May 2026

Good financial planning requires stepping back on a regular basis to assess where the markets stand, how the economy is holding up, and what adjustments, if any, make sense given what we're seeing. This quarter there's meaningful ground to cover, and I want to give you a clear picture of both the environment and the thinking behind the decisions we've made:

ECONOMIC AND MARKET SUMMARY: JUNE 2026

Staying the Course Has Mattered

There was a moment earlier this year, when conflict in the Middle East first escalated, that gave a lot of investors pause. The instinct to reduce risk and step back was understandable. We actually used that period as an opportunity, rebalancing near the March lows in a way that proved accretive to client portfolios as markets recovered. Those who stayed disciplined captured the full move back up and then some.

That pattern holds up historically. Time and again, through geopolitical shocks, policy surprises, and stretches of headline-driven volatility, the data shows that stepping out of the market tends to cost more than it protects. The fundamentals that drive equity returns over time are earnings and economic growth, and both remain in solid shape right now.

With the vast majority of S&P 500 companies having reported first-quarter 2026 results, approximately 84% came in with positive earnings surprises and roughly 81% beat revenue estimates. The blended year-over-year earnings growth rate for the quarter came in around 28%. Each of those figures runs meaningfully above both the five-year and ten-year averages. To put that in plain terms, the market can appreciate by that amount and carry the same valuation it did a year ago. Corporate earnings are growing into current prices, and in the technology sector especially, valuations have actually become more reasonable even as companies continue to perform well.

Recalibrating From a Position of Strength

After a strong run in equities earlier this year, we made a deliberate adjustment this quarter to reduce overall portfolio risk. Our allocation to stocks had drifted higher simply because markets performed well, and the disciplined response to that kind of run-up is to trim back and bring things closer to the intended balance. We remain meaningfully invested in equities, we've simply dialed the overall exposure back closer to where it was designed to be.

Our core convictions remain in place. We continue to hold global defense, both domestic and international, and our view on that theme hasn't changed. Defense spending by the U.S. and NATO allies continues to grow, and we believe the underlying demand is structural. Within technology, our focus remains on companies directly enabling AI infrastructure rather than broad software exposure. That distinction has mattered considerably this year, with AI-oriented positions outperforming broader tech by a wide margin. Earnings strength from those companies continues to support the positioning.

Our preference for U.S. equities over international also remains. The U.S. has demonstrated stronger earnings momentum, and relative to regions like Europe, it carries more resilience to oil price shocks that tend to weigh on energy-dependent economies.

How We're Thinking About Bonds

For most of the past two decades, bonds and stocks moved in opposite directions during periods of market stress. When stocks fell, bonds tended to rally, giving a portfolio something to draw from and time for equities to recover. That dynamic served investors well.

In an environment shaped by inflation and volatile interest rates, bonds have become more correlated with stocks, moving in the same direction at the same time. We saw this play out earlier this year when conflict in the Middle East drove rates and equities lower simultaneously. That dynamic reduces the diversification value of fixed income and changes how we have to think about building resilience into the portfolio.

We are addressing this by reducing our traditional fixed income allocation somewhat and adding broader alternative strategies designed specifically for diversification. We've held gold in portfolios for some time, and it has served that role well. This quarter we added a small position in a multi-strategy alternatives fund as a complement, drawing from the fixed income side of the portfolio. The goal is to maintain true counterbalance in the portfolio by adding additional asset classes and strategies.

Where Things Stand

Ongoing conflict in the Middle East, the potential for oil prices to feed through to inflation, and the downstream effects on Federal Reserve policy are all things we're watching carefully. At the same time, earnings and economic fundamentals have continued to hold up, and that's why we've kept the portfolio constructively invested rather than pulling back further.

The adjustments we've made this quarter reflect a portfolio that has performed well and is now being recalibrated thoughtfully for what comes next. The long-term strategy, built around your specific goals and timeline, remains on track.

I'm always happy to talk through any of this with you.

Kindly,
Joel

Certus Wealth Management