2Q26 Investment Markets Review
In this post, John Chesbrough gives a review of recent performance in the investment markets. Note from John: Usually I pick a photo that matches the current season. This “cover photo” is from this fourth of July. Happy 250th to the United States of America! Also, happy birthday to John, who turned 54 on that date!
There are three sections: What happened, what we expect going forward, and what we are doing as a result.
Investment Markets in the second quarter were hotter than a firework on the 4th of July. It was a banger of a quarter! Over the three month period, the US stock market was up by +15% (in just three months!). Emerging markets were up by 24%. The bond markets had a much cooler, un-exceptional quarter, gaining their normal bond-like 4-5% annualized return.
We know that markets behave more like a pendulum than a wound spring. This quarter was no different as the pendulum had a big positive swing. It may be worth a re-visit into how volatility is a core feature of the markets, and how to position your portfolio as a result. I created a five-minute narrated presentation about markets and market volatility. To view that video click here:
John’s 5-minute narrated video of some key Investment Principles to Navigating Market Volatility
There is a link to the full slide presentation in the endnotes.
Detailed Market Performance – a watch
The following link is a less than 5-minute narrated video (this quarter, I clocked 3 min 17 seconds) of market performance and other resources in this blog post. Some people prefer a guided tour over a read. But, the tour will be too fast to read!
Detailed Market Performance – a read
To view a detailed analysis of investment performance in the US and global stock and bond markets, click on the button below.
The investment market performance report is prepared by Dimensional Fund Advisors (DFA), one of our partners in investment management and client support. If you would like to find out more about DFA, you can visit their website directly at: https://www.dimensional.com/
When we look at the state of the global stock and bond markets, we are both intrigued by the long-term opportunity, and cautious about the near-term risks. The long-term opportunities are no different than normal – capitalism continues to be the “worst-best” system to support human ingenuity and vigor. By investing in stock and bond markets, we (as investors) are able to participate in the collective efforting of the many individuals and businesses who are figuring out services and products to solve problems.
The near-term risks are always present – interest rates, government policies, cronyism, business-specific risks, or investor enthusiasm can all influence the pendulum. For the past few years, our expectations for stock market returns have been lower than what was realized. However, our mindset has not changed – valuations remain high, and therefore we forecast lower-than-normal near term returns. Will it happen? We will only know in the rearview mirror.
Even though we watch the markets, and regularly comment on them, we rarely take significant action. But, we do take fine-tuning action. For example, we regularly review and revise our global allocation targets to keep pace with the current state of the markets. Once our targets are reset, we review portfolios to ensure alignment. Regular re-balancing keeps our managed portfolios in line with the information that is contained within market prices.
As a result of the most recent quarterly movements, we slightly increased our target for US stock market and emerging markets ownership, and lowered the target for international (developed) markets. By slight, I mean around 1%. These are fine-tuning changes, nothing drastic.
Our investment philosophy at Trail Financial Planning is to embrace the long-term trends, but keep an eye on streaks and the near-term. The way this plays out as we design and manage investment portfolios is through our three legged strategy of portfolio construction:
Risk Tolerance. What level of return and risk can you live with and sleep well at night?
Financial Planning. What amount of return and risk do you need to live your best life (this is called “financial planning.”)?
Time-Frame Analysis. We forecast out when you may need money, and bucket those needs into 3 time-frames: Short-, Intermediate-and Long-term. We design your portfolio to match the need, choosing investments with return-risk profiles in alignment with time frames.
Notice that this approach is not a simple “just hold on” strategy. Rather, it is a dynamic strategy driven by our financial planning and answer the question, “What do you really want out of this life you have been given?”
Portfolio construction and and maintenance is not rocket science. But, neither is it a bingo card. We believe that a good strategy helps guide the near-term to achieve the long-term. And the long-term results from investing in the markets are truly remarkable.
Disclosures and end notes
Information contained within is generalized information about investing and the investment markets. It should not be considered investment advice, personalized or otherwise. Past investment performance is not a guarantee of future investment performance. Investing in markets comes with an inherent risk of losing money.
End Notes
Slide presentation: “Investment Principles for Navigating Volatility.” Presentation and information is courtesy of Dimensional Fund Advisors.
Link: Investment Principles for Navigating Volatility – be warned, lots of information!
