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From the desk of:
Kenneth T. Kozlowski, CFP, CLU, ChFC
Chief Investment Officer
Market Update: Resilience Gives Way to a Broader Opportunity Set
The first half of 2026 has tested investors with geopolitical conflicts, shifting expectations for Federal Reserve policy, and ongoing inflation concerns. Yet financial markets have continued to advance, demonstrating notable resilience in the face of uncertainty. Importantly, leadership within the market has begun to broaden beyond the mega-cap technology stocks that dominated returns in recent years. As participation expands across market capitalizations, sectors, and regions, we believe investors may benefit from maintaining diversified exposure rather than relying on a narrow set of market leaders. Within certain tactical strategies, we continue to maintain a modest overweight to equities while emphasizing active management, risk monitoring, and selective opportunities across both equity and fixed income markets.
Diversification remains important
- Market leadership has broadened in 2026, with small- and mid-cap stocks beginning to outperform large-cap equities after several years of relative underperformance.
- International and emerging market equities have also contributed positively, supported in part by AI-related manufacturing and technology supply-chain growth.
- The U.S. economy remains supportive of risk assets. Labor markets have remained relatively healthy, corporate default rates are low, and economic growth has been durable. These factors continue to support both equity markets and selected areas of fixed income.
- As market leadership broadens and return opportunities become more dispersed, active management may play an increasingly important role in identifying opportunities across sectors, styles, and asset classes.
Small Caps Continue to Offer Compelling Value
- Despite strong recent performance, small-cap equities continue to trade at a significant valuation discount relative to large-cap stocks.
- Historically, smaller companies have often traded at a premium due to their long-term growth potential, making today's relative valuations noteworthy.
- Small-cap exposure may provide investors with both diversification benefits and access to attractive long-term return opportunities.
Concentration Risk Remains Elevated
- Major U.S. large cap equity indexes remain highly concentrated in a small number of large technology-related companies.
- While the AI theme has been a significant driver of returns, investors should recognize that broad market indexes may provide less diversification than headline constituent counts would suggest.
- Maintaining exposure across sectors, styles, and market capitalizations may help reduce dependence on a single market theme.
Fixed Income: Income Opportunities Remain Attractive
- The yield curve has shifted higher and bond markets continue to navigate a "higher-for-longer" rate environment as inflation remains above long-term targets and economic growth remains resilient.
- Within fixed income, high-yield bonds remain attractive, supported by low corporate default rates, healthy balance sheets, and yields that continue to provide meaningful income potential.
Active Management Matters in a Changing Market
- We remain disciplined in our approach, focusing on long-term investment outcomes rather than reacting to short-term headlines or market events.
The market's resilience has surprised many investors in 2026. While risks remain, including geopolitical uncertainty, inflation pressures, and elevated market concentration, we continue to see opportunities beyond the most heavily owned areas of the market. Staying diversified, maintaining a long-term perspective, and actively managing risk remain central to how we are navigating today's investment environment.
Insights are as of July 29, 2026, and are subject to change. Not to be used, or interpreted, as investment advice or recommendation.
Current as of the date of issuance subject to change without notice. This material is not intended to be an offer, solicitation, or investment advice, nor does it consider individual investor circumstances, objectives, or needs. While investing in general involves risk, including loss of principal invested, foreign securities involve special additional risks, including, but are not limited to, currency risk, political risk, and risk associated with varying accounting standards. Emerging market investments may accentuate these risks. Investments in large-cap companies may involve the risk that larger more established companies may be unable to respond quickly to new competitive challenges such as changes in technology and consumer tastes, and the securities of mid-cap companies may be more volatile and less liquid than the securities of larger companies. Investments in small companies involve additional risks with a typically higher risk of failure. Value investing may increase the volatility of the portfolio and may not produce the intended results over short or long time periods. Growth investing is based upon the investor's subjective assessment of fundamentals or the companies he or she believes offer the potential for price appreciation. Regarding high-yield bonds, lower-rated debt securities (commonly referred to as junk bonds) involve additional risks because of the lower credit quality of the securities in the portfolio. The investor should be aware of the possible higher level of volatility, and increased risk of default.
Important Information
Definitions:
S&P 500 Index is a weighted index of common stocks of 500 leading companies in leading industries of the U.S. economy, capturing 75% coverage of U.S. equities. The index is capitalization weighted, thereby giving greater weight to companies with the largest market capitalizations.
Russell 2000® Index is an unmanaged index which measures the performance of approximately 2000 of the smallest companies in the Russell 3000® Index, which represents approximately 10% of the total market capitalization of the Russell 3000® Index. It is market-capitalization weighted.
MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets. The MSCI Emerging Markets Index consists of the following 24 emerging market country indices: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Kuwait, Malaysia, Mexico, Peru, Philippines, Poland, Qatar, Saudi Arabia, South Africa, Taiwan, Thailand, Turkey and United Arab Emirates.
A basis point (BPS) is a unit of measure used to indicate percentage changes in financial instruments. Basis points are typically expressed with the abbreviations "bp," "bps," or "bips." One basis point is equal to 1/100th of 1%, or 0.01%. In decimal form, one basis point appears as 0.0001 (0.01/100).
Information provided in this newsletter is general in nature, is provided for informational purposes only and should not be construed as investment advice. The views and opinions expressed are those of the author(s) as of the stated date of their contribution and any such views and opinions are subject to change at any time based on market, or other conditions, and are not intended to be a forecast of future events, a guarantee of future results or investment advice. Securities and sectors referenced should not be construed as a solicitation or recommendation, or be used as the sole basis for any investment decision.
All investments contain risk and may lose value. Statements concerning financial market trends or portfolio strategies are based on current market conditions, which will fluctuate. There is no guarantee that any investment strategy opined on will work under all market conditions or is appropriate for all investors and each investor should evaluate their ability to invest for the long term, especially during periods of downturn in the market. Outlook and strategies are subject to change without notice.
Past performance is not a guarantee of future results. Portfolio re-balancing and diversification do not guarantee a profit or protection against loss in a declining market. No guarantee or representation is made that investment objectives and/or opinions stated will be achieved. The experience of each specific client or investor may vary.
Due to the subjective aspect of these analyses, the effective evolution of the economic variables and values of the financial markets could be significantly different from the projections, forecasts, anticipations and hypotheses, which are communicated in this material.
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