Q2 2026 Market Commentary

CHARLES W. FISH, CEO/CIO/FOUNDER

July 2, 2026

 

“Intelligence is the ability to adapt to change. ”

 – Stephen Hawking

 

Two hundred and fifty years ago, fifty-six men signed a document that turned thirteen quarreling colonies into a

nation. There were roughly 2.5 million of us then. Today we are 347 million, and the intervening two and a half centuries

have carried our country through more wars than most of us could name from memory. Some ended in victory, others in

stalemate or bitter regret. This Fourth of July finds us in another one: the war we opened with Iran a little over four

months ago, which we are now trying to bring to a close. Nevertheless, it is worth pausing, amid the fireworks, to

appreciate how much foresight our founders had so long ago.

 

The brittleness of the current Memorandum of Understanding with Iran persists despite violations occurring daily.

No doubt this 60-day ceasefire agreement will need to be extended several times. Actual elimination of Iran’s potential

nuclear menace will be extremely difficult to bring about and very hard to police. Should we succeed in this endeavor,

our markets should react with a significant rally.

 

Despite the adversity surrounding Iran, the U.S. securities markets have been relatively well-behaved. Equities continue

to set new highs while municipal bond yields, despite record volume, have been falling from their recent peak on May 12.

The Dow Jones Industrial Average, which started the year at 48,063, climbed to a new record of 52,319 at quarter’s end.

Municipal bonds, on the other hand, remain available at compelling yields. This is primarily due to the heavy volume of

new issues, which is on track to reach a record $600 billion by year’s end. That would make it the third record volume year

in a row. This trend should continue for some time to come as municipalities race to fund the construction of the

infrastructure projects AI requires.

 

Inflation continues to plague our economy. The soaring cost of everything from gas and food to memory and

storage chips shows no sign of abating. The problems have been compounded by President Trump’s erratic tariff

policies. The so-called OBBBA has had a crushing effect on our healthcare system. Our rural hospitals are especially hard

hit. No doubt the Democrats, should they prevail as expected in taking control of the House in November, will pursue

restorative legislation.

 

Of the estimated 150,000 jobs lost in the first six months of this year, one need look no further than Oracle, Dell,

or Amazon to point the finger directly at AI-driven automation as the primary culprit. The displacements are real, and

they are accelerating. Company after company has announced layoffs, not because businesses were failing, but because

artificial intelligence was succeeding. We need to recognize that this is not a mere transition; surely, it is a revolution just as

profound as the Industrial Revolution, only due to occur in a fraction of the time.

 

The Federal Reserve held rates unchanged at its June 17 meeting. The talk of further rate cuts earlier this year has been

replaced by the expectation of one or two rate hikes before year-end. The structural forces driving inflation

show little sign of normalizing. The most recent year-over-year CPI reading in May was 4.2%. Core inflation stands

at 2.9%, nearly a full percentage point above the Fed’s target. Hope remains that a conclusion to the Iran conflict

will bring about an easing of inflation pressure and the corresponding decline in interest rates. The jury is still out on

when that may occur, but for now, earning a 5% return on a 20-year municipal bond seems very compelling to us. For

the record, that’s the taxable equivalent return of 10.9% for a California resident in the maximum tax bracket. 20-year

Treasury bonds, while exempt from state tax, are subject to federal tax and only yield about 4.9%. Effectively, Munis are

providing nearly double the after-tax returns.

 

 

Footnote: For the record, the founding of the United States Marine Corps took place eight months before our Declaration of Independence. On November 10, 1775, the Second Continental Congress passed the resolution providing for two battalions of Marines to serve as Naval infantry during the Revolutionary War. Just trying to keep the record straight.