The Serious Investor: Summer 2026 Quarterly Newsletter

Welcome to the summer edition of LVW’s The Serious Investor.

Overview: A Sharp Rebound on a Narrow Base
Last quarter, we noted that even constructive market environments are rarely linear. The second quarter proved the point in the other direction. After the 4.3% first-quarter decline we discussed in our spring letter, U.S. equities staged a forceful recovery, with the S&P 500 rising approximately 15% in the second quarter and the first half finishing meaningfully higher overall. Much as the first quarter concentrated the year’s disappointments, the second concentrated its gains.

Just as notably, the pressures that weighed on markets in the first quarter largely reversed. The oil-price spike that followed the escalation in Iran faded over the quarter, with crude retreating to roughly pre-war levels after an interim ceasefire reopened the Strait of Hormuz and Gulf supply began to return — even as the sharp run-up in prices destroyed demand. The retreat reflects expectations of normalization more than a settled market: global inventories remain near multi-decade lows, and analysts caution the calm is fragile.

Market Performance: Strength Beneath a Quiet June
The recovery was led by the same forces that had lagged early in the year. The Nasdaq Composite rose roughly 21% in the second quarter, outpacing the S&P 500, before both paused in June (down 1.1% and 2.8%, respectively). Yet the broader market held firm even in that pause, with the equal-weighted S&P 500 up 2.4% and the small-cap Russell 2000 up 3.7% in June.

The most striking feature of the quarter was that the market advanced in spite of its largest constituents, not because of them. The eight biggest companies in the S&P 500 each fell more than 7% in June, and as a group the mega-caps contributed only about 1% of the index’s year-to-date gain. Market breadth broadened as they wobbled: the advance-decline line indicated an increasing number of stocks advancing even as the headline leaders retreated, an encouraging sign of participation beneath the surface.

Internationally, dispersion was equally pronounced. Chip-heavy Taiwan and South Korea rose 53% and 64% in the quarter, while technology-light Europe and Japan lagged at 7% and 11%. Emerging markets now lead global equities year-to-date. As in the first quarter, headline index performance tells only part of the story, though this time the concentration ran the other way, with a narrow group of semiconductor and memory names driving the gains.

Growth: Durability Still Commands a Premium
Corporate fundamentals remained a source of support. Pre-tax profit margins stand at record levels—roughly 14 cents of profit per dollar of income, against a long-run median near 10 cents, and analysts have been raising earnings estimates at a pace rarely seen outside of a recovery from recession.

Consistent with the theme we emphasized last quarter, markets continued to reward businesses whose earnings are less vulnerable to AI-driven disruption and to penalize those dependent on optimistic long-term monetization. The “AI obsolescence” pressure that first surfaced in software widened its reach, with parts of the travel, consulting, and financial sectors also affected, and software itself (after a spring bounce) came under renewed pressure in June. International markets, with their heavier weighting toward industrials, financials, energy, and infrastructure, again benefited from exposure to areas where AI tends to augment rather than displace activity.

Semiconductors: A Case Study in Scarcity
If software illustrated the repricing of risk last quarter, semiconductors illustrated the repricing of scarcity this one. The semiconductor index rose about 75% in the second quarter, its strongest quarter in records going back to 1994. The move extended well beyond chip designers: a surge in memory prices, particularly DRAM, rippled through the supply chain and into consumer products, with Apple raising prices on Macs and iPads by roughly 20% and Microsoft lifting Xbox prices, both citing memory costs.

In effect, the “scarcity trade” that drove energy markets in the first quarter rotated into chips in the second. That dynamic has been powerful and globally significant, but it warrants caution as much as enthusiasm. A 75% quarterly gain is historically extreme, and the path of technology stocks increasingly echoes the late-1990s, a comparison that has favorable and unfavorable interpretations in equal measure.

Fixed Income: From Cuts to Hikes
Entering the year, investors expected a gradual path toward policy easing. Last quarter, we wrote that rate cuts had become less likely. This quarter, expectations moved further still toward tightening. Futures market indications for the year-end policy rate has risen roughly 100 basis points since February, the equivalent of about four rate hikes, reflecting a resilient economy and inflation running above target. Core PCE inflation is above 3% and has been reaccelerating, near 3.9% annualized over the past month.

The bond market reflected this shift in textbook fashion: real yields rose, the yield curve flattened, the dollar firmed, and gold declined from its highs. Persistent tightening is not a friendly backdrop for equities if it comes to fruition. Even so, yield levels remain meaningfully higher than for most of the prior decade, and fixed income continues to serve its dual role as a source of income and portfolio diversification.

Valuation: A Reset That Gave Way to New Extremes
The selective valuation reset that defined the first quarter gave way to a sharp re-rating in the second, but a highly concentrated one. The re-rating was overwhelmingly in semiconductors and their global suppliers, while much of the market outside the leaders continued to trade at more reasonable multiples. International valuations, which already reflected slower growth and greater geopolitical complexity, remain comparatively restrained. The result is a market whose most visible excesses are confined to a narrow group, even as the broader opportunity set stays more balanced.

Liquidity: Redemptions Escalate as Supply Builds
Funding markets functioned smoothly through the quarter, but two developments bear watching. First, within private markets, particularly evergreen and non-traded private credit structures, redemption requests escalated further from the increase we flagged last quarter, in several cases exceeding the limits these vehicles permit. Those structural limits protect the funds from forced selling, but the elevated demand for liquidity is itself a signal we are monitoring for any sign of spreading beyond the sectors most exposed to AI disruption.

Second, the supply of stock is rising. A record initial public offering (SpaceX), shrinking corporate buybacks, and anticipated listings from large private AI companies are pushing net equity supply positive, a setup that has historically preceded weaker forward returns. It is a dynamic worth respecting even amid an otherwise constructive environment.

The Bottom Line: Discipline Over Momentum
A near-15% rebound in the S&P 500 is a welcome reversal from the first quarter, but context matters here as much as it did then. The recovery arrived alongside a genuine list of risks: reaccelerating inflation and a less accommodative Federal Reserve, historic concentration in a single part of the market, a rising supply of equity, softening credit at the margins, and seasonal patterns—a historically weak third quarter and midterm-election year—that have not favored bulls.

We continue to think about these forces in terms of probability rather than forecast. Innovation remains powerful, but durability and execution command a premium, and leadership this concentrated rewards discipline over momentum. As always, diversification, selectivity, and a steady process matter more than chasing the quarter’s winners.

The LVW Perspective
Markets continue to be driven by a narrow group of companies and rapidly evolving expectations around artificial intelligence. While these themes deserve attention, successful long-term investing rarely comes from chasing the most popular opportunities.

Our focus remains on:

• Diversification across drivers of return
• Valuation discipline
• Tax-aware portfolio management
• Aligning investment decisions with client goals and time horizons

Sources: Bloomberg, Factset, MSCI, Bespoke and CME Group as of June 30, 2026, unless otherwise noted.

Disclaimer: This material is provided by LVW Advisors (“LVW” or the “Firm”) for general informational and educational purposes only. LVW Advisors is a federally registered investment adviser under the Investment Advisers Act of 1940. Registration as an investment adviser does not constitute an endorsement of LVW Advisors by the SEC nor does it indicate that LVW Advisors has attained a particular level of skill or ability. Investing involves risk, including the potential loss of principal. Past performance may not be indicative of future results, and there can be no assurance that the views and opinions expressed herein will come to pass. No portion of this commentary is to be construed as a solicitation to effect a transaction in securities, or the provision of personalized tax or investment advice.

Certain of the information contained in this report is derived from sources that LVW believes to be reliable; however, the Firm does not guarantee the accuracy or timeliness of such information and assumes no liability for any resulting damages. Any reference to a market index is included for illustrative purposes only, as an index is not a security in which an investment can be made. Indices are unmanaged vehicles that serve as market indicators and do not account for the deduction of management fees and/or transaction costs generally associated with investable products. The information in these materials may change at any time and without notice.

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