June 25, 2026 Letter to Clients
As we enter the summer season and enjoy the excitement surrounding the FIFA World Cup 2026, for those following the heavily anticipated soccer competition, we continue to navigate a market landscape influenced by rapid technological innovation, ongoing geopolitical tensions and developments, and evolving expectations for economic growth. While equity markets have remained remarkably resilient for the most part, the investment environment continues to present both opportunities and challenges that warrant a cautious and disciplined approach.
In this mid-year letter, we explore several different themes shaping today's market environment, including the continued rise of artificial intelligence and its impact on market concentration, the outlook for interest rates and monetary policy, shifting consumer spending patterns, and the opportunities and challenges facing younger generations entering the workforce.
The AI Buildout: Balancing Opportunity and Expectations
Artificial intelligence (AI) continues to be one of the most powerful forces driving market enthusiasm in 2026. Companies involved in semiconductors, cloud computing, software, and digital infrastructure have attracted significant investor interest as businesses race to expand their AI capabilities.
The excitement surrounding the recent SpaceX IPO has further highlighted investors' appetite for companies tied to transformative technologies and long-term growth opportunities. As in previous periods of technological innovation, strong optimism has helped push valuations higher as markets look ahead to future possibilities.
Supporting this trend is a massive wave of investment in AI infrastructure. Major technology companies such as Alphabet, Microsoft, Amazon, and Meta are expected to spend hundreds of billions of dollars on data centers, computing power, and related infrastructure over the coming years. This spending has created opportunities beyond the technology sector, benefiting companies involved in electrical equipment, power management, and construction. At the same time, challenges emerge. Large-scale data center projects require substantial amounts of electricity, water, and land, leading some communities to question the long-term impact of these developments. As AI infrastructure expands, resource constraints, permitting and local opposition could slow the pace of growth in certain areas.
The long-term potential of AI remains significant. However, it is important to remember that transformative technologies rarely follow a straight path. While the opportunities are considerable, the timing, profitability, and pace of adoption may ultimately prove different than current market expectations.
Geopolitical Risks and Global Supply Chains
One of the most significant risks facing the global economy today is the concentration of critical resources and supply chains in a handful of strategically important regions. Two areas stand out in particular: Taiwan, a key hub for semiconductor manufacturing, and the Middle East, a vital center of global energy production.
Ongoing tensions in the Middle East have highlighted the importance of the Strait of Hormuz, a narrow shipping route through which a substantial portion of the world's oil and liquefied natural gas exports pass. Disruptions to this corridor quickly impact global energy markets, driving higher costs for businesses and consumers alike. Beyond energy, supply disruptions ripple through the broader economy. Industries ranging from manufacturing and transportation to agriculture and technology depend on the reliable flow of raw materials and industrial inputs. Even temporary interruptions create shortages, increase costs, and slow economic activity.
While the global economy is less dependent on oil than it was decades ago, energy prices remain an important driver of inflation and economic growth. Elevated geopolitical tensions therefore contribute to market volatility and uncertainty, even when direct disruptions are limited.
Looking ahead, these challenges may accelerate investment in more diversified and resilient energy systems, including natural gas, nuclear power, renewable energy, and energy storage technologies. For investors, the trend toward greater energy security and supply chain resilience may create opportunities across a variety of sectors while reducing some of the vulnerabilities exposed by recent geopolitical events.
Consumers and Workers Face a Changing Landscape
Consumer spending has remained relatively strong this year, supported by healthy financial markets and seasonal tax-related benefits. However, there are growing signs that households are becoming more cautious as higher prices continue to pressure budgets. Recent trends suggest that consumers are adjusting spending habits, with many opting for more affordable travel and limiting discretionary purchases. Rising fuel costs, persistent inflation, and declining savings levels will likely continue to weigh on consumer confidence in the months ahead.
At the same time, the labor market is evolving, particularly for younger workers entering the workforce. Advances in AI are beginning to automate tasks traditionally associated with entry-level professional roles, including data analysis, reporting, administrative functions, and workflow management. While technological innovation has always transformed the job market, this cycle is increasingly affecting white-collar occupations rather than manual labor positions. As businesses adopt AI tools to improve efficiency, hiring patterns have begun to shift, creating both challenges and opportunities for recent graduates. For younger workers, adaptability and the ability to effectively use emerging technologies has become increasingly important. Those who can combine technical fluency with critical thinking, communication, and problem-solving skills are likely to be best positioned in an evolving employment landscape.
Kevin Warsh: New Federal Reserve Chairman
May 22nd saw a new Chairman of the Federal Reserve Board sworn in for a four-year term, replacing Jerome Powell in that post. What could this mean for investors? The selection of a new Federal Reserve Chair can have a meaningful impact on your investments, borrowing costs, and the broader economy. With Warsh stepping into the role, many investors are wondering what his leadership could mean for interest rates, inflation, and financial markets.
Kevin Warsh is an economist and investment professional who previously served as a Federal Reserve Governor during the 2008 financial crisis. Throughout his career, he has emphasized the Federal Reserve’s (the Fed) responsibility to keep inflation under control. Warsh believes that while outside factors can influence prices, the Fed ultimately plays the central role in maintaining price stability. During his confirmation process, he made it clear that fighting inflation would be one of his top priorities.
The annual US inflation rate, measured by the Consumer Price Index (CPI), was 4.2% for the 12 months ending in May 2026, marking its highest level since April 2023. This represents the third consecutive monthly acceleration in headline inflation, with energy, shelter and food costs jumping substantially. As a result, the Fed may need to keep monetary policy tighter for longer than investors previously expected. This was evidenced in the June 17th meeting, in which the Federal Open Market Committee (FOMC) unanimously voted to maintain the benchmark target range, which currently sits between 3.5% and 3.75%.
While rates have declined from their previous highs, they remain elevated compared with much of the past decade. Many investors had anticipated additional rate cuts in 2026. However, Warsh has signaled that decisions will be driven by economic conditions rather than political pressure and if inflation remains above target, the Fed will likely keep rates higher for longer with a possible increase this year.
Another issue facing the Fed is the nation's growing debt burden. As government debt continues to rise, higher interest rates increase the cost of servicing that debt. This creates a difficult balancing act. Raising rates can help reduce inflation but may also increase borrowing costs throughout the economy, including for the federal government. Lowering rates could ease those costs but may risk allowing inflation to remain elevated
Higher interest rates can create challenges for stock markets. When bond yields rise, investors have more alternatives to stocks, which can put pressure on equity valuations. Growth-oriented sectors, particularly technology companies, are often more sensitive to higher rates because a larger portion of their value is tied to future earnings. On the other hand, companies with strong cash flows and consistent dividend payments may become more attractive to investors seeking income. For investors, this environment could mean continued market volatility as markets adjust to the possibility of higher interest rates for longer than originally expected.
Based on his public comments and policy views, Warsh appears willing to prioritize bringing inflation under control. So, for now, inflation data will likely remain the most important factor influencing the Fed’s decision making. Bottom line, Warsh's confirmation signals a shift toward stricter inflation control, and it remains to be seen if his steady, transparent approach may ultimately provide the market with the confidence needed for sustainable growth.
Stay the Course or Make a Move?
A common question we are asked is when and if it is time to “make changes” to a portfolio and this question typically comes when the market is facing a downturn or there is headline news causing unease. When markets become volatile, it's natural to feel like you should do something. Watching account balances fluctuate can be uncomfortable, and taking action can feel like the best way to regain a sense of control. However, when it comes to investing, making quick decisions during periods of uncertainty is often what causes the most damage.
Market volatility is a normal part of investing. While no one enjoys seeing markets decline, these periods are expected and have occurred regularly throughout history. The bigger challenge is not navigating the market itself; it's managing our actions when markets become unpredictable. Successful investing has rarely been about reacting to short-term events. More often, it comes down to staying disciplined and focused on a long-term plan.
That said, when does it make sense to make a change? While short-term market movements are usually not a reason to adjust your investment strategy, there are situations where changes may be appropriate.
A Major Change in Your Life: Your investment strategy should reflect your personal circumstances, not the latest market headline. If your income changes significantly, your financial goals and needs evolve, or you experience a major life event, it’s likely time to review your portfolio with our office to make certain the investment strategy is aligned appropriately.
Your Time Horizon Has Changed: One of the biggest factors in determining an investment strategy is when you'll need the money. This isn't about predicting what markets will do next, it's about aligning your investments with your timeline. Having a sound understanding of when you anticipate needing to access funds, such as replacing income following retirement or a large upcoming purchase or expense, allows us to plan strategically and manage your investments in line with your financial needs and resources.
Your Risk Tolerance Is Different Than You Thought: It's easy to feel comfortable with risk when markets are steadily rising. That is basic human nature. However, volatile markets often reveal how much risk we're truly willing to take and can comfortably stomach. If market swings are causing significant stress, it may be a sign that your portfolio is taking on more risk than you're comfortable with. In those cases, adjusting your allocation to something more sustainable may help you stay invested through future market cycles.
It's just as important to know when not to adjust. Market declines, negative headlines, economic uncertainty, and short-term performance are usually not good reasons to make significant changes to a managed, well diversified portfolio. These factors are always present in some form, and they are nearly impossible to predict consistently. Selling after a decline locks in losses, waiting until things feel comfortable again often means missing the recovery. Over time, this cycle of selling low and buying back later can quietly, but significantly, reduce long-term returns. Again, a well-designed, properly diversified portfolio is built with the expectation that markets will experience periods of volatility. It doesn't depend on perfect timing or constant adjustments. Instead, it is designed to help you stay on track through both good markets and challenging ones.
When markets feel uncertain, it can be helpful to ask yourself a simple question: "Has anything about my goals, timeline, or personal situation changed?" If the answer is no, the best course of action may be to stay focused on your long-term plan. If the answer is yes, we invite you to contact our office to provide us with any life updates so we can have meaningful discussion regarding your investment strategy.
In closing, we thank you for the continued trust you place in each of us at LePage Financial Group. We are grateful for the privilege to serve as your financial partner. We received a great response to previous letters in which we discussed planning for aging parents and involving adult children in financial planning conversations, a topic we’ll continue to revisit in future letters, particularly as history’s largest transfer of wealth from older to younger generations has begun.
As summer gets underway, we hope you enjoy the season, taking time for a mix of fun and relaxation. While market activity historically slows during the summer months, we continue to monitor economic and market developments closely and stay committed to keeping you informed of any meaningful and impactful events.
Warm Regards,
Steven LePage Colleen Bianco