Market Commentary | June 2026

Monthly Update

After a solid rebound in April and May after the Middle East conflict selloff seen in March, the S&P 500 took a breather in June, falling 1% but there remains a lot of dispersion under the hood.¹ The Philadelphia Semiconductor Index continued with its incredible run higher and closed the month of June up another 11% and by 101% year to date.²  

Equities: A Breather With Dispersion

The voracious demand for memory and storage with supply just not keeping up have really propelled the earnings growth trajectory for the DRAM and NAND semiconductor producers. And that has also boosted the South Korean Kospi where half of the index is weighted towards Samsung and SK Hynix, competitors to the US DRAM and NAND producers. That index through June was up 87% year to date.³ Also riding the semiconductor wave was the Taiwan TAIEX, dominated by Taiwan Semiconductor, with its 57% year to date gain through June.⁴ Also benefiting from all the GenAI capital expenditures are other providers into the data center construction, whether selling the cement, the steel, the HVAC, the electrical equipment, along with the data servers housing all the chips, along many other things.

On the opposite end of the economic spectrum are the companies that are doing all the spending from which the above are receiving it, that being the hyperscalers. Estimates I’ve seen have the 5 big ones, Microsoft, Meta, Google/Alphabet, Amazon and Oracle, spending about $750 billion this year on CapEx and which is expected to exceed $1 trillion in 2027. As a result, the free cash flow generated by these companies is deteriorating, which is forcing some, such as Google/Alphabet, to tap both the equity and debt markets to finance it. These were once high free cash flow, asset light businesses and they are now turning that on its head.

So, from a stock market perspective, the receivers of the massive CapEx have been doing great while the spenders have really lagged. Away from these key groups, the stock market is trying to also expand its sector reach, and we are seeing some signs of life in other groups. Small cap stocks in particular, as measured by the Russell 2000, hit a record high. The one caveat though is that the companies doing the best are tied to the data center buildout.

The SpaceX IPO and a Window for Equity Supply

June also saw the exciting IPO of SpaceX which was the largest IPO on record with the company raising about $85 billion in equity capital.⁵ While I find the rocket launch business and its satellite communications division known as Starlink to be the most interesting of its operating units, interestingly, more than 90% of its stated total addressable market is tied to its xAI business, which includes both

Grok and data center infrastructure where they lease out computing power to others, maybe at some point from space. The level of ebullience tied to the IPO was apparent based on the high demand for its shares and triggered all sorts of valuation debates. Regardless, the success of the IPO reflects a window of opportunity for others to follow, such as Anthropic, OpenAI, Databricks and others. What this also means is that a lot of equity supply is coming at the same time many of the hyperscalers are scaling back on their sizable stock buybacks.

The Fed Under Warsh: A New Approach

On the bond side of the capital markets landscape, the new Fed Chair Kevin Warsh oversaw his first meeting in June, and he stuck to his expressed desire of not wanting to reveal his forward guidance on where he thinks the economy and rates will go from here. So, of the 19 Fed members, 18 gave its economic and monetary dot plot while Warsh sat it out. What I believe this means is investors of all stripes have to be more on their toes and not rely as much on every utterance of a Fed member. Warsh seems more inclined to have the Fed follow markets and the economy rather than the other way around. It’s a refreshingly new approach as the Fed’s footprint on economic activity and markets over the last few decades have become substantial. On the other hand, markets might have to swim a bit on their own in the years to come as maybe the Fed Put, established implicitly by the now late and revered Alan Greenspan helped to spawn, might be extinguished.

The market response to the lack of any guidance from Kevin Warsh but a desire for about half the committee that expressed the possibility of raising interest rates based on their dot forecast, sent the US 2 yr Treasury yield, very sensitive to Fed rate policy, higher by 17 basis points in June and up 60 basis points year to date.⁶ The big shift was seen beginning in March where the market went from believing the Fed would cut rates twice this year and maybe even a third time, to now pricing in a rate increase.

A lot of the shift was in response to all the goings on with the price of crude oil and products, along with other commodities, with the onset of the war and now the hoped for full reopening of the Strait of Hormuz. I say ‘hoped for’ because no definitive deal has taken place as we’re in the middle of the fresh 60 day cease fire and negotiating window. Of note too with rates, the 10-yr US yield is hovering around 4.50% for the second month and which compares with its one year average of closer to 4.25%.⁷

The Economy: Still Leaning on the Buildout

With regards to the US economy, it remains highly dependent on the construction of data centers where about half of GDP growth is being contributed to by this sector. To quantify the extent of the spend, according to Jefferies, investment in IT equipment and software as a percent of US GDP in Q1 was 4.91%. That compares with 4.46% in Q4 2000 at the peak of the internet buildout back then in terms of its economic contribution.⁸ Helping growth too has been consumption by upper income consumers, helping to offset a more muted pace by low to middle income consumers.

With respect to the rest of the economy, the housing market continues to be challenged, manufacturing has seen a bit of a bounce after about three years of recession and capital spending ex AI remains more sluggish. The labor market has seen an improvement in job hiring relative to last year, but much is coming from the health care and social assistance side, along with construction which need people to build data centers.

Energy: The Strait Still in Focus

Back to the oil market, we remain hopeful that a deal of some sort will be had with Iran but there is still a question of whether the traversing of ships through the Strait of Hormuz will be free as Iran wants a vig of some sort. Either way, it’s amazing to see the price of WTI crude oil back to almost where it stood at the end of February, right before the conflict began.⁹ We’ll see how sustainable this is though as we’re still seeing less supply moving through the Strait. Helping to bring prices back down has been the about 50% drop in Chinese oil imports, the pipeline alternatives that are being fully utilized in the region, along with the strategic reserves that have been released by a multitude of countries.¹⁰ Oil product markets, such as gasoline, jet fuel, and diesel, have seen relief on the price side but not nearly as much as crude because of a more disrupted inventory situation.

Conclusion

As we look to see how the second half of 2026 will unfold, we are still dominated by the GenAI data center buildout and tech trade. With the latter though, as stated above, it’s become more differentiating. Overall, so goes the enormous pace of spending, so goes the economy and stock market leaders. Amazingly, the semiconductor sector is now about 18% of the S&P 500, a record high vs about 10% just a few years ago.¹¹

The one thing I’m confident in is the incredible technological advancements that it brings and the productivity and efficiency enhancements we all benefit from, as technology always has done in the history of mankind. The disruption concerns are completely understandable and for some worrisome, but we also don’t believe this time is different and over time it will create more new jobs we can’t even currently think of, than those that will get displaced.

It’s nice not having to talk too much about the Middle East conflict anymore but until this is fully resolved, it’s something we still need to pay attention to. The crude oil market is acting like nothing really has changed but I believe things have.

A Note on Investor Time Horizon

Regardless of how all of the above turns out, it remains essential that investors maintain adequate short-term liquidity to cover two to three years of spending needs. Knowing that near-term period is secured allows the rest of a portfolio to be viewed with a longer perspective – and a long-term time horizon is always an investors best friend.

Disclaimers

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