We’re heading into the homestretch of 2026 and as usual, the world is awash in negativity. Headlines continue to rotate through war, oil, tariffs, inflation, interest rates and the Strait of Hormuz. Yet the market has repeatedly absorbed those shocks rather than surrendering its gains. That does not mean the risks have disappeared; oil remains elevated, the 10-year Treasury is near 5%, and the Fed has just raised rates. Those are real headwinds. But the other side of the ledger matters just as much, if not more. What is the ultimate driver of investment markets? Earnings! And earnings are exceptionally strong, the labor market remains functional, and equity indexes are still significantly higher for the year as seen in the chart below.
Our view remains positive, but with an important qualification: the next leg up for the markets will have to be through continued earnings growth and operating execution, not simply through easier financial conditions. The US is definitely king when it comes to stocks, but as you can see by this infographic, the US only represents about 44% of the world’s markets. Our focus remains the same: follow the fundamentals, diversify sources of return, look beyond the most obvious investment theme, and control the financial decisions that are within our control.
We all know the AI story. Nvidia and its’ pals, continue to crush expectations, proving that AI investment is a fundamental productivity story, not just a cost-cutting one. However, the AI space still carries risks, and the fear is we are building AI to lead us straight into the world of the Terminator. I can’t be certain, but I think the fear mongering going on right now is a little out of hand. That said, some Anthropic engineers think the fear is real make the point that the Mythos 5 (a recent LLM model) is a particularly bad vintage in terms of harmful actions, with 82%!!! of all runs involving a severely harmful action (like faking identities or planting malicious code).
Because of the concentration risks of AI having so much influence on the S&P 500, I like to build other thematics into my portfolios to capture future upside in emerging industries. Here is a look at some themes that are quietly outperforming the S&P 500. They come with higher risk, but offer incredible long-term potential:
- Space Exploration: Satellites, launch services, Earth observation and the emerging commercial space economy. The commercialization of space (from satellite data to orbital manufacturing) is a massive growth frontier.
- Smart Transportation & Autonomous Logistics: The shift toward smart grid infrastructure and autonomous supply chains is attracting massive capital as companies look to permanently reduce logistics costs.
- Advanced Health Care & Biotech: Driven by an aging global population, innovations in personalized medicine, surgical robotics, and genomics are operating entirely independent of the standard tech cycle.
- FinTech & Digital Assets: The financial plumbing of the world is still being upgraded, offering massive margins for companies that can execute.
While we can't predict what the Fed will do before the mid-term elections or when the Strait of Hormuz will stabilize, we can control our own financial houses. One of the most vital, and often ignored, aspects of your financial health is creating and maintaining a comprehensive estate plan. Having a Will, Living Trust, Power of Attorney, and Advance Medical Directives ensures your family is protected from legal chaos if the unexpected happens. Just as importantly, these documents need to evolve. As you move through life -- navigating marriages, the birth of children or grandchildren, divorces, etc., you must update these documents. Maybe it’s time for a review?
Can we use AI to solve the energy issues it created? I haven’t been in a movie theater in at least a year, but it seems like I’m bucking the trend. Very interesting infographic showing the percentage of adults living in their birth state.
