Hi all,
The title of this month’s blog post is the unofficial motto of New Orleans. It translates to the phrase, “Let The Good Times Roll”. That’s what type of market we find ourselves in. Despite the multiple ongoing wars, average gasoline prices throughout the country hovering around $5/gallon, and stubbornly, sticky inflation hanging above 3%, the market continues to press to new highs. Making sense of the market’s rise is a wild goose chase, and as I’ve gotten older, narratives begin to matter less and less (although clients still love them).
In our last post on April 7th, we wrote,
“I would love to see one more sharp decline that scares out those investors who can’t withstand this type of volatility (maybe coincident with a “deadline”), but there’s no rule that says we have to get these capitulation declines in order for us to move back toward all-time highs. We’ve been extremely cautious coming into the year (and even a good portion of last year), and remain slightly cautious, but our eyes have turned to putting more money to work over the next several weeks, assuming we continue to see signs a durable bottom is in place.”
Since then, the S&P 500 is up 14%, the Nasdaq 100 is up 25%, and the nexus of the stock’s market advance, the semiconductor index, is up 68%. The artificial intelligence build out is upon us. Very reminiscent of the mid-to-late 1990s internet boom (and bust?). The AI infrastructure spend is projected to be larger than the GDP of the United States next year (think trillions of dollars).
Coming into 2026, we thought it the economy was going to “run hot”, and that’s exactly what’s happening right now. Here’s an excerpt from mid-December.
“As mentioned before, the administration will do everything they can to get GDP as high as possible before the midterm elections. Being too negative in front of a government running multi-trillion dollar deficits, interest rates that are heading lower, and the prospect of AI creating another productivity boom akin to the infancy of the internet, feels like a fool’s errand. Short-term concern, mixed with long-term optimism is the right mix for continuing the long-term compounding performance we’ve achieved.”
Ok, interest rates haven’t gone lower (yet), but the AI boom and the potential massive productivity increases have moved whatever dark clouds were on the horizon out of view. It’s not in our nature to be wildly bullish or wildly bearish at any given time, but IF we are in the early innings of this AI infrastructure build out, this could last MUCH longer than people are expecting.
That being said, we’re going to stick to our knitting. Systematic quarterly rebalancing, building rainy day funds for capital needs over the next 12 months, prudent asset allocation instead of just blinding allocating every dollar once it hits the accounts because “we’ve got to the get the money to work”, are all great things to do at all-time highs. If you want dry powder during the next opportunity, you need to be willing to sacrifice a little upside to make sure you can strike when the next cycle is upon us. Right now we’re focused on squeezing as much upside as we can out of this current run, and once the market turns, wait patiently again for the next opportunity.
“Consistency looks like nothing is happening, until everything changes.”
– Adam