JMSCapitalGroup

Quarterly Market Commentary

2026-08-04

2Q 2026 - Key Takeaways

The bull market recovered with a vengeance from its March swoon that followed the onset of the Iran war. Equity indices advanced greatly and broadly in the second quarter of 2026, spanning domestic and foreign stocks, as well as growth and value stocks. Although the S&P 500 remains highly concentrated, the story of 2026 has been a story of catch-up growth from the forgotten 493, as the Magnificent Seven tech stocks were flat for the first half of the year. Strong earnings growth served as a catalyst for higher stock prices that overcame macroeconomic and geopolitical concerns. The Fed has continued to hold rates flat, though markets now expect the Fed to take a slightly hawkish stance rather than a dovish one, with higher rates anticipated by the end of the year. Headline inflation rose with gas prices, while core inflation has remained stubbornly above target. The Iran war has fluctuated between ceasefires, a memorandum of understanding, and renewed hostilities, and shipping traffic through the Strait of Hormuz remains irregular. Whether AI and earnings can continue to make this bull market thrive remains to be seen.

Equity performance in Q2 was strong and broad enough to have Scrooge McDuck swimming in his vault of coins. The S&P 500 rose 15.2% in Q2 2026, while small caps surged 21.6%. Developed international gained 11.1%, while emerging markets climbed 24.1%. On the bond side, the U.S. agg gained 1.1%; as for Treasury rates, the 2- year Treasury rate rose 35bp in Q2, while the 30-year rate increased marginally.

GDP grew at a 2.1% annualized rate in Q1, while the Atlanta Fed’s GDPnow estimate shows Q2 growth at about 1.5%. Both these numbers represent moderate growth. Unemployment ticked down 0.1% over the past three months, to 4.3%, amidst positive but modest employment growth. Headline inflation spiked to 4.2%, largely due to rising energy prices; core inflation also rose significantly, from 2.5% to 2.9%, drifting further away from the Fed’s 2% target. The Fed’s rate cuts in the fall of 2025 are becoming an increasingly distant memory; the Fed has held rates steady throughout 2026.

Second quarter equity performance marked a continued stampeding of the bulls, and it is heartening to see gains broadening across numerous market segments. Strong earnings growth has also helped keep valuations relatively reasonable, suggesting a lessening risk of an AI bubble. While the Iran war has raised inflationary concerns, and the fate of the Strait of Hormuz is still unsettled, these factors have not been significant enough to constitute a major headwind for markets. There’s always a chance of investor reassessment of AI, geopolitical risks, corporate earnings potential, and Fed policy, but for the moment, the bulls have continued to hold court in 2026.

2Q 2026 Investment Letter

Last quarter we wondered whether the first quarter of 2026 was just an Iran-induced pause in the bull market, or an inflection point signaling more challenging times ahead. In Q2, the Iran war become more of a lowergrade, though still ongoing conflict, and markets boomed. GDP growth has been modest but remains positive, unemployment remains under 5%, and core inflation, while almost 1% above target, showed signs of easing in July. The Fed seems unlikely to cut rates anytime soon, given already elevated inflation and the potential for Quarterly Market Commentary 2 2Q 2026 Quarterly Market Commentary | JMS Capital Group Wealth Services LLC further war-induced inflation, but it may be able to continue a wait-and-see approach and refrain from raising rates much, if at all. Some tariff measures have been reconstituted by President Trump, but these may not be large or broad enough to represent a significant drag on markets or the economy. We’ll see whether the 3rd quarter can retain the momentum from the 2nd quarter.

2Q 2026 Market Update

Let’s recapitulate the good news. In Q2 the S&P 500 added 15.2%, while the Russell 2000 mushroomed 21.6%. Developed international and emerging markets posted double digit gains of 11.1% and 24.1%, respectively. In terms of style, small caps, large caps, value, and growth each posted double digit returns in Q2; for the year through June 30th, small value surged 23.0%, small growth rose 22.2%, large value added 16.3%, while large growth climbed 5.3%.

As for sectors, technology led the way with a 31.8% gain for the quarter, followed by industrials at 14.9%. The only two down sectors were utilities, which dropped 0.5%, and energy, which fell 13.4% with the cooldown in the Iran war. Through the first half of the year, industrials, technology, and energy have all posted returns at or near 20%.

Bonds also had a decent quarter, as the US agg added 1.1%, high yield bonds rose 2.4%, and international developed bonds climbed 0.4%. Core inflation increased 0.4%, ending the quarter at 2.9%, which is above the Fed’s 2% target, while GDP growth is projected to be positive, albeit under 2%, in Q2. Treasury rates rose moderately in Q1, particularly for shorter-term rates--the 2-year Treasury rate climbed from 3.79% to 4.14%, the 10-year Treasury rate rose from 4.30% to 4.44%, and the 30-year Treasury rate increased from 4.88% to 4.91%. Volatility was modest, as it was generally in the teens between April and June.

Update on the Macro Outlook

While unemployment has remained under 5%, and GDP growth has been adequate, inflation took a turn for the worse in the second quarter, with core inflation increasing to 2.9%. New Fed Chair Kevin Warsh may have been hoping to renew rate cuts, but elevated inflation makes such a prospect unlikely. Although the Fed’s shift from dovishness to hawkishness may be qualitatively striking, it doesn’t appear that such a shift will be large quantitatively. JPMorgan has a chart detailing both market expectations and Fed projections:

There’s a consensus that the Fed will raise rates 25bp-50bp this year, then cut rates by 25bp-50bp over the next 2 years, with markets expecting slightly higher rates. Three months ago the Fed projected 1 rate cut in 2026, while markets expected rates to stay flat—so that during the second quarter both Fed and market expectations of the federal funds rate shifted up by about 50bp. The Fed thus appears to have shifted from mildly dovish to mildly hawkish. As the chart also shows, Fed macroeconomic projections are for GDP growth of just over 2%, steady unemployment rates just over 4%, and inflation that gradually moves to the Fed’s 2% target by 2028. Given fairly benign economic conditions, the Fed may continue to take a relatively wait and see approach with respect to inflation and any Iran war fallout.

Oil prices rose sharply during the Iran war, but normalized as the war cooled:

During July oil prices rose again as President Trump renewed military strikes on Iran, but have eased somewhat after the strikes concluded. Whether we are in a temporary cessation of hostilities or a longer-term truce is unclear. There also may be a fundamental divide between the U.S. and Iran with respect to the Strait of Hormuz—Iran seems determined to exercise greater control over the Strait, perhaps with the imposition of tolls or fees, while the U.S. wants shipping to revert back to its free-flowing pre-war state. It’s not clear how such a dispute will be resolved.

Oil prices have stayed within historical norms, though that’s in part due to releases from the Strategic Petroleum Reserve. Should reserves be exhausted, oil prices could surge. The likelihood or extent of such an event is unclear—it’s a layer of geopolitical uncertainty that could yield supply shocks and supply chain snarls. However, given upcoming midterm elections, President Trump may calibrate military action so as not to spook markets; so far, markets have very much taken the war in stride.

Portfolio Positioning and Closing Thoughts

As we mentioned earlier, the S&P 500 was up over 15% year to date as of June 30th despite getting near-zero returns from the Magnificent Seven—Amazon, Apple, Google, Meta, Microsoft, Nvidia, and Tesla:

The Mag 7 constituted about half of the S&P 500’s index returns for each of the past three years, so it’s nice to see the bull market has diversified significantly this year. The above chart also shows excellent earnings growth for the Mag 7 from 2023 to 2026. S&P 500 concentration, while elevated, has diminished, while valuations of the mega cap stocks do not suggest an imminent bubble:

Equity markets have staged an impressive recovery from the volatility experienced during the early stages of the Iran conflict, with major indexes rebounding sharply from their lows. Despite continued geopolitical uncertainty, investor sentiment has improved as corporate fundamentals have remained resilient and economic data has generally supported continued expansion.

A key driver of this year’s market strength has been another solid earnings season. While equity valuations have risen alongside stock prices, stronger-than-expected corporate profits have largely justified those gains, preventing valuations from becoming materially more stretched. Companies have continued to demonstrate an ability to grow earnings despite a higher interest rate environment and ongoing macroeconomic ncertainty.

Inflation remains an important risk for investors. Although price pressures have moderated from their peak levels, the geopolitical backdrop continues to present upside risks, particularly if disruptions to global energy markets persist. With the Iran conflict still unresolved, markets remain sensitive to any developments that could reignite inflationary pressures or alter the outlook for monetary policy.

While artificial intelligence continues to serve as an important catalyst for equity markets, leadership has broadened meaningfully throughout 2026. Technology companies tied to the AI theme remain among the strongest performers, but market participation has expanded well beyond the largest growth names. Energy companies have emerged as one of the year’s leading sectors, benefiting from geopolitical uncertainty, resilient commodity prices, and strong cash flow generation. Financials, industrials, healthcare, and other valueoriented sectors also contributed meaningfully to market gains in the second quarter, creating a healthier and more balanced market environment than investors experienced over the past several years.

One of the more notable developments has been the resurgence of small- and mid-cap stocks. After several years of lagging large-cap equities, these segments have delivered strong returns and developed surprising momentum. Even after their recent outperformance, relative valuations remain attractive compared to largecap U.S. stocks, supporting the case for maintaining allocations despite the recent gains.

International equities have also continued to reward investors. Following a very strong 2025, developed international markets have essentially kept pace with U.S. equities during 2026 while continuing to trade at more attractive relative valuations. Emerging market equities have likewise benefited from improving economic conditions and remain attractively valued relative to many developed markets, reinforcing the benefits of maintaining diversified global equity exposure.

Looking ahead, we continue to see opportunities across equity markets, although selectivity remains important. We maintain a modest preference for value-oriented sectors where relative valuations remain compelling and earnings fundamentals continue to improve. We also believe international and emerging market equities have additional room to appreciate, supported by favorable valuations and improving economic trends.

While small- and mid-cap stocks have experienced a significant rally this year, we are not inclined to reduce exposure simply because of recent performance. Valuations remain attractive relative to historical levels and compared with large-cap stocks. That said, we are monitoring several risks that could create periods of volatility, including the possibility that interest rates remain elevated for longer than markets currently expect and the continued emphasis on tariffs and trade policy by the current administration. Even with these considerations, we believe maintaining strategic allocations to these areas remains appropriate for long-term investors.

Fixed income markets have experienced a more challenging environment as interest rates have drifted higher throughout the year. Rising yields have weighed on longer-duration bonds, leaving the Bloomberg U.S. Aggregate Bond Index relatively flat despite its income generation.

In contrast, short-term fixed income has remained an attractive destination for investors. Higher short-term interest rates have allowed investors to earn compelling yields while limiting interest rate risk, making shortduration strategies an effective source of income and capital preservation in the current environment.

Multi-sector bond strategies have also continued to perform well. By allocating across a broader opportunity set—including investment-grade corporates, high yield, securitized assets, and global fixed income—these strategies have generally provided higher yields than traditional core bonds while offering attractive diversification alongside short-term fixed income holdings.

Emerging market debt has delivered another strong year as improving fundamentals, resilient credit conditions, and attractive income opportunities have supported returns. For investors seeking additional yield and diversification, emerging market bonds continue to represent a valuable component of a well-balanced fixed income allocation.

Looking ahead, our fixed income positioning remains largely unchanged. We continue to favor short-term bonds as the foundation of portfolios, providing attractive income, stability, and flexibility in an uncertain interest rate environment. We also believe multi-sector bond strategies remain an attractive complement, offering enhanced yield potential and diversified sources of return beyond traditional core fixed income.

Should longer-term Treasury yields continue to move higher in the coming months, we would view that as an opportunity to gradually increase allocations to core investment-grade bonds. Higher yields would improve prospective long-term returns while allowing investors to lock in more attractive income levels, enhancing the role of core fixed income as both a source of income and portfolio diversification.

—JMS Team

JMS Capital Group Wealth Services LLC

417 Thorn Street, Suite 300 | Sewickley, PA | 15143 | 412‐415‐1177 | jmscapitalgroup.com

An SEC-registered investment advisor

This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument or investment strategy. Certain material in this work is proprietary to and copyrighted by Litman Gregory Analytics and is used by JMS Capital Group Wealth Services LLC with permission. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, accounting, legal or tax advice. Any references to future returns are not promises - or even estimates - of actual returns a client portfolio may achieve. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation for a specific investment. Past performance is not a guarantee of future results.

With the exception of historical matters, the items discussed are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from projected results. We have based these projections on our current expectations and assumptions about current and future events - as of the time of this writing. While we consider these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond our control. There can be no assurances that any returns presented will be achieved.

Quarterly Market Commentary

2026-03-31

1Q 2026 - Key Takeaways, The ongoing bull market continued apace for the first two months of 2026 before hostilities in Iran led to an abrupt reversal in March.

Quarterly Market Commentary

2026-01-01

4Q 2025 - Key Takeaways, The bull market gallop through the first three quarters of the year settled into more of a trot during the last quarter.

Quarterly Commentary

2025-11-04

3Q 2025 - Key Takeaways

The bulls continued their run in the third quarter of 2025, as equities, both domestic and global, saw continuing gains that added to an already strong year. While AI and tech stocks have been a large part of the story, small caps and value stocks also performed well in Q3. Corporate earnings have been strong, and the Fed has resumed its rate cuts amidst a softening labor market. GDP estimates have picked up, while potential headwinds from tariffs appear to be outweighed by other market factors.

The S&P 500 jumped 8.1% in Q3 2025, while small caps grew 12.4%. Developed international and emerging markets showed continued strength, rising 4.8% and 10.9%, respectively, in the second quarter. On the bond side, the US agg climbed 2.0% in Q3, while the 2-year, 10-year, and 30-year Treasury rate each fell slightly.

GDP grew 3.8% in Q2, largely fueled by consumer spending, and partially for technical reasons—the pre-tariff surge in imports lowered GDP in Q1 while the subsequent post-tariff decline in imports raised GDP in Q2. Third quarter growth is generally projected to come in at a bit over 2%, though the Atlanta Fed’s GDPnow estimate shows Q3 growth at nearly 4%. Unemployment ticked up another 0.1% over the past three months, to 4.3%; overall, labor market conditions remained fairly benign, though softening, as unemployment has risen 0.4% over the past year. Core inflation climbed in Q3 from 2.8% to 3.1%, and remains above the Fed’s 2% target. After holding rates steady for much of 2025, the Fed cut rates by 25bp points in September.

For all the constant activity of the Trump Administration, markets have been quiescent, with a steady upward drift and low volatility. As always, there is always something to monitor under the hood—US-China relations are strained, trade skirmishes could flare up, and the AI surge could prove to be a bubble that pops over the coming year. But corporate earnings could also remain healthy, while elevated valuations may reflect a new normal rather than a mounting concern.

3Q 2025 Investment Letter

Markets had a broadly strong third quarter of 2025, with both domestic and foreign equities making significant gains, as well as domestic and high-yield bonds. The economy has continued to show resilience in the face of elevated interest rates. While inflation hasn’t surged, it has drifted higher, challenging the Fed’s ability to thread the needle between keeping inflation low and keeping unemployment low. Markets have sometimes plummeted when President Trump has threatened massive tariffs, but recovered once such threats were pulled back or a trade understanding was reached. High valuations are still a concern, as is the possibility of an AI tech bubble, but it’s difficult to predict if the bubble will burst, let alone when. So, the economy and markets are in good shape as of this writing, but there is the possibility of tremors underneath the surface--and given that valuations already reflect tech optimism layered on a strong economic base, we would moderate our

3Q 2025 Market Update

The rising equities tide lifted most boats in the third quarter of 2025. The S&P 500 leapt 8.1%, while the Russell 2000 gained 12.4%. Developed international and emerging markets posted second quarter gains of 4.8% and 8.9%, respectively. As of September 30th, developed international and emerging markets have each posted gains of over 25%. In terms of style, the bull market in domestic equities was broadly distributed in Q3; year-to-date, while large growth leads the way at 17.2%, the “worst” performing style-size combination, small value, is still up 9.0% as of September 30th. The year-to-date chart, coincidentally, shows the same pattern as does the 10-year annualized chart, with large growth leading the way, but all areas posting near-double-digit returns or better.

As for sectors, technology led the way with a 13.2% gain, while communication services rose 12.0%. Consumer staples was the only sector down in Q3, with a 2.4% loss. Year-to-date, all sectors are in positive territory, with technology and communication services leading the way with gains of 22.3% and 24.5%, respectively.

Bonds had a positive Q2, as the US agg rose 2.0%, and high yield bonds climbed 2.5%, though international developed bonds dipped 0.8%. Core inflation jumped 0.3%, ending the quarter at 3.1%, which is above the Fed’s 2% target, while GDP growth is projected to be solid in Q3. Treasury rates eased downward marginally during Q3, as the 2-year Treasury rate slid from 3.72% to 3.60%, the 10-year Treasury rate declined from 4.24% to 4.16%, and the 30- year Treasury rate fell from 4.78% to 4.73%. Volatility was low in the third quarter, mostly staying in the teens.

Update on the Macro Outlook

For equities, the third quarter largely added to the trends of the second quarter, with a broad based rally highlighted by continued tech gains. Similarly, the macro themes of Q3 largely echo the successes and concerns of Q2. Once again, US economic statistics are solid, though perhaps softening a touch—unemployment is moderate, though rising slowly; inflation is only slightly elevated, but has started rising again. The Fed is now in a very delicate spot. Rates are still restrictive, and the gradual increase in unemployment would typically induce the Fed to cut rates. However, inflation crept back up to over 3% during the third quarter, and the Fed doesn’t want to let inflation become persistent. Short-term inflation expectations have wobbled up a bit, and while longer-term expectations are stable, the Fed may adopt a cautious approach to rate cuts so as to limit the likelihood of an inflation spike. Fed projections are for core inflation to stay at 3.1%, and for unemployment to rise to 4.5%, by year’s end:

Markets and the Fed are in general agreement that the Fed will cut rates another 1% over the next 18 months or so. More aggressive action may not be needed. The challenge is that inflation remains high enough that the Fed may be reluctant to cut rates too much, while the labor market is softening enough that the Fed may be reluctant to leave rates where they are. If the economy slumps or inflation surges, the Fed will be in the unhappy position of robbing Peter to pay Paul—actions that ameliorate unemployment/inflation pose the risk of aggravating already elevated inflation/unemployment. While ever-changing tariffs have almost become background noise at this point, it is worth noting that the effective tariff rate has risen to 19% (up from 15% last quarter):

Although the potential negative effects of tariffs may be delayed or accrue over time, so far, tariffs have proven to be more bark than bite. There may be enough exemptions and workarounds to blunt their impact. But other factors, such as the AI boom, may simply dwarf whatever effects tariffs would have:

If AI-induced labor productivity growth mimics the path following the 1981 introduction of the personal computer, we would expect to see the US economy accumulate a lot of productivity growth over the coming decades. Though tariffs are widely derided by economists as inefficient, they may end up being relatively trivial compared to other macroeconomic movements.

We would be remiss if we did not mention the additional complication of the ongoing government shutdown, which has stopped the release of some economic data, so that the Fed is currently trying to navigate while partially blind. Previous government shutdowns have typically been brief and so had minimal long-term impact. A shutdown lasting months rather than weeks would be uncharted territory, but that’s a hypothetical that’s still some time away from becoming a reality.

Portfolio Positioning and Closing Thoughts

The bull market of the past 3 years has heavily depended on a handful of tech stocks. Over time, we would expect a degree of convergence, with either the rest of the market showing catch-up growth, or the Magnificent Seven stocks cooling off. This year, while tech stocks still lead the way, other market segments have also been fruitful participants:

The earnings growth gap between the Mag 7 and the remaining 493 has shrunk greatly in 2025, as has the return gap. And while it’s true that the Mag 7 still accounted for 45% of the S&P 500’s price return as of 9/30, this number is not exceptionally high given that top companies comprise a huge share of the S&P 500’s market cap:

Though the weight of the top 10 market cap has grown sharply, top 10 earnings have risen sharply in tandem, providing a degree of reassurance to these companies’ market valuations. The obvious risk to stocks is that the upsurge in tech stocks reflects an expectation that the benefits of AI will be sky-high, which means that if AI performance is merely good and not a game-changer, we would likely see a correction in valuations of these equities.

Despite continued drips of negative news on the economic front in Q3 2025, the stock market was undeterred. On the back of AI tunnel vision, the S&P 500 moved a full 8% higher in the quarter. Large company stock returns have been all over the board in 2025. Technology, unsurprisingly, led the markets higher with Communication Services running second on the backs of Google and Meta. While the thirst for AI exposure has allowed some large U.S. stock segments to thrive, others have largely been left stuck in the mud. Sectors like Consumer Staples, Real Estate, Energy, Health Care and Materials showed paltry gains in comparison through three quarters. The market’s short-to-mid-term future is quite dependent on earnings coming from large growth names and their willingness to continue to throw massive amounts of money toward capital expenditures in AI. While not shunning these names, we prefer a bit of balance in the large cap space – pairing the high growth segments with some quality/dividend areas that offer more reasonable valuations. Many small and mid-sized companies will be facing the darkening economic realities without the AI wind at their backs. We remain largely underweight these asset classes. International stocks, however, have seen a bit of a breakthrough in 2025 as U.S. dollar weakness has paired with some renewed investor interest in overseas names to diversify against the tariff reality. With the U.S. tariff rate near 20% and up significantly from the start of the year, it is difficult to know where the winners and losers will be domiciled over the coming year.

Bonds have provided a nice balance to portfolios for most of 2025. As the Federal Reserve has cut rates, yields have lowered in numerous fixed income segments. The core bond space has delivered returns of more than 6%, while still offering the equity ballast to broad portfolios. Short-term bonds have been predictable – but solid. They are looking to see some price appreciation to pair with the attractive starting yields and, for the most part, should end the year between 5% and 6% with little volatility. High-yield bonds have enjoyed a smoother ride since early April and have provided returns near 7%. Emerging market bonds have been even better, with many strategies clearing 10% for the year. Multi-sector bond strategies, which can dip into several categories, have been quite strong as well. It is common to see high single-digit returns. As tariff costs are more broadly passed along to consumers, we expect to see some tick up in inflation data. So, we prefer an approach that tilts toward short-term maturities over intermediate terms – while being overweight multi-sector bonds for diversification and to drive yield in portfolios.

- JMS Team

JMS Capital Group Wealth Services LLC

417 Thorn Street, Suite 300 | Sewickley, PA | 15143 412-415-1177 | jmscapitalgroup.com

An SEC-registered investment advisor.

This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument or investment strategy.

Certain material in this work is proprietary to and copyrighted by Litman Gregory Analytics and is used by JMS Capital Group Wealth Services LLC with permission. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, accounting, legal or tax advice. Any references to future returns are not promises - or even estimates - of actual returns a client portfolio may achieve. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation for a specific investment. Past performance is not a guarantee of future results.

With the exception of historical matters, the items discussed are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from projected results. We have based these projections on our current expectations and assumptions about current and future events - as of the time of this writing. While we consider these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond our control. There can be no assurances that any returns presented will be achieved.

Perspectives on Market Concentration

2025-10-27

October 27, 2025

Perspectives on Market Concentration

The S&P 500’s surge over the past 3 years has been led by a handful of stocks, resulting in an index that is unusually concentrated relative to recent history. JPMorgan has a pair of useful charts illustrating the S&P 500’s current top heavy nature:

The weight of the top 10 firms by market cap is higher than it’s been for the past 30 years, surpassing the late 90s tech bubble by a significant margin. Not surprisingly, top tech stocks have had enormous price growth as well:

The gap between the Magnificent 7 stocks and the rest of the S&P 500 has narrowed in 2025, but over the past 3 years the share of returns from the Magnificent 7 has roughly equalled the share of returns from the less magnificent remaining 493. It’s not surprising that there’s talk that we may be in an AI bubble.

However, Ben Carlson points out, via work from Justin Timmer, that if we go back in time we find that in the 1960s and 1970s there was even greater concentration, as measured by the top 50 versus the remaining 450, than there is today:

As Carlson notes, while the bursting of the late 90s tech bubble quickly led to lower market concentration, the high concentration of the early 1960s persisted for well over a decade. Even if we’re in an AI bubble right now, that bubble could last for a long time.

JMS Capital Group Wealth Services LLC

417 Thorn Street, Suite 300 | Sewickley, PA | 15143 | 412‐415‐1177 | jmscapitalgroup.com

An SEC‐registered investment advisor.

This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument or investment strategy. This material has been prepared for informational purposes only, and is not intended to be or interpreted as a recommendation. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice.

Quarterly Market Commentary

2025-06-30

2Q 2025 - Key Takeaways, Markets shrugged off the threat of tariffs during the second quarter of 2025, as domestic equities recovered from a poor first quarter, while foreign stocks added to their gains.

Quarterly Market Commentary

2025-03-31

1Q 2025 - Key Takeaways, Markets turned in a mixed performance during the first quarter of 2025, with domestic equities tumbling during the first quarter while their foreign counterparts rose.

Quarterly Market Commentary 2024

2025-01-31

4Q 2024 - Key Takeaways

Markets turned in a mixed performance during the fourth quarter of 2024, as domestic equities continued their upward climb, while foreign stocks and bonds largely stumbled. Economic growth and the labor market remained strong even in the face of elevated interest rates, but progress against inflation slowed. While the Fed cut rates again in November and December, it indicated that it would be taking a cautious approach to future rate cuts. The Fed may be in a holding pattern for much of 2025, watching inflation and the labor market, and waiting to see what tariffs and tax cuts the Trump Administration and Congress will enact. The broadening of the bull market in Q3 dissipated somewhat in Q4, and it remains to be seen whether large cap tech stocks can maintain their momentum, or whether other market segments can enhance their participation in the ongoing rally. Valuations in many market areas are elevated after two years of sharp price increases, again raising the question of how much more room the bulls have left to run.

The S&P 500 rose another 2.4% in Q4 2024, and finished the year with a 25.0% gain. Small caps increased 0.3% and ended 2024 up 11.5%. Developed international and emerging markets plunged 8.1% and 7.9%, respectively, in the fourth quarter, but ended the year with moderate gains of 4.3% and 7.9%, respectively. Domestic bonds suffered from a rise in rates, as well as the Fed’s more cautious approach to rate cuts, as the US agg fell 3.1% in Q4. Treasury rates jumped in the fourth quarter, with the 2-year rate, 10-year rate, and 30- year rate all climbing 50-80bp.

GDP has remained strong, as it grew at an annual rate of 3.1% in the third quarter of 2024 and is anticipated to show an increase of 2%-3% annualized in the fourth quarter of 2024. Labor market conditions continued to be benign, as the unemployment rate held steady at 4.2%, and job growth continued to be robust. Core inflation was unchanged over the past three months, remaining moderately elevated at 3.3%. Even with the 100bp in cuts since September, the Fed’s policy is restrictive, and the Fed can certainly slow or halt rate cuts should disinflation stagnate.

Republicans swept the Presidency, the House, and the Senate, although their margin in the House is extremely narrow. While we would expect President Trump to implement tariffs, the scope and breadth of them, as well as possible exemptions or carveouts, remains unclear. Extension and potential expansion of the Trump tax cuts of 2017 is also likely, along with some spending cuts. Still, high deficits and elevated long-term interest rates may constrain fiscal legislation to an extent. We won’t pretend to have detailed insights on how Trump policies, which are evolving, will affect various market sectors, but we would reiterate that markets usually rise (and sometimes fall) no matter which party is in power, so we caution against letting politics guide your portfolio. Continued 25%+ annual growth of the S&P 500 may be too much to hope for, but if so there still is the potential for other market areas to pick up the slack; moreover, while valuations are high, earnings reports have been strong. As is so often the case, there is both significant upside and downside potential for markets, and portfolios should seek an appropriate balance between risk and reward.

4Q 2024 Investment Letter
The S&P 500 is up more than 60% over the past two years, making the downturn of 2022 an increasingly distant memory. The economy has already made a semi-soft landing—inflation has fallen and stayed under 4% without the accompanying pain of a recession. The Fed has scaled back its expectations of future rate cuts, in part because inflation hasn’t moved much in recent months, but also because the economy has shown sufficient strength for the Fed to feel comfortable keeping rates high. We still have concerns about valuations and market concentration; we would also add that uncertainty about Trump policy and implementation poses its own set of risks and rewards. Furthermore, it’s highly unlikely that the S&P 500 can continue to post 25% annual returns over the longer term. Given the record highs of the past two years, our expectations going forward are somewhat subdued, with both continued tech stock strength and a correction well within the realm of possibility.

4Q 2024 Market Update
The fourth quarter of 2024 yielded mixed results. On the plus side, the S&P 500 climbed 2.4%, and finished the quarter up 25.0% year-to-date. Developed international and emerging markets did not fare as well, suffering losses for the quarter of 8.1% and 7.9%, respectively, that lowered 2024 returns to 4.3% and 7.9%, respectively. In terms of style, the 4th quarter’s gains came predominantly from large caps, which were up 24.5% at the end of Q3 but 33.4% by the end of the year. Small growth rose slightly in Q4 and posted a gain of 15.2% for the year, while large value and small value each fell about 1%-2% in Q4, but finished the year up 14.4% and 8.1%, respectively. As for sectors, financials, consumer discretionary, technology, and communication services led the way both in the fourth quarter and for the year, with 2024 returns of 30.6%, 30.1%, 36.6%, and 40.2%, respectively. Materials and health care had double digit losses for the quarter, but no sector finished underwater for the year.

Stubborn inflation and continued macroeconomic strength led the Fed to shift rate cut projections; while the Fed cut rates 1% since September, the pace of rate cuts is expected to slow in 2024. Bonds took this less dovish stance on the chin, with many areas of fixed income posting losses amidst rising longer-term rates. In Q4 the US agg slid 3.1%, municipal bonds dropped 1.2%, and developed international bonds fell 8.0%, while high yield bonds posted a minimal 0.2% gain. For the year, high yield bonds led the way with a 8.2% gain, with the US agg and municipal bonds also finishing in positive territory at 1.3% and 1.1%, respectively, while developed international bonds lost 6.0% Treasury rates also rose during Q4, as the 2-year Treasury rate jumped from 3.66% to 4.25%, the 10-year Treasury rate rose from 3.81% to 4.58%, and the 30-year Treasury rate climbed from 4.14% to 4.78%. Volatility was moderate in the quarter, mostly staying in the teens while peaking at under 30.

Update on the Macro Outlook
The US macroeconomy remains in solid shape, aside from moderately elevated inflation. It is the strength of the economy that has enabled the Fed to downshift its likely future path of rate cuts. Core inflation has been relatively static recently at about 3.3%:

The Fed finally did make its long-anticipated dovish pivot as it slashed the federal funds rate by 50bp in September, then 25bp more in November and December. However, at this point the Fed isn’t expecting to do much cutting in 2024, while markets are anticipating even less movement in the federal funds rate:

Both markets and the Fed forecast the federal funds rate to decline another 50bp or so in 2025…but then markets expect that rate to plateau at about 4%, while the Fed anticipates it falling to just over 3%. In the short run, the Fed may wait and see what the Trump Administration decides to do with respect to tariffs, and what fiscal legislation Republicans pass this year. It’s likely that much or all of the Trump tax cuts from 2017 will be extended, or made permanent. The Fed may have concerns that fiscal stimulus could threaten to reignite inflation, and may thereby proceed more cautiously with rate reductions. In the long run, high fiscal deficits (as shown below) and debt may put upward pressure on interest rates.

The Trump Administration has begin with a flurry of executive orders, and we would expect much activity over the coming months. While market impact is unclear, we again will mention that markets over time typically grow no matter which party is in power:

Portfolio Positioning and Closing Thoughts
After this extended bull market, it is not surprising to see elevated valuations:

However, earnings have also been strong:

As we move into 2025, the conversation must transition a bit from the “Fed watch” we have been participating in since mid-2024 to economic policy moving forward. With a transition at the White House and the GOP controlling both bodies of Congress, we could see a significant shift in policy in the first half of 2025. At the top of the watch list will be tariffs. Throughout the campaign, President Trump focused on tariffs as a “magic elixir” that could solve a multitude of issues. Economists stand, in large part, in opposition to this view. This is especially the case when speaking in terms of broad, sweeping tariffs instead of targeted tariffs. It is too early to know how this will play out. If the tariffs are implemented as has been described, we will need to be aware of renewed upside risk to inflation as costs are passed along to consumers – not only in the United States, but abroad.

On the stock side of portfolios, we are looking at a very similar setup as the prior year in terms of returns and valuations. U.S. large cap stocks carried the day in 2024 – primarily on the back of technology, consumer discretionary and communications stocks. The “Magnificent 7” stocks drove returns of the category higher and saw their valuations climb again. The question for 2025 will be, can they continue their momentum or will their expensive price tag give the market pause? Much of the move higher in these stocks can be attributed to the push in Artificial Intelligence (AI). Companies see a need to significantly increase capital expenditures in the space to get ahead. However, given the nature of rapid change in AI, there are also large risks to these “tech” behemoths. We would advise a more neutral approach to large cap investment. Taking some profit from the huge winners and shifting funds toward “value” sectors of the market could help mitigate some risk while adding to the cheaper parts of the market. We are not advocating placing large bets on value. Instead, we believe it wise to lessen the growth exposure and become more neutral between the segments. While lower capitalization stocks and foreign stocks remain relatively attractive, we do not believe we will witness great outperformance from these asset classes. Smaller U.S. companies could continue to struggle a bit as interest rates remain elevated. Foreign stocks, on the other hand, will be in the crosshairs of possible tariff battles and could witness volatility. We believe portfolios should have exposure to these areas, but this is not the time to increase these diversifying categories.

For bonds, it seems that the election has brought new concerns and, possibly, a different path for interest rates. While economic growth has been strong and most metrics the Federal Reserve uses when determining shortterm rates have been trending positive, the cloudy policy path forward has brought about caution in terms of further reducing interest rates. Core bonds seemed poised to see positive flows based on the Fed’s path in Q3 2024. Now, with some concerns around inflation creeping higher again and rates not coming down substantially, we believe it is prudent to focus on two other parts of the bond market. Short-term bonds still offer quality yields – while greatly reducing interest rate risk in portfolios. Multi-sector bonds strategies allow managers to be more tactical and target area they feel are attractive and mispriced. A combination of these asset classes will provide a nice yield while keeping portfolio duration low. Emerging market bonds may see a bit of a boost if policy brings about short-term dollar weakness. We are avoiding high-yield bond strategies at the current time as historically low spreads over U.S. Treasuries do not justify the risk – especially if we see an uptick in defaults.

—JMS Team

JMS Capital Group Wealth Services LLC

417 Thorn Street, Suite 300 | Sewickley, PA | 15143 | 412‐415‐1177 | jmscapitalgroup.com

An SEC-registered investment advisor

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