Summary, Last Quarter:
The conflict with Iran appears to have eased, at least for now, helping reduce pressure on oil prices and removing a source of uncertainty that had weighed on markets. Corporate earnings in the U.S. continued to grow, particularly among companies benefiting from advances in artificial intelligence (AI), while other areas of the market lagged behind. Meanwhile, Kevin Warsh was sworn in as the new Chair of the Federal Reserve (the Fed), succeeding Jerome Powell. Warsh is generally viewed as more focused on inflation and has signaled a desire to reshape how the Fed communicates with markets. At the same time, the U.S. dollar has shown signs of strengthening.
Our Commentary:
Markets welcomed the apparent de-escalation of the conflict with Iran. The S&P 500 and Nasdaq 100 both posted strong gains during the quarter, while international equities also delivered solid returns. Falling oil prices helped ease some inflation concerns, but that has not stopped new Fed Chair Kevin Warsh from emphasizing the importance of maintaining price stability.
Warsh has indicated that he would prefer the Fed play a less visible role in guiding markets, while remaining firm in its commitment to keeping inflation near its 2% target. Since he took office, bond yields have declined and volatility in the bond market has moderated. Investors are now watching closely to see how his leadership influences monetary policy in the months ahead.
AI remains one of the most powerful forces shaping markets. Semiconductor companies have continued to benefit from strong demand, while some software companies have come under pressure as investors reassess how AI may affect their business models. At times, this has created opportunities in high-quality companies whose share prices have weakened despite their underlying businesses remaining strong. Microsoft, for example, has faced periods of pressure even as its long-term competitive position remains intact.
At the same time, some of the biggest beneficiaries of AI are not necessarily technology companies. Industrial firms such as Caterpillar and Eaton have benefited from the massive buildout of data centers and the infrastructure required to support them. Caterpillar is seeing demand tied to construction activity, while Eaton’s power management products are helping meet the growing electricity needs of AI-driven computing. As AI adoption expands, its effects are being felt across a growing range of industries and will likely continue to reshape markets in the years ahead.
While the stock market often captures the headlines, the bond market remains equally important because interest rates influence everything from business investment to consumer borrowing. Central banks around the world continue to monitor inflation closely, and the Fed has signaled additional rate increases remain possible if inflation proves more persistent than expected. Even a modest increase could signal a shift in policy direction.
For now, investors appear encouraged by a combination of easing geopolitical tensions, continued earnings growth, and productivity gains associated with AI. The challenge for policymakers will be balancing those positive developments against the risk that inflation reaccelerates. How the Fed responds may play an important role in shaping markets during the remainder of the year.
Until next quarter,
-Investment Committee
Bond Disclosure:
Fixed income securities carry interest rate risk. Fixed income securities also carry inflation risk and credit and default risks. Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss.
Forward-Looking Statements:
Certain statements contained within are forward-looking statements including, but not limited to, statements that are predictions of or indicate future events, trends, plans or objectives. Undue reliance should not be placed on such statements because, by their nature, they are subject to known and unknown risks and uncertainties.
Opinions voiced are not intended to provide specific advice and should not be construed as recommendations for any individual. To determine which investments may be appropriate for you, consult with your financial professional.
Indices are unmanaged measures of market conditions. It is not possible to invest directly into an index. Past performance is not a guarantee of future results.
International investing entails special risk considerations, including currency fluctuations, lower liquidity, economic and political risks, and differences in accounting methods. Past performance cannot guarantee future results.
Securities and Advisory services offered through LPL Financial, a Registered Investment Advisor, Member FINRA/SIPC. Financial Planning offered through Leelyn Smith, LLC a registered investment advisor and separate entity from LPL Financial. Securities offered through LPL Financial. Member FINRA/SIPC. Additional advisory services offered through Leelyn Smith LLC, a Registered Investment Advisor Leelyn Smith LLC, and LPL are separate and unrelated companies.
The information contained in this e-mail is being transmitted to and is intended for the use of only the individual(s) to whom it is addressed. If the reader of this message is not the intended recipient, you are hereby advised that any dissemination, distribution or copying of this message is strictly prohibited. If you have received this message in error, please immediately delete.
This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.