractions, and a high fee quietly consumes it.

The Case for Large-Cap Growth

Growth investing rests on a straightforward idea: a company whose earnings grow faster and longer than the market expects is worth more than the market currently thinks, and patient ownership of such companies has been one of the most powerful engines of long-term wealth. Over the past decade, large-cap growth has been the best-performing corner of the U.S. equity market, outpacing both the broad market and large-cap value by a wide margin, carried by the extraordinary profitability of the largest technology and platform businesses.

The case for owning growth in 2026 is not the same as the case for owning the growth index. Today’s concentration is real. The largest companies are genuinely some of the most profitable enterprises in market history — this is not the speculative froth of 1999, when the biggest names traded near 60 times forward earnings against far thinner fundamentals. The current group trades closer to the high-20s on forward earnings and actually delivers a disproportionate share of the market’s profits. Consensus still points to mid-teens earnings growth for the largest growth companies over the next couple of years, faster than the rest of the market.

But valuation starting points matter, and they argue for realism. When a small group of stocks makes up nearly 40% of an index and trades at a meaningful premium, the index itself has become a concentrated, valuation-sensitive position — and the investor who owns only the index owns that concentration whether they intended to or not. Returns from here are less likely to be linear, and leadership rotates more often than recency makes it feel. This is precisely the environment in which a disciplined active manager — one willing to own the growth companies the index underweights, at valuations well below the index average — can add value rather than simply track the crowd.

Large-cap growth belongs in most long-term equity allocations as the engine of capital appreciation, paired with value and international exposure to balance its sensitivity to interest rates and sentiment. The risks should be stated plainly: growth stocks are more volatile than the broad market, they fall harder when rates rise or enthusiasm fades, and a strategy that looks different from the index will spend stretches out of step with it. The 2022 drawdown was a reminder of how quickly the category can give back gains. The answer is not to avoid growth, but to own it through a manager whose edge is research and patience rather than momentum — and to hold it for the long horizons on which the category rewards you.

The Featured Fund

The fund we are featuring this month is an actively managed large-cap growth strategy benchmarked to the S&P 500, run by an independent, employee-owned firm with one of the most respected long-term records in active equity management. The parent is not a financial conglomerate or a distribution machine; it is a research boutique whose investment professionals own the business, and whose entire reason for existing is to outperform over multi-year horizons. That structure shows up in the only place it ultimately can — the record.

The strategy is contrarian by design. Rather than crowd into the handful of mega-cap names that dominate the growth index, the managers build a focused, high-conviction portfolio of companies they believe will grow faster or more profitably than their current valuations suggest, often buying them while they are out of favor and holding for years while the thesis plays out. The fund’s largest positions look nothing like the typical growth fund’s top ten, and its exposure to the most crowded mega-cap names is modest. Its active share sits well above the category norm and its portfolio trades at a forward earnings multiple well below the growth index — an unusual combination of growth orientation and valuation discipline, pronounced enough that some classification systems place the fund outside the growth box altogether.

The structure behind the portfolio is what makes it durable. Rather than concentrate decision-making in a single star manager, the firm divides each fund into independent sleeves, each run with full autonomy by a different portfolio manager. The result is a portfolio that reflects multiple high-conviction perspectives rather than one person’s, and a process that does not depend on any one individual remaining at their desk. The named managers average decades of experience, most of it at this single firm.

Patience is built into the process. Portfolio turnover is a small fraction of the category average — the managers think in three-to-five-year horizons, not quarters — which keeps trading costs and taxable distributions lower than active management usually implies and lets the underlying earnings growth do the compounding. On price, the fund charges a fraction of what active growth management typically costs, low enough to sit alongside many index alternatives.

The record reflects the discipline. The fund has compounded ahead of the S&P 500 since its launch more than two decades ago, across multiple market cycles and several regime changes, with an edge that has come from security selection rather than from leaning into whatever was already working. It has not beaten the index every year — a fund that looks this different from the benchmark will not — but it has rewarded the investors who stayed the course. Across our five dimensions: a Parent built for nothing but long-term investing; People with deep, autonomous, complementary experience; a Process defined by contrarian research and genuine patience; Performance earned across multiple full market cycles rather than a single favorable run; and a Price that leaves the added value with the investor. That combination is why it earns a place on our list.

What Paid Subscribers Get

Below the paywall, paid subscribers get the fund’s name and ticker, the complete performance record against the S&P 500 — year-to-date, one-, three-, five-, and ten-year and since-inception results, plus the full calendar-year history — the portfolio’s current positioning, sector weights, and valuation statistics, the expense ratio and how it compares to the category, our MSS category scores across Parent, People, Process, Performance, and Price, and the full PDF research report. If you have been wondering how to own large-cap growth without simply owning more of the same seven stocks, the analysis that follows names the fund that has done exactly that — and explains why we believe it can keep doing it.

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Alternatives: Following the Money

Alan F. Skrainka, CFA — Mon, 06 Jul 2026 14:02:44 GMT

THE ALTERNATIVES SERIES · PART 2 OF 5

If you want to understand where private-market returns are heading, start by watching where the money goes. The single most reliable pattern in the academic record is an uncomfortable one for anyone being pitched today: capital does not flow into private funds steadily. It surges in after a stretch of strong headline numbers — and those boom-era vintages tend to disappoint. More money chasing the same deals bids up the prices paid, and high entry prices are the enemy of future returns.

Steven Kaplan and Antoinette Schoar documented this two decades ago: new private-equity partnerships tend to launch right after the industry has done especially well, and buyout and venture returns fall as more money pours in. Later work reached the same conclusion — the best results often came from lean years when few were willing to commit. With that warning in mind, look at how much money has arrived.

A decade of inflows

Across private equity, private credit, and private real estate, assets under management have roughly doubled to tripled in a decade. Private equity alone has climbed to about $8.6 trillion.

Private-markets AUM, 2014 vs. today. Source: Preqin (closed-end fund AUM).

No corner has pulled in money faster than private credit — the very strategy now seeing the redemption lines. It has grown from roughly $0.3 trillion in 2010 to about $1.8 trillion in 2024, with Preqin projecting close to $2.8 trillion by 2028. Broader estimates that include uncalled commitments put the 2024 market near $3.5 trillion.

Private-credit fund AUM, 2010–2028F. Sources: Preqin; AIMA.

The strong years pulled the money in, and that wave of money helped create the weaker ones that followed.

We are living through the modern version of that cycle. After the banner results of 2020 and 2021, capital flooded in, and managers now sit on a record pile of committed-but-uninvested cash — well over a trillion dollars. Deals are slow to sell, so cash is slow to come back, and new fundraising has cooled. Which brings us to what happens when the investors who rushed in decide they would like their money back.

The run for the exits

There is a moment when an investment quietly tells you what it really is. For semi-liquid private funds, that moment arrived in 2026. The vehicles at the center of it — non-traded business development companies (BDCs) and interval funds — are the most common ways ordinary investors now buy private credit. They hold illiquid loans but offer redemptions, typically once a quarter and usually capped at around 5 percent of assets. There is no exchange and no daily price; the manager estimates value, and you redeem at that manager-set mark. The quarterly cap, or “gate,” is not a flaw. It is a designed feature — and most investors do not absorb what it means until it binds.

In the final quarter of 2025, redemption requests at non-traded BDCs climbed to roughly 4.7 percent of assets, nearly three times the prior quarter. Early in 2026 the pressure intensified and the gates began to bind across the industry. The table tracks the key distinction throughout: requests — what investors asked to pull — versus what the cap actually let out.

Sources: AltsWire; CNBC; PitchBook / Yahoo Finance; With Intelligence; Ferrante Capital Advisers; Wealth Management.

When the only way out of an investment is a small door the manager opens on certain days, you have learned something useful about what you actually bought.

There’s an old saying on Wall Street: Liquidity doesn’t matter until it matters. Then it’s the only thing that matters. Nearly every fund hit its cap and prorated — paying a fraction of what investors asked and rolling the rest forward. That is the gate working as designed. The differentiator was never whether a fund hit its cap; most did. It was what the sponsor did next. In the first quarter Blackstone raised its cap toward 8 percent and added hundreds of millions of its own and its employees’ capital to meet redemptions in full; most others simply let the 5 percent cap bind. The pressure is spreading, too — Switzerland’s Partners Group began curbing redemptions in a European private-equity vehicle in June, and the NAV REITs (BREIT, SREIT) were the same cautionary tale a cycle earlier. Sector-wide, non-traded BDC outflows exceeded inflows for the first time in Q1 2026, and Bank of America expects requests to stay above 5 percent through year-end.

The question this raises

So the money rushed in after the good years, the academic record warns that such waves precede weaker returns, and the promised liquidity turned out to be conditional the moment a crowd wanted out. Which leaves the question the rest of this series takes up directly: once you strip away the smoothed pricing, the leveraged returns, and the marketing, have private funds actually delivered the returns and the safety that justify the lockups and the fees? Part 3 shows how the numbers get dressed up. Part 4 asks whether the best managers can even be identified in advance. And Part 5 delivers the verdict.

Free — Every week: market commentary, investor education, and principle-based essays. The perspective that makes everything else useful — at no cost.
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Important Disclosures

Monthly Commentary | July 2, 2026

Alan F. Skrainka, CFA — Thu, 02 Jul 2026 17:23:07 GMT

Monthly Market Summary

Second Quarter 2026: The Reward Arrived on Schedule

Three months ago, the S&P 500 had just finished its worst quarter since 2022, and investors’ nerves were badly shaken. But the mood on Wall Street changes very quickly. The S&P 500 returned approximately 15.2 percent in the second quarter, its best quarterly result since the second quarter of 2020, recovering the first quarter’s 4.4 percent loss several times over. The index now stands up 10.1 percent for the year, and the Dow Jones Industrial Average set a record close on the quarter’s final day. June itself was quiet — the S&P 500 slipped 1.0 percent — but beneath the surface the rally kept broadening, which is exactly what a durable advance looks like. Investors who stayed invested through the March lows captured all of it. Those who sold did not, and no forecast would have told them when to get back in.

• S&P 500: The index declined approximately 1.0 percent in June but finished the second quarter with a total return of approximately 15.2 percent — its best quarter since the second quarter of 2020 — and stands up 10.1 percent year to date. The Dow gained 2.6 percent in June, closed at a record on June 30, and posted its largest quarterly gain since 2022. The Nasdaq’s quarterly gain exceeded 21 percent, also its best since 2020.

• Best/Worst Sectors: June brought rotation. Health care and financials led, each gaining roughly 5 percent, while energy was the weakest sector, falling roughly 6 percent as crude oil plunged. Information technology added roughly 2 percent and remains the year-to-date leader at approximately 32.7 percent, followed by energy at 20.4 percent and industrials at 20.0 percent.

• Small-Caps and Mid-Caps: The Russell 2000 gained approximately 3.7 percent in June and 19.0 percent for the quarter, bringing its year-to-date return to 22.6 percent — more than double the S&P 500. The S&P MidCap 400 rose 3.6 percent in June and stands up 17.2 percent for the year.

• Bonds: The investment-grade bond market returned approximately 0.3 percent in June and 0.7 percent year to date. The 10-year Treasury yield ended June at 4.44 percent, essentially unchanged, while the 2-year rose from 3.98 to 4.14 percent as markets priced in a more hawkish Federal Reserve and the 30-year eased from 4.99 to 4.91 percent. High-yield credit yields approximately 6.6 percent.

• International Developed Markets: The MSCI EAFE Index gained approximately 0.7 percent in June and 8.7 percent for the quarter, and stands up 9.9 percent year to date.

• Emerging Markets: The MSCI Emerging Markets Index was roughly flat in June but returned approximately 21.1 percent for the quarter and 25.7 percent year to date — the best result among major asset classes — with a trailing one-year gain of approximately 44.6 percent.

Key Observations

• The S&P 500’s second-quarter total return of approximately 15.2 percent was its best since the second quarter of 2020, fully erasing the first quarter’s decline. Every major equity asset class participated.

• Leadership rotated in June: large-cap value gained 2.2 percent while large-cap growth fell 2.8 percent, and health care and financials led the sectors while energy lagged. Broadening leadership is a sign of health, not fatigue.

• The five-year breakeven inflation rate — the bond market’s forecast of average inflation over the next five years — fell from a peak of 2.72 percent on May 4 to 2.26 percent on June 30, unwinding the entire oil-shock premium in roughly eight weeks.

• West Texas Intermediate crude fell 21.2 percent in June, from $91.16 to $71.87 per barrel, following the framework agreement to end the Iran conflict. Retail gasoline fell 13.9 percent. Both are meaningful good news for the inflation outlook.

• Kevin Warsh chaired his first FOMC meeting on June 16–17. The Committee voted unanimously to hold the federal funds rate at 3.50 to 3.75 percent, and the policy statement was cut to roughly 130 words, closing with a single unambiguous sentence: “The Committee will deliver price stability.”

• The June employment report, released July 2, showed payrolls up just 57,000 — well below expectations — yet the unemployment rate fell to 4.2 percent. The gap is explained by a shrinking labor force: participation dropped to 61.5 percent as workers exited and stricter immigration enforcement reduced labor supply.

• First-quarter GDP was revised up to 2.1 percent annualized in the third estimate, from 1.6 percent — the economy entered the second quarter with more momentum than previously believed.

Market Commentary

The second quarter’s roughly 15 percent return did not arrive because the news improved first. It arrived while the news was still bad. When the quarter began, the Iran conflict was active, oil had spiked toward $120 per barrel, a new tariff regime was raising costs, and the Magnificent Seven had just shed 16 percent. The recovery began anyway — April’s ceasefire, May’s record earnings, and June’s framework agreement to end the war each arrived after the market had already turned. This is the oldest pattern in equity investing: prices move before clarity arrives, and the investor who waits for comfort pays for it in missed returns. First-quarter earnings grew roughly 28 percent year over year, the strongest pace since 2021, and analysts raised full-year estimates as the quarter progressed. The advance has been paid for by profits, not hope.

June’s quiet 1.0 percent decline in the S&P 500 concealed a healthy rotation. The Dow rose 2.6 percent to a record. Small-caps gained 3.7 percent and mid-caps 3.6 percent. Large-cap value beat large-cap growth by five full percentage points in a single month — 2.2 percent versus negative 2.8 percent — as investors took profits in the mega-cap technology names that had powered April and May and put the proceeds to work elsewhere. Health care and financials, two of the year’s laggards, led the month. A market that hands leadership from one group to another without giving up its gains is a stronger market than one that depends on a handful of names.

Energy told the quarter’s most instructive story. It was the best-performing sector of the first quarter as oil spiked, the only negative sector in April as oil fell, a strong performer again in May, and the worst sector in June — down roughly 6 percent — as crude plunged 21.2 percent on the peace framework. Four consecutive reversals of leadership in four months. Anyone who chased energy after its first-quarter surge has been punished twice; anyone who held a diversified allocation simply collected the year-to-date gain of 20.4 percent without the whiplash. There is no better recent illustration of why we diversify rather than chase performance.

International markets kept pace all year. Emerging markets returned approximately 21.1 percent for the quarter and lead all major asset classes at 25.7 percent year to date, propelled by the technology supply chain across Asia. Developed international markets gained 8.7 percent for the quarter and 9.9 percent for the year. For the investor who spent the last several years wondering whether owning anything beyond the S&P 500 was worth it, 2026 has answered emphatically: small-caps, mid-caps, emerging markets, and value stocks are all ahead of the U.S. large-cap index this year. That is diversification doing precisely what it is designed to do.

Bonds had a quietly constructive month. The aggregate index returned approximately 0.3 percent, and the yield curve told a story worth reading closely. The 2-year Treasury yield rose from 3.98 to 4.14 percent as markets priced in a Federal Reserve more willing to raise rates, yet the 30-year yield fell from 4.99 to 4.91 percent and market-based inflation expectations dropped sharply. Short rates up, long rates down, inflation expectations falling: that is the bond market expressing confidence that the new Fed leadership will not let inflation run. For savers and income investors, investment-grade yields near 5 percent and high-yield near 6.6 percent remain the most attractive income opportunity in nearly two decades.

Economic Roundup

Labor Market

The Bureau of Labor Statistics released the June employment report on July 2. Nonfarm payrolls rose by 57,000, well short of the roughly 110,000 economists expected, and April and May were revised down by a combined 74,000 jobs. Yet the unemployment rate fell to 4.2 percent, its lowest level in a year. Both facts are true, and the reconciliation matters: the labor force is shrinking. Participation dropped 0.3 percentage point to 61.5 percent, reflecting workers leaving the labor force and stricter immigration enforcement reducing the supply of workers. When labor supply contracts, the economy needs far fewer new jobs each month to keep unemployment steady — which is why tepid job growth has not produced rising joblessness. The details were consistent with cooling rather than cracking: professional and business services added 36,000 jobs, social assistance 25,000, and health care added 22,000, while leisure and hospitality shed 61,000 on weaker-than-usual seasonal hiring. Average hourly earnings rose 3.5 percent over the year. A slower-growing labor force means slower payroll growth is the new normal, not automatically a warning sign — though the trend deserves continued attention.

Consumer Spending and Inflation

The May CPI report, released June 10, marked what increasingly looks like the peak of the energy-driven inflation episode. Headline inflation rose 0.5 percent for the month and 4.2 percent year over year, the highest annual rate since April 2023, with energy accounting for more than 60 percent of the monthly increase. The more telling number was core inflation, which excludes food and energy: it rose just 0.2 percent for the month and 2.9 percent over the year. The inflation problem of 2026 has been an oil problem, and the oil problem is receding rapidly. Crude fell 21.2 percent in June and retail gasoline followed, dropping from $4.61 to $3.96 per gallon. The June CPI report, due July 14, will be the first to capture the full effect. Markets are not waiting: as detailed in the Insights section below, bond-market inflation expectations have already returned nearly to where they stood before the conflict began.

Economic Growth

The Bureau of Economic Analysis released its third estimate of first-quarter GDP on June 25, revising growth up to 2.1 percent annualized from the 1.6 percent second estimate, on stronger investment, exports, government spending, and consumer spending. The upward revision is worth pausing on: the quarter that felt like the beginning of something worse — the quarter of the oil shock, the tariff escalation, and the market’s 4.4 percent decline — turned out to be a quarter of solid, above-trend growth. The economy was sturdier than the headlines suggested, which is often the case.

Federal Reserve Policy

Kevin Warsh chaired his first FOMC meeting on June 16–17, and the contrast with the previous regime was immediate. The Committee voted unanimously to hold the federal funds rate at 3.50 to 3.75 percent — a notable show of cohesion after April’s 8-to-4 split, the widest dissent since 1992. The policy statement was cut from more than 300 words to roughly 130 and closed with a single declarative sentence: “The Committee will deliver price stability.” The new Chair declined to submit his own interest-rate projection to the dot plot, consistent with his long-standing view that the Fed overcommunicates, and his post-meeting press conference was markedly shorter than his predecessor’s. The projections that were submitted tilted hawkish: all but one participant expects rates to hold steady or rise by year-end, with the median 2026 projection at 3.80 percent. Warsh also announced five task forces to review Fed communications, balance sheet policy, data sources, productivity and employment, and the inflation framework — the broadest internal review of the institution in decades. The next meeting is July 28–29. Our read: a unanimous vote, a shorter statement, and a firm inflation commitment amount to a central bank spending less energy managing expectations and more re-earning credibility. The early evidence, covered below, suggests the bond market has noticed.

Insights: The Bond Market Renders Its First Verdict on the New Fed

The five-year breakeven inflation rate is the difference between the yield on a conventional five-year Treasury and its inflation-protected counterpart — in plain terms, the bond market’s own forecast of average annual inflation over the next five years. It is one of the most useful inflation gauges available to individual investors because it is not a survey and not a model: it is the consensus of investors risking real money. That gauge peaked at 2.72 percent on May 4, at the height of the oil shock. On June 30 it stood at 2.26 percent, after touching 2.19 percent in late June.

Consider what that decline means. In roughly eight weeks, the bond market has unwound the entire inflation-scare premium built up during the spring. A 2.26 percent five-year breakeven is only a quarter point above the Federal Reserve’s 2 percent objective — and because breakevens are based on the CPI, which historically runs a few tenths above the PCE index the Fed actually targets, expectations at this level are close to consistent with the Fed’s goal. Two forces drove the move, and they reinforce each other. The first is oil: crude’s 21.2 percent June decline directly lowers the path of future headline inflation, and futures markets point lower still. The second is credibility: the decline in breakevens accelerated after the June 16–17 FOMC meeting, which suggests the market took the new Chair’s price-stability commitment at face value.

The practical implications are worth spelling out. Headline CPI at 4.2 percent describes where inflation has been; breakevens at 2.26 percent describe where investors expect it to go. If the market is right, the alarming inflation headlines of the spring will fade over the second half of the year as cheaper energy works through the data, beginning with the July 14 CPI report. At the same time, the 2-year Treasury at 4.14 percent tells you the market has priced in some possibility of a rate increase — so positioning a portfolio in anticipation of near-term rate cuts remains a speculation, not a plan. The better opportunity is simpler: with investment-grade bonds yielding approximately 5 percent against expected inflation of 2.26 percent, high-quality fixed income currently offers real yields near 2.7 percent — income that outpaces expected inflation by a comfortable margin, available without reaching for risk.

Outlook

The first half of 2026 is now complete, and its lesson deserves to be stated without hedging. A half-year that contained a regional war, an oil shock, a new tariff regime, a 16 percent decline in the market’s largest stocks, the worst quarter since 2022, and a change of leadership at the Federal Reserve ended with the S&P 500 up 10.1 percent, small-caps up 22.6 percent, emerging markets up 25.7 percent, and the Dow at a record high. Every one of those threats was real. None of them was a reason to sell. The investors who were hurt this year were not the ones who ignored the headlines — they were the ones who acted on them.

The risks ahead are also real, and we name them plainly. At roughly 34 times trailing earnings — a multiple that eases to about 21 times forward estimates on the strength of expected earnings growth — the S&P 500 is priced for continued excellence, and the second-quarter reports arriving in July will need to deliver it. Headline inflation is still 4.2 percent, and the relief now visible in oil prices and breakevens must still work its way through the official data. The Section 122 tariff surcharge approaches its statutory expiration in late July, one of several trade deadlines clustered in the third quarter. A shrinking labor force is helpful arithmetic for the unemployment rate but a genuine constraint on long-run growth. And a new Fed Chair with an ambitious reform agenda has yet to face his first true test. Any of these could produce the next difficult stretch, and difficult stretches are a certainty over any meaningful horizon.

What should a long-term investor do after a 15 percent quarter? Mostly, very little — and that restraint is itself a discipline. Rebalance if the rally has carried your equity allocation meaningfully above target; a quarter this strong will have done so for many portfolios. Take seriously the income now available in high-quality bonds, which offers roughly 2.7 percent above expected inflation with modest risk. And resist the twin temptations this moment offers: the urge to chase what has run furthest, and the urge to bank the gains and wait for a better entry. The first half of 2026 was a complete education in why neither works. Markets recovered faster than the headlines said they could — they usually do — and the reward went, as it reliably goes, to those who stayed.

Related Articles

Three pieces published on our Substack in June extend the themes of this commentary:

• Diversify Beyond the Magnificent 7 — Revisited — Eight months later: still magnificent? A fresh look at the case for owning more than the mega-caps, a case this year’s markets have strengthened considerably.

• This Bond Fund Has Beaten Its Benchmark Every Calendar Year Since 2019 — With bond income the most attractive in nearly two decades, our full research report on a fixed income manager with a rare record of consistency.

• The Maestro’s Unintended Lessons — As a new era begins at the Federal Reserve, a timely reminder that humility, not intelligence, is the investor’s edge.

You will find our complete library of fund and ETF research, the model portfolios, and the Investment Academy at InvestmentInsights.com, and new articles every week at alanskrainka.substack.com.

Sources

YCharts (index, style, sector, and fixed-income total returns; Treasury yields; commodity prices — data as of June 30, 2026). Bureau of Labor Statistics (June 2026 Employment Situation, released July 2; May 2026 CPI, released June 10). Bureau of Economic Analysis (Q1 2026 GDP third estimate, released June 25). Federal Reserve (June 16–17 FOMC statement, Summary of Economic Projections, and press conference). Federal Reserve Bank of St. Louis (FRED series T5YIE, 5-year breakeven inflation rate; FRED series BAMLC0A0CMEY, ICE BofA U.S. Corporate Index effective yield). The Wall Street Journal (coverage of the June 2026 employment report, July 2). U.S. Energy Information Administration (crude oil and gasoline prices).

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Alternative Investments: A Plain-English Primer

Alan F. Skrainka, CFA — Wed, 01 Jul 2026 14:01:23 GMT

THE ALTERNATIVES SERIES · PART 1 OF 5

Walk into almost any wealth-management conversation today and the subject of alternatives will come up. Private equity, private credit, hedge funds, real estate, infrastructure — once the preserve of pensions and the very wealthy, these products are now being packaged for ordinary investors and sold with real enthusiasm. Before you decide whether they belong in your portfolio, it helps to understand plainly what they are, what they cost, and what they can and cannot do. That is the job of this first piece. The harder questions — whether they actually deliver — come later in the series.

What counts as an “alternative”

An alternative investment is, simply, anything outside the traditional world of publicly traded stocks and bonds. The category is broad, and part of its appeal is that these assets often move a little differently from the public market, which is why they get sold as diversifiers. The usual members of the family:

• Private equity: ownership stakes in private companies, including leveraged buyouts.

• Private credit: direct lending to companies, outside the banking system — the fastest-growing corner.

• Hedge funds: pooled vehicles using short selling, leverage, and derivatives to pursue returns.

• Real estate (private): pooled interests in property whose shares don’t trade on an exchange — non-traded REITs, private real estate funds, and direct ownership. Publicly traded REITs, by contrast, trade like ordinary stocks and sit in the S&P 500, so they aren’t really alternatives.

• Venture capital: funding for early-stage, high-growth start-ups.

• Infrastructure: long-lived projects such as roads, energy grids, and utilities.

• Commodities and collectibles: gold, oil, farmland; and tangibles like art, wine, and vintage cars.

Liquid versus illiquid — the distinction that matters most

Not all alternatives lock up your money, and the difference is the single most important thing to understand before investing. Liquid alternatives trade on public markets and can be bought and sold with relative ease — commodity ETFs, managed futures, and liquid hedge-fund strategies. Illiquid alternatives ask for a long-term commitment with limited ways out: private equity, venture capital, direct real estate, and hedge funds with lock-up periods. Historically these were reserved for institutions and high-net-worth investors who could afford to wait. The new wave of “semi-liquid” funds promises a middle ground — private assets with periodic redemption windows.

The pitch: three promises

Alternatives are sold on three promises: higher returns than public stocks and bonds; a smoother ride, with smaller swings along the way; and diversification, the idea that these assets steady a portfolio because they move differently from public markets. Each promise sounds reasonable. Each is also harder to verify than it looks, largely because private funds are not priced every day — the manager estimates their value, usually once a quarter. Whether the promises hold up under careful measurement is the subject of Part 2. For now, treat them as claims to be tested, not facts.

The historical record

The table below summarizes commonly cited historical ranges for different asset classes.

Illustrative historical ranges compiled from the sources noted; figures vary by period and methodology and are not directly comparable across asset classes.

Read those numbers with care, because several forces flatter them. Survivorship bias: weak funds quietly close, so the surviving averages look better than the full experience investors actually had. Smoothed pricing: because values are estimated occasionally rather than marked daily, reported volatility looks lower than the underlying reality. And the averages hide enormous dispersion — the gap between the best and worst private funds is vast, and unlike a public index, you cannot simply buy the whole market. You are forced to bet on a specific manager, which Part 3 takes up directly.

The costs are the part you can verify

If the returns are uncertain, the costs are not. Alternative funds typically charge far more than index funds — a management fee plus a performance cut, the classic arrangement being “2 and 20”: two percent of assets a year plus twenty percent of the gains. Layer on illiquidity, opacity, and complexity, and the burden of proof sits squarely on the product to justify itself. The main risks, in plain terms:

One item on that list deserves more than a single row, because it quietly enables several of the others: light regulation. Many alternatives, hedge funds and private funds especially, are not registered with the SEC the way a public mutual fund is, and they disclose far less. Reporting performance to the databases that build industry benchmarks is frequently voluntary, valuations are often set by the manager rather than by a daily market, and the audited, standardized disclosure you take for granted in public markets is thinner or absent. None of this makes a fund a fraud. It does mean the burden of verification falls on you, and that the track record you are shown may be the flattering part of a longer story — a problem Part 3 takes up in detail.

How much, if any?

Conventional advice suggests that high-net-worth investors might hold something like 10 to 20 percent of a portfolio in alternatives, usually carved out of the stock allocation in pursuit of higher returns, or occasionally out of bonds via lower-risk options like infrastructure. But “can hold” is not “must hold.” The more useful question is whether you need them at all.

Are alternatives necessary? For most investors, no

Alternatives are routinely described as essential for diversification. They are not. A well-built, low-cost portfolio of public stocks and bonds remains a sound long-term strategy, and most investors — including many affluent ones — can reach their goals without ever tying up money for a decade or paying a performance fee. Alternatives may have a place for those who genuinely understand the trade-offs, can tolerate illiquidity, and have the capital to diversify across several managers and vintages. For everyone else, they are an option to weigh carefully, not a box that must be checked. The burden is on the product to prove it earns its keep — and the rest of this series puts that claim to the test.

Next, in Part 2: when you measure private-market returns honestly, against the right public yardsticks and after fees, how much of the celebrated premium is actually left?

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The Maestro’s Unintended Lessons

Alan F. Skrainka, CFA — Fri, 26 Jun 2026 13:04:11 GMT

Alan Greenspan died on June 22 at the age of 100. He ran the Federal Reserve for more than eighteen years, from 1987 to 2006, a tenure longer than all but one of his predecessors, and he served four presidents from Ronald Reagan to George W. Bush. For most of that run the financial press called him the Maestro, and a fair number of investors treated his every utterance as something close to scripture.

Give him his due first, because he is owed plenty. Greenspan took the chair in August 1987 and within ten weeks faced Black Monday, the worst single-day crash in Wall Street history. His answer was a one-sentence promise that the Federal Reserve stood ready to supply liquidity, and it steadied the system within days. That is the moment that earned him the Maestro name. He went on to preside over the boom of the 1990s, the longest economic expansion in American history at the time, a full decade from 1991 to 2001. Unemployment fell to 3.8 percent by 2000, the lowest in a generation, while inflation stayed quiet. He recognized the late-1990s productivity surge earlier than most of his peers and resisted pressure to raise rates and choke it off, which turned out to be a genuinely prescient call. He helped guide the country through the 1997 and 1998 Asian and Russian crises and the near-failure of Long-Term Capital Management, and four presidents of both parties reappointed him. By the time he stepped down in 2006 he was the most admired central banker of his era, and a great deal of that admiration was earned.

I would like to mark his passing a little differently. The most useful thing his long career offers an individual investor has little to do with any particular rate decision. It lies in three moments that, taken together, make the case for principle-based investing better than almost anything I could write on my own. None of the three was meant as a lesson. Two of them he would probably rather be remembered without. All three are worth keeping.

Lesson one: “Irrational Exuberance,” and the Cost of Acting on It

On the evening of December 5, 1996, Greenspan gave a dinner speech in Washington and asked, almost in passing, how anyone could know “when irrational exuberance has unduly escalated asset values.” The phrase traveled around the world by morning. Markets from Tokyo to London sold off on the notion that the Fed chairman may have thought stocks had run too far.

The Dow Jones Industrial Average closed at about 6,437 the day he spoke. An investor who took the hint, decided the chairman knew something the rest of us did not, and stepped out of the market did not dodge a crash. The market kept climbing. By early 2000 the Dow had reached roughly 11,723, a further gain of about 82 percent. This week it trades above 51,000, around eight times its level the night Greenspan worried aloud, and that is before counting a single dividend.

Greenspan was not wrong that exuberance existed, and to be fair to him, the warning was eventually vindicated. A real bubble was building in technology stocks, and it did burst. From its January 2000 peak the Dow fell about 38 percent into the autumn of 2002, and the tech-heavy Nasdaq lost roughly three quarters of its value. But he was early by more than three years, and early and wrong pay out exactly the same to anyone who sells and then waits for a better moment to return. Here is the part that settles it: even the 2002 low near 7,286, and the still deeper bottom of the 2008 to 2009 collapse near 6,547, never brought the Dow back below where it stood the night he warned. Anyone who sat out the whole stretch in search of a cheaper entry never got one.

A warning like his can be entirely correct and still cost you money. Expensive markets often stay expensive for years, and a stretched valuation says nothing about when, if ever, the turn arrives. Time in the market has done far more for patient investors than timing it ever has. The man with arguably the best view of the U.S. economy in the world could not call the turn within three years, and he had every resource that you and I do not.

Lesson two: Don’t Try to Out-Guess the Fed’s Next Move

Greenspan was famous for a style of speaking that came to be known as Fedspeak: hedged, qualified, and dense enough that listeners could hear whatever they were already inclined to believe. He admitted as much himself. “I guess I should warn you,” he once remarked, “if I turn out to be particularly clear, you’ve probably misunderstood what I said.” He was joking, but only just.

There is a serious point inside the joke. A great deal of investor energy, then and now, goes into parsing the Fed: the wording of a statement, the tone of a press conference, the famous dot plot of rate projections. Greenspan’s whole manner was a quiet warning that this is a poor use of your attention. Even when the message was clear, it was rarely a dependable guide to what markets would do next. Rates and stock prices simply do not move in the tidy, mechanical way the daily commentary assumes.

This is not an old problem filed away with his tenure. Kevin Warsh, who became Fed chair last month, ran his first meeting in mid-June and pointedly did the opposite of his predecessors: a statement of roughly 130 words. The reaction split between people who found it refreshing and people who felt cut adrift without a forecast to read. A principle-based investor does not really have a side in that argument, because the plan never depended on the forecast in the first place. That is the whole advantage of building a portfolio around principles instead of predictions. You are not waiting to be told what might happen next.

Lesson three: Even the Best-Informed Person Could Not Forecast the Great Financial Crisis

The hardest lesson came at the end. In 2005, with home prices climbing at a pace the country had never recorded, Greenspan allowed only that there were “signs of froth in some local markets,” and judged that whatever froth existed was becoming contained. We know how that turned out. Within about three years the housing market had carried the global financial system to the brink.

In October 2008, called before a congressional committee, Greenspan said something I still think about. He had assumed that lending institutions, acting in their own self-interest, would protect their shareholders by refusing to make loans that were likely to blow up. Instead, brokers wrote no-documentation “liar’s loans” by the millions. They could do it because they did not have to live with the risk. The loans were bundled into securities called collateralized debt obligations and sold off to investors around the world, so the broker who wrote a bad loan had usually passed it along long before it went bad. “Those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity, myself especially, are in a state of shocked disbelief,” he testified, and he admitted he had found “a flaw” in the way he understood the world to work.

You can argue about his economics. What I take from the moment is humility. I have said for years that the most important characteristic of a successful investor is not intelligence, it is humility. Here was a man with more data, more staff, and more direct access to the plumbing of the financial system than any private investor will ever have, and the great speculative excess of his own era was not obvious to him until after it had broken. If he could not reliably spot the bubble from that seat, the answer for the rest of us is not to go hunting for someone who can. The answer is to build a portfolio that does not require anyone to spot it. Diversify across assets that move on different cycles. Rebalance on a schedule rather than a hunch. Size your risk so that no single mistake, yours or the market’s, can sink the plan.

What to take from the Maestro

Greenspan earned the respect he is getting this week, and the accomplishments above are real. He was also, by his own honest account, capable of being early, opaque, and surprised. Which is to say he was human, in the most consequential economic job on earth.

That is what I would hand an investor instead. The smartest, best-positioned person in the room still cannot tell you when the market will turn, what the Fed’s words really mean for your portfolio, or where the next excess is hiding. Principles carry you through all three uncertainties without having to answer any of them. Diversify, because the future is uncertain. Favor time in the market over timing it. Keep your costs low and own quality. Focus on the things you can control. Greenspan spent a long career demonstrating, sometimes the hard way, why that is the ground worth standing on.

From Insights to Action

Knowing the principles is the easy part. The harder and more valuable work is building the portfolio that puts them to work: choosing the specific, low-cost funds for diversification, the right high-quality bonds for ballast, and a sensible cash reserve, while knowing which products to avoid. That is what our fund research library and model portfolios are built for, an in-depth look at the funds that meet our high standards plus model portfolios that combine them for broad, low-cost diversification. Explore the research library at investmentinsights.com.

Related reading

How to Survive a Stock Market Melt-Up

Federal Reserve Credibility Gets a Nice Boost

Diversify Beyond the Magnificent 7, Revisited

Why Interest Rates Are Rising

Sources

Federal Reserve Board, “The Challenge of Central Banking in a Democratic Society,” remarks by Alan Greenspan, December 5, 1996 (the “irrational exuberance” speech).

S&P Dow Jones Indices, historical Dow Jones Industrial Average closing levels (December 5, 1996; January 14, 2000 record close of 11,722.98; October 9, 2002 low of 7,286.27; March 9, 2009 low of 6,547.05; June 24, 2026 close of 51,848.90).

Alan Greenspan, remark on Fed communication (“if I turn out to be particularly clear…”), as quoted in The New York Times, October 28, 2005.

U.S. House Committee on Oversight and Government Reform, testimony of Alan Greenspan, October 23, 2008 (“shocked disbelief”; a “flaw” in his model).

Alan Greenspan, testimony to the Joint Economic Committee of Congress, June 2005 (“signs of froth in some local markets”).

National Bureau of Economic Research, U.S. business cycle dates (the March 1991 to March 2001 expansion, 120 months); U.S. Bureau of Labor Statistics, civilian unemployment rate (3.8 percent, April 2000).

Federal Reserve History, “Alan Greenspan” biographical profile (tenure, 1987 to 2006).

CNBC and NPR obituaries of Alan Greenspan, June 22, 2026.

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How to Use AI to Make Money — and How People Lose It

Alan F. Skrainka, CFA — Mon, 22 Jun 2026 14:31:03 GMT

More and more people are managing their money with a chatbot open in one window and a brokerage account in the other. A growing share of Americans now say they trust AI enough to give them financial advice, and many are already acting on it. At this spring’s Future Proof conference in Miami Beach, one startup’s pitch caught the mood: “Make Claude manage your money.” A 39-year-old entrepreneur and his 76-year-old mother used a chatbot to move into Broadcom in February and were up more than 30% by June.

Stories like that are intoxicating — and they are often how people talk right before they lose a lot of money. AI can be a valuable resource for your finances, and it is improving every day. But it is a solid tool for some money questions and a genuinely dangerous one for others, and most people can’t tell the difference. The problem is rarely the technology; it’s that people are using it for the wrong job.

The whole game is the question you ask

Before you ask AI anything about money, figure out whether you are asking a math problem or a prediction problem.

“Do I have enough money to retire?” is a math problem. So is “How much do I need to save each month to have $1.5 million by 65?” and “If I draw down 4% a year, how long does my portfolio last?” These questions have defined inputs — your savings, your spending, your time horizon, a range of return assumptions — and a defined method for crunching them. This is precisely the kind of work AI does well. It never gets tired, it shows its assumptions if you ask, and it’ll happily run the scenario fifteen different ways. Used like this, AI can democratize the kind of planning math that used to cost a few hundred dollars an hour.

“What stocks should I buy?” and “Which crypto coin is going to take off?” are prediction problems. They ask the model to forecast the future of a complex, adaptive, competitive system in which millions of well-funded participants are already trying to do the same thing. No one — not the smartest human, not the largest hedge fund, and certainly not a chatbot trained on the internet — can do this reliably. When you ask AI to pick winners, you are not getting expertise. You are getting a confident-sounding guess dressed up in the grammar of expertise.

Who’s actually asking — and what they’re asking for

Americans have always gotten financial advice from somewhere. A 2025 Gallup survey found that the most common sources are still human: 43% turn to friends and family, and 41% to financial advisors and planners, with financial websites (36%) close behind. But the who matters enormously. Reliance on professional advisors climbs steadily with age, while younger people lean on their networks and their screens.

Source: Gallup, “Americans Still Turn to People for Financial Advice,” May 2025.

That generational split is showing up even among the wealthy — the advisor industry’s core clientele. A 2025 Capgemini survey found that 81% of young, high-net-worth heirs plan to drop their parents’ wealth managers once they inherit, often citing weak digital tools and thin service. The next generation isn’t just inheriting money; it’s planning to take that money elsewhere. And younger investors broadly are sprinting toward AI: among Gen Z who use AI at all, 82% have turned to it for financial advice, according to Intuit Credit Karma. A September 2025 study from Pearl found that 22% of Americans have followed AI’s stock-buying advice and 21% have bought cryptocurrencies on its suggestion — figures that climb to 30% and 27% among Gen Z. Most striking of all: 27% of Americans, and 33% of Gen Z, now believe AI can give them all the financial advice they’ll ever need.

That last belief — that AI can replace all other financial advice — is the one that costs people money. The point isn’t that do-it-yourself investors should always hand things back to an advisor; it’s that using AI well means knowing the handful of places it can cost you a lot of money. So let’s look at where the wheels come off.

Why asking AI for stock picks is a losing game

The problem with “What stocks should I buy?” isn’t that AI is bad at it. It’s that almost everyone is bad at it, including the professionals — and the math of the stock market is more brutal than most people realize.

Hendrik Bessembinder, a finance professor at Arizona State University, studied the lifetime returns of every U.S. common stock from 1926 to 2015. His findings should be tattooed on the wrist of anyone tempted to stock-pick. Most individual stocks are bad investments: about 58% failed to beat one-month Treasury bills over their lifetimes. All of the stock market’s net wealth creation above Treasury bills over those 90 years — trillions of dollars — traced back to just the top-performing 1,000 stocks, roughly 4% of the total. The other 96%, as a group, collectively did no better than one-month T-bills. Just 86 companies accounted for half of that excess wealth.

Realize what that means for a stock-picker. The market rises over time not because most stocks do well, but because a tiny handful do spectacularly well and drag the average up. If you’re picking a small basket of individual stocks — whether you chose them yourself, got a tip at a barbecue, or asked a chatbot — the overwhelming odds are that you’ve missed the few names that matter. Bessembinder’s own conclusion is that these results “reinforce the desirability” of holding a broadly diversified portfolio, because diversification is what gives you a chance of owning the rare giant winners.

Now return to that mother-and-son pair who rode Broadcom to a 30% gain. For every story like theirs, there are many you never hear — the AI picks that went sideways, the ones that quietly cratered, told by no one from a conference stage. Asking AI to beat the odds is asking it to do something no one can do consistently. It will give you an answer — it always gives you an answer — but the answer is a guess, and the odds are stacked against it.

Why asking AI for crypto advice is worse

If stock-picking is a long shot, asking AI which crypto token to buy is closer to setting your money on fire. Start with the landscape. As Bloomberg reported in June 2026, tens of millions of crypto tokens have been created in recent years, yet fewer than 1,700 still generate meaningful daily trading activity, according to research firm Delphi Digital. Most venture-backed tokens trade below their launch price, some more than 90% below; across a broad sample Delphi studied, the average return was negative 80%. There are many, many tokens that don’t have a good reason to exist.

Now layer AI on top of that. A language model learns from the text that exists about a token — whitepapers, hype threads, promotional posts — almost all of it written by people who want the price to go up. It cannot audit the code, verify the team, or know which insiders are about to dump their holdings. Worse, crypto markets run on exactly the kind of momentum and narrative that AI is fluent in reproducing. Ask it which coin is about to skyrocket and it will pattern-match to the language of past manias and hand you a plausible-sounding pick — in an asset class where the central statistical fact is that almost everything goes to near-zero. You are using a machine to navigate a category defined by catastrophic loss.

The reliability problem

Even setting aside stocks and crypto, there’s another risk: in these early days, AI is often wrong, and wrong in a uniquely persuasive way when it comes to financial advice. Peer-reviewed studies of AI financial answers have found fabrication rates between roughly 20% and 36% — the model simply makes things up a meaningful share of the time. And the consequences are already showing up in account balances. Intuit Credit Karma found that 52% of people who acted on AI financial advice said it led to a poor decision or mistake, and that one in five didn’t research or validate the advice before acting on it. Pearl’s research found that 19% of Americans say they’ve lost more than $100 following bad AI advice — a figure that climbs to 27% among Gen Z.

A human advisor who fabricated facts a third of the time would lose their license. AI gets a pass because it sounds so reasonable doing it. That smoothness is the trap. The model has no skin in the game and no memory of the last time it was confidently wrong.

What actually works: funds and ETFs

So if AI shouldn’t pick your stocks or your coins, what should you do? Start with a principle rather than a product. The funds worth owning share what you might call the index-fund advantage: low cost, broad diversification, and staying fully invested. That is the structural edge behind a plain index fund — but it is not limited to plain index funds, and it is not a buy-one-thing-and-forget-it strategy.

Look back at Bessembinder’s math. The reason a total-market index fund beats the vast majority of stock-pickers isn’t luck — it’s structural. By owning everything, an index fund is guaranteed to hold the handful of monster winners that drive nearly all the market’s gains, the exact names a concentrated portfolio is statistically likely to miss. You don’t have to predict which company is the next Broadcom or Nvidia; you own all of them and let the winners do the heavy lifting. A broad ETF also spreads your risk across hundreds or thousands of companies, so any single blowup is a rounding error rather than a catastrophe. And because index funds trade rarely and charge little — often a few hundredths of a percent a year — more of your money stays invested and compounding for you instead of leaking out in fees.

None of this rules out actively managed funds, where a portfolio manager is trying to beat the market, but it does set the bar: the ones worth owning keep that same structural edge instead of trading it away in fees and turnover.

That advantage is the lens for everything else. Beyond plain index funds, rules-based or factor-tilted funds — Dimensional and Avantis are good examples — keep those same virtues of low cost, broad diversification, and full investment while deliberately tilting toward characteristics that have rewarded patient investors over long periods. And in a few corners of the market where indexing is weaker, a small number of disciplined active managers can earn their fees. The catch is that telling the genuinely low-cost, well-built funds from the merely well-marketed ones takes real work — and that homework is where most of the value lies.

The bottom line

To be clear, none of this suggests that AI is good only for simple math. The technology is improving at a remarkable pace, and betting against it has been a poor strategy so far. Researchers have spent years training AI in games such as chess, Go, and even multiplayer negotiation, where it has already shown flashes of something that looks like creativity and judgment rather than mere calculation. It is entirely possible that AI will one day be capable of handling the full scope of financial planning. But even if that day comes, we would still argue that principles, not predictions, are the better way to manage your financial affairs. AI is not a crystal ball, and the moment you ask it to behave like one — to pick the winning stock, to call the next crypto rocket — you are rolling the dice and taking a big risk. Make AI do the math. Don’t let it do the gambling.

If you’d like to go deeper — how the index-fund advantage works, where factor-tilted funds like Dimensional and Avantis and a select few active managers fit in, and how to build a diversified portfolio — that’s what we built the Investment Academy at InvestmentInsights.com for, along with our independent research on funds and ETFs.

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As always, this is educational information, not personalized investment advice.

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