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Market Commentary

Monthly Financial Markets Commentary — July 1, 2026

Stocks were mixed in the month of June, with the more speculative sectors of the market declining slightly and value stocks advancing.

All measures of market valuation, such as price-earnings, price-to-sales, market-cap-to-GDP and the Schiller CAPE Ratio indicate that stocks are at historic highs. Retail investors have bought every dip in the market since 2010 and have been rewarded. Speculation in the market remains significant, with margin balances and stock ownership percentages being in record territory. Notwithstanding recent geopolitical concerns, such as the Iran War and increasing oil prices, investors remain "all in" and have noticably stepped up their buying. Retail investors are now supposedly the smart money, as institutions have been much less enthusiastic about equities. Historically this has not been a good setup for further advances in the market.

For 2026 the S&P 500 Index, the capitalization-weighted broadest measure of U.S. stock market performance, has returned 10.13%. The Nasdaq Composite Index, another capitalization-weighted index, but more reflective of growth stocks, has returned 12.87%. Finally, the Dow Jones Industrial Average, a price-weighted index, has returned 9.79%. For the month of June, the S&P 500 fell .97%, the Nasdaq fell 2.80%, and the Dow rose 2.67%. The AI trade now dominates the markets as well as the real economy, as reflected in such measures as capital investment and GDP. This makes any potential rout in the AI trade much more consequential that the bust in internet stocks in 2000, since the AI economic impact will be much more widespread.

The Morningstar U.S. Aggregate Bond Index, a broad measure of the U.S. bond market, has returned 0.62% for the year, a modest increase from the prior month. Historically the price of bonds rises on the outbreak of hostilities, as investors seek the safety of the world's currency. and this has been the case, although not as much as some would have expected. Credit spreads remain at very low levels, meaning that investors are demanding very little premium over so-called risk-free 10-year treasuries. Since the start of the year the script has flipped from expected rate cuts to expected rate increases, particularly with the hawkish stance of the new Fed Chairman, Kevin Warsh.

The sectors in the equity market that have performed the best so far in 2026 are Energy, Industrials and Information Technology at 18.6%, 20.1% and 20.6%, respectively. Financials, Communication Services, and Consumer Discretionary have fared the worst at -1.3%, .5% and -.05%, respectively. The rise in energy stocks is not surprising given the run-up in oil. Breadth in the market is increasingly narrow with AI or AI-related stocks representing more than 50% of market value.

The comparison of current price/earnings ratios and dividend yields as of July 1, 2026 to those of the prior year is as follows.

* based on 12-month trailing data

The dividend yield, which is at historic lows, is a reliable metric of valuation, since it cannot be manipulated as earnings frequently are. Dividend yields continue to fall in 2026.

Gold and crude oil futures most recently traded at $4,050.50 and $68.75, respectively, compared to $3,325.75 and $62.65 one year earlier. Gold has fallen significantly after a spectacular rise at the beginning of the year. Veteran observers of gold were not surprised by the sell-off, given it's historic run. In addition, it is likely that Middle East countries, who hold large reserves, were forced to sell some gold in the face of rapidly declining economies. Notwithstanding the developing view that gold is moving into the role of an alternate currency, it has reccently shown characteristics of a classic risk asset. The long-term fundamentals of gold remain very positive given the appetite for gold by central banks and the lack of fiscal discipline by nearly all developed nations.