Dear Clients and Friends of Insight,
We are midway through 2026, and all the major stock market indexes have climbed a ‘wall of worry’ and have closed near their all-time highs. The Dow Jones Industrial Average, the S&P500 Index, and the Nasdaq have posted price gains of 7.6%, 9.5% and 12.3%, respectively.
Yet while stock returns have been quite strong of late, the investing landscape has become increasingly concerning for many reasons. Inflation continues to be a threat, oil markets are unpredictable, and interest rates are moving higher. Credit quality has declined, bankruptcies are on the rise, and the labor market is mixed. Meanwhile, the mid-term elections are on the horizon, adding to the uncertainty of government policy and geopolitical tensions.
Investors have looked past these challenges and are focused on the strength in corporate earnings, which have grown at double-digit rates for the last six quarters, and 28% in the most recent quarter! These gains result from many positive trends in the economy. Demand has been robust from both consumers and businesses. Consumers have additional disposable income from recent tax cuts and the ‘wealth effect’ from rising stock prices, which have added $37 trillion dollars in market value to the investing public’s savings and retirement accounts. This realization has finally led to more
positive trends in consumer sentiment.
As a result, businesses are benefiting from growing sales and expanding profit margins. Corporate cash flow is tracking at $3.9 trillion annually which is funding massive capital investments that are expected to be well over $2 trillion annually. These investments are aimed at expanding future profit margins through improved productivity from artificial intelligence (AI), manufacturing processes, and supply chain and distribution logistics. Thus far, the resulting growth in earnings for many companies has exceeded their stock price gains during this growth phase. As a result, the price-to-earnings ratio for many companies has actually declined to more reasonable levels than it was earlier in the year.
Although these earnings trends are positive in aggregate, not all companies are benefitting equally from these trends and thus their stock prices have diverged significantly. By example, Microsoft, the leading software company, has declined over 20% this year due to the supposing threat from AI, while Applied Materials, the leading manufacturer of semiconductor equipment, has astoundingly advanced 180% due to their tremendous growth expectations.
During this pivotal time, our stock performance has been exceptional, and we are very comfortable with our current investment positions. For the year, typical client portfolio values have advanced at double-digit rates. Insight’s stock selection process, by design, focuses on larger companies of
higher quality than that of typical stock investors. I believe these are important indicators of future success and are paramount to achieving consistently respectable returns which ultimately will lead to outstanding long-term results for our clients.
We wish everyone a safe and memorable celebration of our country’s 250-year anniversary..
