Market Commentary Q2 26

Q2 2026 has posted a dramatic upswing after the modest decline of the first quarter. The S&P 500 was up 14.9% for the quarter and 9.5% for the year. The NASDAQ was higher by 21.4% for the second quarter, recovering the Q1 downswing and is now up 12.8% so far in 2026.

On 1-7-26 The Wall Street Journal had announced a “media partnership” with a prediction market upstart named Polymarket. With little sense of irony less than six months later, the Journal published a piece of investigative journalism that demonstrated the company had facilitated provocative advertising on social media that was pure fraud. Polymarket compensated social media hacks for the creation of content showing large winning wagers that had no basis in reality.

This company is an offshore gambling website not subject to US regulation. Polymarket is not authorized to engage with US customers, although this is easily circumvented with location cloaking and virtual private network connections. This website has is an iconic example of what occurs when there are no regulatory guardrails beyond the pursuit of profit. The company itself constructed a duplication of their website utilizing an internet address that replaced the letter L with a capitalized letter I. The bogus website has since been taken down.

Utilizing the fake web address, the social media clickbait did not even take the time to find scenarios that would be plausibly winning wagers. It seems that knowing the outcome would allow the staging of glorious winning scenarios. Not these hooligans! Young men filmed themselves glued to a TV screen then celebrating their genius like the horse they bet on just won the race.

The ridiculous semantic shift from the word gambling to the label of “prediction” has created a cottage industry of upstart “exchange” operators professing to have discovered an entire new realm of financial markets. The opportunity to funnel money into nearly any data point that can be packaged into a binary yes or no proposition has spawned from the original idea that people could wager actual money on political events. Modern prediction activity began with the Iowa Electronic Markets established in 1988. The academic experiment indicated that real money wagers can be more accurate than traditional political polling.

Real money political prediction was the beginning point in that there is viable opinion measurement when people wager real money. As usage case has expanded, there has been a proliferation of so-called prediction “exchanges”. Cue the tidal wave of offerings and even major brokerage firms trying to get in on the action. Whether a celebrity will say a word or what the temperature may be in Boise, ID, at noon tomorrow, there is now a way to wager on it. Betting on a baseball game is passe, how about betting on each pitch and whether it will be a ball or strike? The low cost of digitization and platforming on the Internet contributes to waves of events even if there is little audience or actual money on either side.

One need look no further then lists of successful businesses or individuals to find that the number of wealthy endeavors based on gambling, or the new term “prediction” is nil. Gamblers tend to lose quickly or slowly; the mathematics probabilities of betting make losing over time the outcome for most. It is crucial to recognize the difference between discrete and continuous events. The pursuit of discreet or one time yes or no propositions has distinct disadvantages combined with variance. One-time wagers repeatedly foster 100% loss as a possible outcome. Investing is a continuous event. When we invest money in the wrong company it is rare that we will see a 100% loss. Buying the best opportunity will take time to appreciate. Continuous events give the investor an opportunity to accumulate value slowly over time while seeking to avoid inefficient enterprise and accumulate concentrations of quality. Bad investment ideas can definitely go bust, but usually significant portions of mediocre ideas can be nursed along or re-positioned.

The delusion of rapid sequences of accurate prediction attracts those willing to take risk repeatedly. As this commentary has discussed on numerous occasions there is no evidence that anything can be consistently foreseen. Prediction “markets” may certainly have value in showing where actual money wagered believes certain events will unfold. These enterprises have much in common with the old-time neighborhood bookie. This is an area built on all types of vague future promises that will result in very little actual business activity, economic value, or social benefit in the future.

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The recent 10-year Anniversary of the vote in the United Kingdom for the isolationist idea of “Brexit” is a reminder of the disruptive events of the past decade. The BBC recently released a documentary that reminds the world that the 2016 UK vote to disengage from the European Union was driven by reactionary anti-elite, anti-immigrant populism. There were no actual plans or benefits that could be articulated in advance. The challenges of modern society that bear down on the middle and lower class drive openings for political movements that exploit anger emanating from complex societal problems. Disengagement with the EU has created new problems and solved little.

Boris Johnson, a former UK prime minister, readily admits that there was no plan for the day after if the “leave” movement won the referendum. Undoing trade and immigration integration with Europe was never likely to lead to good for the UK or the wider world. Kier Starmer is the latest British prime minister to be dispatched marking an unprecedented turnover In British politics. The ill-conceived policies of restrictive trade, anti-globalization and denigration of immigrants is just as unlikely to be beneficial here in the US. The dramatic reveal that the populist wave washing over the west has no “plan” is obvious.

It has been recently revealed that Immigration and Customs enforcement in the United States has spent more than $700 million on warehouses. This turgid idea was to herd masses that had been rounded up by ICE into some dystopian human warehouse. Immigration officers have formed masked goon squads, sent to round up hordes of people into commercial spaces without plumbing or any type of infrastructure expedient to a twisted vision of mass incarceration / deportation. Fortunately, the warehouse acquisitions have been cancelled, as this nightmarish overreach runs into public resistance.

The disruption to numerous commercial interests that are dependent upon pools of unskilled labor is likely to reverberate for a long period of time. This era of immigrant scapegoating is producing regressive theories regarding fundamental principles of western society that are seized upon with little thought of what may occur the day after. In the case of this massive overreach and inhumane action regarding immigrants, the economic consequences pale in comparison to the transgression against this core principle of American Values.

For thirteen months the global economy was subjected to daily decrees about how trade policy in the world's largest economy would be governed by the utterances of the President alone. These illegal actions were litigated and ultimately struck down by the Supreme Court. The disruption that occurred over these thirteen months that it took for the legal system to catch up is impossible to measure. The amount of effort and administrative expense required to first collect the illegal tariffs and now refund them illustrates a tragic irony in mismanagement and presidential disregard for the rule of law.

Genuine presidential leadership would have made a case for trade barriers, developed public support and pushed Congress to legislate legally viable tariffs if this was a true vision. Ignoring the way the American system of governance is designed to work has resulted in a massive waste of time and money. This style of ill-conceived and rash decision making has brought us to the rapidly launched bombing and military aggression towards Iran.

The global economy has now been cast into a state of moment-to-moment anticipation in the face of a bombing campaign that was impulsively launched without allies, articulated strategy, or any type of constitutional authorization. Twenty percent of the world's crude oil along with significant petrochemical trade has now been restricted based on another dramatic action underpinned by very little planning for the day after.

The innovative and extremely adaptive global economy has proven resilient. China reduced importation of petroleum drastically while massive stockpiles of petroleum globally have buffered the shock. Oil prices did not rise as much as feared and have recently returned to prewar levels.

Those who lament a decline in the functioning of American democracy may find solace in the resilience of economic and market activity. It may be a signal that the system remains resilient and functional while the American system is experiencing an era of populist discontent with little permanent impact.

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The initial public offering for stock in a company known as SpaceX is another in this line of disruptive events. The value of SpaceX was a private company valued around $137 billion as of January of 2023. Since that time, the move in valuation has no precedent of literal skyrocketing price of the now public SPCX.

It is crucial to recognize that non-public valuations are subject to all types of opaque elements. The consequences of significant private market regulatory change from 2012 has unleashed a completely new landscape. Prior to 2012, companies with more than 500 shareholders had to go public and be regulated much more vigorously. Now the limit is 2,000 shareholders. The “JOBS” act of 2012 created what is now a dramatically larger ecosystem of lightly regulated and much less transparent capital markets.

This SPCX initial public offering is the conglomeration of a space company with various other businesses. The “space” business is actually over 70% an AI business. Owning the stock is a very high-priced way to get a share of unproven proclamations of the founder in areas far from the hype of rocketry. The company consists of a satellite internet enterprise (Starlink), social media (formerly Twitter, now X) and an artificial intelligence upstart called XAI. The value of the combined entity has risen by more than TEN TIMES in the preceding three years. This is the price that was offered to the public markets on June 12, 2026.

The aura of Elon Musk brings forth legions of believers in all manner of far out proclamations made over his career most of which have come nowhere near realization. The entity known as SpaceX is a money losing enterprise. There is no indication that there will be anything within the business components beyond the internet provider that can show profitability in the foreseeable future.

Based on valuation, the business would need to grow exponentially. The run to make today’s value worthy of its current level would be by some multiple of 50 or 100 times. An analytics firm Named Kailish Concepts recently noted that, “Most of that 100 times sales multiple rests on a single forward-looking promise: that, post-xAI merger, SpaceX will put up to one million orbital data center satellites in low Earth orbit and undercut terrestrial hyperscalers within two to three years.”  They have not yet even presented a prototype.

It may be possible that SpaceX technological ingenuity will gather some significant percentage of global internet usage. All of this while all the fools running companies in cellular, cable and other terrestrial technologies will be cast aside. Currently, the Starlink satellite internet business is profitable, yet customers face upfront equipment cost, and higher monthly cost than other technologies in most developed markets. It only shows an edge in rural, remote or in-flight internet connections. Its biggest asset is the excitement, provocation and aura of Mr. Musk.

Barrons: SpaceX stock surged 67% from its IPO price, reaching over $225, driven by limited supply and high demand, valuing the company at $2.5 trillion. Heavy call option buying, ETF inflows, and upcoming Nasdaq-100 inclusion are fueling demand for SpaceX shares, despite limited availability. SpaceX will stagger lockup expirations, releasing significant portions of shares from late July through December, potentially increasing supply and impacting price.

Elon Musk fans may think that SpaceX is poised to change the world, but a big reason its stock rocketed to a peak north of $225, up 67%, from its initial-public-offering price, is good old-fashioned supply and demand. As employees and early investors are permitted to sell shares in the coming months, SpaceX shares should come back to Earth, as they have with some other hot IPOs.

SpaceX stock has been on fire since its first trading day on June 12 as investors look for CEO Musk to repeat—or even exceed—his success running electric-vehicle maker Tesla. SpaceX shares rose for three consecutive days, closing at $201.80 on Tuesday, but have slipped back to $185 since then. There are just 639 million shares available for trading, a fraction of the more than 13 billion shares that SpaceX has outstanding. On 6-30-26 the stock was trading around $170 per share.

Offering an extremely small portion of the company is a key criterion in the hype and structure to get the initial public trading to go in the desired upward direction. The general percentage range that is offered when a company presents its initial public offering is 10-25% of the company. These protocols are cast aside by Musk and the narrative that he has created around this company.

Musk is the unbridled disruptor in times of limitless fantasies about the near future, most of which are unlikely to bear profit. On 6-30-26 there is speculation that there will be a SPCX phone. Maybe no AI orbiting data centers of biannual bookings to a Mars resort, but you will have the option of replacing your iPhone with a new device!

It is astounding to consider that there's so much provocation and construction of extremely speculative narratives that are drawing monumental amounts of resources. It is likely that the most vibrant opportunities reside right before our eyes; cleaner air, efficient energy, ample water supply and so many other mundane yet crucial challenges that society demands.

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With all the disruption that we are witness to, economic growth and market values continue to rise. Here are some of the significant catalysts that have allowed these conditions to persist.

1) After 2008, the scale of money creation in the United States and globally is likely to be looked upon as one of the most significant monetary events ever. One estimate by the Federal Reserve Bank of Philadelphia suggests that $4.5T was created in the initial actions of the Federal Reserve in 2008. Additional rounds of central bank intervention 2010 thru 2014 indicate as much as an additional $6T added to the US money supply.

2) Two colossal unfunded tax cuts have been unleashed, one in 2017 and then the effort known ironically as the “Big Beautiful Bill” in 2025. There is vast structural damage that has been created by cutting taxes without any regard to actual cuts to government spending. The Department of Governmental Efficiency (DOGE) was a farse. The juxtaposition of two political parties that could be defined as tax and spend (Democrats) and tax cut and spend (Republicans).

3) Margin leverage is ramping up. A Surge of leveraged financial products that have been unleashed creating lightly regulated products that are likely to yield drastic losses in the next bear market. According to the WSJ on 6-28-26: “U.S. margin debt, or what investors borrow from their brokerages to buy securities, rose 54% to a record $1.4 trillion in May from a year earlier, according to Finra data. Meanwhile, high-risk leveraged exchange-traded funds that produce double or triple the daily move of underlying stocks are growing rapidly, as is trading in options tied to them.” Borrowing to increase buying power is a stark warning sign of irrational bullish sentiment that can turn ugly on the downside.

4) Significant reduction in the regulatory, administrative apparatus of the US. The Supreme court decision Trump v. Slaughter has undone a legal precedent in the United States dating back to the 1930s. It is possible that there will be a dramatic impact each time the leadership pendulum swings at the federal level as new political movements will now be able to quickly dispatch armies of bureaucrats and replace with other operatives that offer some like-minded ideological disposition.

This dynamic of instability in the bureaucracy may offer commercial interests less regulatory burden and oversight. The downside here is that as we remove layers of regulation, the potential for negative consequences to the environment and society at large will inevitably increase.

An additional catalyst that is creating monumental activity and capital investment is known as the AI or artificial intelligence boom. This may be one of the most vigorous magnets to investment dollars dating back to the 1990s investment dynamic known as “dot com” mania.

The investment thesis of artificial intelligence is particularly malleable to whatever imagined future economic benefit may arise. There are currently very few actual profitable businesses reporting any significant earnings in this realm. AI is drawing some of the largest capital flows in modern history into what are known as data centers. The vague notion that computers the size of small towns may one day provide all manner of profitable economic activity is part and parcel in similarity to previous technology investment manias that ended badly.

The true economic impacts of these enormous computing facilities are extremely challenging as they require monumental inputs. On June 25^th the Wall Street Journal noted that waves of materials, building supplies and electrical components are being consumed by technology companies in a rush for some Holy Grail of replicating the human brain. Count this commentary as skeptical that enormous amounts of these investments will be rapidly outdated as smaller and more energy efficient approaches arrive as they always have. A big private AI company known as Anthropic has had its private value rise around 900% in one year. Buyers at these levels beware!

In the meantime, our strategy will remain broadly diversified as the hype washes over markets in the rush of parabolic moves in technology companies that had traded within a narrow range for many years. Micron Technology (MU), a computer memory and storage product manufacturer recently reported gargantuan sales and associated earnings. This is a stock that had traded in a relatively narrow range for most of its long history and then recently went up by 10X in less than one year.

Apparently, the recent ignorance of the market as little as one year ago to the reality that people will be buying computer storage, memory, and cabling, years into the future. This oversight has now been corrected as a whole spectrum of technology companies in this sector skyrocket. If that turns out to be the case our strategy will not be drawn in to any heavy concentration in this sector. Examining the chart of companies like Broadcom, Samsung, or Applied Materials they all show a similar parabolic shape. These dynamics are often signs that too much money is flowing into businesses that may not justify exorbitant valuations.

The vagaries of the “AI” boom are one of its most alluring attributes. Just as there is no expectation for SpaceX to report profits anytime soon, it is strictly aspirational as there are no current profits being shown by most “AI” companies. Simply put, without the burden of actually reporting profits, the values can rise exponentially.

While the component makers like Nvidia are minting significant profits, that may prove to be far from sustainable. We are truly witness to a frenzy of vague ideas. It is this lack of economic definition and business model that allow massive inflows without regard to any notion that things can truly end up profitable. Projection of undefined future profits is so much easier than a true route to economically productive enterprise. The value of stories continues as always to mesmerize and allure.

It is certain that the evolution of computer chips, combined with machine learning will have significant impacts on society and economic activity. These technologies are likely to solve many previously intractable challenges in medicine, engineering and all manner of scientific endeavor. As always there will be endless speculation and theorizing about who the winners will be and where the profits will stack up. It is likely that these outcomes will look much different than can be projected and the rocketing prices of the current darlings are likely to level out or recede.

Technology companies are far from recreating the human nervous system. There will be low-cost competitors combined with extreme competition to provide the products and services of the future. Investors must remain vigilant and skeptical while maintaining our posture that we want to own a broad diversified piece of the future. 

One of the key criteria of our process is to not get drawn in to frenetic activity and parabolic price appreciation of narrow sectors. It is nice to see the overall market making progress, but we must remain as vigilant as ever to maintain a broadly diverse portfolio strategy that can weather all the coming surprises that lay ahead.