At this point, regardless of where you find yourself reading this, I think it is safe to wish one and all a very Happy Start of Summer! And what better way to kick off your summer than a mid-year tour through markets and what the oligarchs in control are up to? I know, I know – try to contain your excitement…
Instead, as you now know, this update coincides with the beginning of annual-review season. As such, I want to give a brief but pointed review of what has transpired so far this year, and what we are focusing on most for the months (or years) ahead. And if you will be so kind as to read through this quick update, we can then tailor our coming conversations around the pieces that matter most to you. Lastly, a spoiler alert: our coming conversations may well be one where you somewhat “choose your own ending” (remember those books??), based largely around what is discussed today. Let’s dive in…
A quick look at 2026 so far…
On the stock market side of things, 2026 has so far rhymed quite remarkably with the year prior – albeit with some important (and frustrating) differences. In 2025, it was the tariffs that sent markets skidding before they recovered and finished strong. This year, the headlines have been different – geopolitics, “policy”, and the continuing “AI everywhere” narrative – but the broad pattern has remained: volatility, messy leadership, and pockets of speculation that seemingly move faster than the underlying economy. So while the pattern has rhymed quite a bit, the internals have been more “eclectic” than the year prior.
Somewhat surprisingly, we have found ourselves adding (or adding to) a few individual names on the stock side, while in some cases simultaneously reducing our exposure to the indices themselves. Doing so often – not always – increases the likelihood of “your portfolio less mirroring what you see on TV”. In some short-term cycles this works well (see 2022, and last year). In others, not so much. Perfect time for me to reiterate that we are making (mostly) long-term decisions, while our updates, reviews, and your statements are reflecting solely what has recently transpired. We will discuss further on our calls…
On the bond and interest rate side, both real and perceived future inflation has taken a turn for the worse since the Iran situation started. I call it a “situation”, as I am not sure what other word to use when I’m told every other day that the war is or is not over? Anyway, interest rates have risen significantly in response, which has put pressure on the bond side of portfolios. Same story here – not great for the short-term, but we perceive as potential opportunity over the long-term (taking advantage of now higher rates going forward).
I will say this, however: The bond market is noisy right now. At some point, one has to wonder how long bond markets can remain stable under the mountain of debt out there – coupled with the fact that it is now increasingly clear that the oligarchs on either side don’t seem overly concerned with ongoing deficits. That is the simplest way I can state our reasoning behind not adding more interest rate exposure so far this year – but it remains an ongoing discussion.
So that is as brief and simple an analysis I can provide on what has transpired so far this year, and how it relates to your portfolios. The summaries as presented – including the potential long-term opportunities (and risks) as described – will be the basis for our individual discussions. Let’s move on to some topical items/discussions that I think will prove useful for our calls. I will kindly ask that you not yell at, mock or otherwise intend to cause harm to myself for the redundancy that is to follow. As I’ve stated previously, I’ve got two choices these days: redundancy or dishonesty. As always, I’m choosing the former…
What we are watching most closely…
This is now my third attempt at this section of the update. My plan was to hit you with the “new and improved” charts of various measures of stock valuations – designed to remind everyone just how frothy things have become. But to be honest, while I was concerned about boring all of you to death with the redundancy – I found that I was boring myself to death in the process. That can’t be good.
So, if you find that you just can’t get enough of our conversations around valuations and the (long-term) concerns around forward risks – I invite you to go back and read pretty much any/all of our previous updates over the past 6-7 years (6-7!!!). And if that still isn’t enough for you, I can assure you that you can find thousands of articles, podcasts or YouTube videos from others discussing the same – from authors much more renowned than I (doesn’t take much) - just without (or in some cases more) the snark and wit you’ve hopefully come to expect from us.
Still, and because it will again be the basis of our conversations ahead, I don’t want to leave today without at least broaching the topic. Today, we will revisit another previously discussed analogy – that being the similarities between today and the “dot com era”. This is particularly helpful right now, as the similarities – especially over the past 6 months or so – have become near impossible to ignore, for those who have been doing this long enough to remember. But let’s start off with this statement, which was made several times in our last commentary on the matter:
This is NOT 2000. The year is in fact 2026. No matter how many similarities – and I’m about to describe just how many similarities there are – it does NOT mean that we are about to repeat the same cycle that we did back then. In fact, I can assure you that we will NOT. Because it’s not 2000. It’s 2026. And there are as many (probably more) differences than there are similarities. And by the way, it is also not 2008, 1973 or even 1929 – regardless of how often it is inferred by some. Again, just so that we are perfectly clear – the year is in fact 2026.
But it damn sure does rhyme…
It’s tough to break this down in easy-to-read fashion, while also leaving out individual names so as to get this through compliance quickly – but I’m going to give it a go. Let’s start with this. In fact, I could probably end with this as well – as it is THE most eerie similarity between the two periods:
In 2000, we were told “Look boomer (they weren’t actually calling folks “boomers” then), you just don’t get it. Valuations blah, blah blah – this time is different! The internet is going to change EVERYTHING…”
Sound familiar? Having begun my career at good ole Merrill Lynch in the mid-90s, I can assure you that this was the messaging of the day. Here is the thing – obviously, the internet did change everything. And honestly, I am more confident today that AI is about to “change everything” than I was about the internet back then! So, what’s the problem?
Well, euphoria and speculation around the internet and what it was going to do for the economy back then pushed markets to levels no one thought possible. Unfortunately – even now knowing 25 years later just how much the internet actually “changed everything” – once the bubble burst, the S&P 500 dropped over 50% peak to trough, while the tech-heavy NASDAQ dropped some 85% over that same period! Ouch. Many of you reading this remember this period all too well.
But why did this happen, even when everyone was so “right” about the internet? There are many reasons. And while I will not go through every single one of them here today, I will cover the highlights – in no particular order of perceived importance - and we can decide together just how much “rhyming” is present today…
1. Valuations – even on the very large and very “real” players of the dot com era - got pushed to wildly unsustainable levels. With the massive growth in revenue and earnings that these big players were producing – the stocks were being priced as though the growth would continue indefinitely. We now know with certainty what many suspected even then – that this was a dangerous assumption. Now ask yourself, does that sound similar to what we see with some of the AI darlings today?
2. Index concentration. At the height of the dot com bubble, the top 10 companies in the S&P 500 represented about 27% of the overall index. Interestingly – while the top 10 names then were tech heavy at the very top, it was more diversified than where we are today. As I write this, the top 10 names in the S&P 500 represent about forty percent of the entire index. Yep, that’s four-zero. 40%. So yeah, I’d say we’ve got some rhymes there. (see disclosures for source)
3. Capital spend. In the late 90s, all the rage (and earnings, revenue and…debt growth) centered on building the fiber landscape to support the growth of the internet. Today, some of the big boys have gone from massive free cash flow generation (the reason most oft given for supporting valuations previously) to now running negative cash flows. In other words – to make sure they are not “left behind” – they are not only burning through all that cash flow, but they are now taking on debt to meet their (perceived) spending needs. I’ll take “data centers” for 500 (billion) Alex.
4. “Circular financing”. This one is tough to properly explain without using names, so I will describe the concept and let you research on your own if interested. Basically, it is when a large company invests in a smaller one, with the premise that the smaller one will buy the products/services of the bigger one that made the investment. Some consider this the tipping point of the dot com bust, and it appears to be showing itself again today. And while I cannot find a suitable way to explain further here while still getting through compliance – for anyone interested - a simple online search of the topic will give one all they can handle and more on the topic for sure…
5. “Meme stocks”, “message boards” and social media. At the height of the dot com speculation, “shit-cos” – as they are referred to today – were all the rage. These are companies with little revenue, a lot of expenses, and therefore (obviously) negative earnings. But their stocks would reach stratospheric levels anyway, due to their association with “the internet”. Same today – just replace “the internet” with “AI”, and replace “message boards” with “social media”. To be fair, best I can tell/recall, it was actually worse back then than it is today. I could be wrong.
6. Last but certainly not least – and related to the previous comparison – let’s talk about IPOs. Every once in a while, God says to me “Doug, I’m going to make your life easy with this update…” Enter the “latest, greatest IPO” of this week. I again won’t use it by name, but if you don’t already know what I’m talking about, you most certainly are completely detached from any and all media (which I applaud you for so much more than you know). And if I am understanding correctly, their primary business model is making reusable rocket ships, and eventually colonizing Mars. Pets.com anyone? (Congrats if you remember the reference, and I am NOT making a direct comparison. They are NOT the same on ANY level…but the misplaced euphoria may be?)
OK, so there is my version of the rhyming between the two periods. Biggest differences you might ask? First and foremost – and I again could say we could start and stop with this one – the “big boys” today are more numerous, (mostly) more profitable, and (mostly) less expensive than their counterparts back then. That is a HUGE difference, and why so many poo-poo any comparison between the two periods. The Fed, ironically, had just begun their “direct intervention” in financial markets back then – while today it is a well-documented (albeit perceived) backstop. And I’d say the biggest difference that might make today’s environment less “comfortable” than back then would be the economy and overall macro (do the MACRO – boogie, woogie, woogie) landscape. In our view, the macro environment today – the economic backdrop, inflation, debt and deficits, etc – is much more tenuous than back in 2000.
I could go on, as there are so many more similarities and differences we could discuss, but hopefully I have made my point. And while I don’t think I have to say this yet again, I will anyway. I am not telling you that it is 1999. It is and remains 2026. And maybe this time truly is different.
Just for fun, I’m going to (laughingly) guess we are currently 1997-1998 “like”. Still got some room to run with this puppy. Current oligarchs run this bad boy (insert Trump voice) “hotter than it’s ever been run before” – and then comes…the next election?
Unfortunately, no one knows for sure. Adding some Mississippi slang, gawww-LEE it would be so much easier if we did. But before I wrap this up - and reiterating something I have so many times before - the thing about managing risk is this: it can’t be done after the fact. So, if you think of someone in your life that might benefit from that reminder - please consider sharing this update with them. I don’t make that request looking to grow our client base, and certainly not because I believe we know what lies ahead. I do make that request more as a “humanitarian effort” at this stage of the cycle.
I just made myself laugh writing that last line – getting so old, yet still so easily amused…
With that, I very much look forward to our conversations ahead – where we can discuss all of this and more! And so we leave this on a most positive note – and since it is so very perfect for the topic at hand – let me again put into your head a song that you surely will not get rid of easily. Come on and sing it with me:
“So to-night we’re gonna party like it’s (kind of, sort of, maybe…not) NINETEEN-NINETY-NINE!!”
As always, to all of our clients, we can never thank you enough for the trust and confidence you have placed in us.
Sincerely,
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