June 2026 Investment Update
Higher Ground, Thinner Air
The higher you climb, the thinner the air gets. The view keeps getting better, but there is less room for error, and it pays to watch your footing.
That is a fair description of where the markets stand after May.
It was one of the strongest months in years. Records were set across the board, and the rally stretched on week after week. When markets move like that, the natural instinct is to assume the good times will simply continue.
But the strength of a climb depends on what is holding it up. And the higher this market has gone, the smaller the group of companies doing the heavy lifting has become.
That is the lens we are bringing to May, not to take anything away from a strong month, but to stay clear-eyed about what is actually driving it.
May Market Recap
May picked up where April left off. After April’s near double-digit surge, stocks pushed higher again, with the major indexes finishing the month at or near record highs.
This was the second strong month in a row for the S&P 500, which finished higher for a ninth straight week, its longest winning streak since 2023.
What Drove Markets in May
A few themes shaped the month and are worth keeping an eye on.
A narrower rally
Most of the month’s gains came from a relatively small group of very large companies. Technology now represents roughly 40% of the S&P 500, which means index performance is increasingly influenced by that sector. The record highs increasingly reflect the strength of a concentrated group rather than the broad market, and many stocks did not have a month resembling the headlines.
A shift in rate expectations
With inflation moving back up, expectations changed over the course of the month. Earlier in the year, the prevailing view was that the Fed’s next move would be a rate cut. By the end of the month, markets were increasingly pricing in the possibility that the Fed’s next move could be a hike rather than a cut, a notable shift from the rate-cut hopes that had driven sentiment earlier in the year.
New leadership at the Fed
The transition we mentioned last month is now settled: Kevin Warsh was sworn in as the new Federal Reserve Chair on May 22. His first policy meeting, in June, will be watched closely for the tone he sets on inflation and interest rates, which can ripple through nearly every part of the market.
Stretched prices
By several long-standing measures, U.S. stocks are now about as expensive as they have been in modern history. On one widely followed measure, valuations sit at their second-highest level in over 140 years, surpassed only by the peak of the dot-com era around 2000. High prices alone do not mean a decline is coming, but they can mean that a good deal of optimism is already reflected in current levels, which has historically left less cushion if results disappoint.
A Market Climbing on Fewer Legs
Despite the records, this market continues to show signs of an advance that is running on a narrow base. We are still seeing:
- Gains concentrated in a small number of companies and a single sector.
- Valuations at or near historic highs by several measures.
- A widening gap between how strong the market feels and what the underlying data suggests.
It is hard not to notice the echoes of the late 1990s. Back then, the internet was clearly going to change a great deal, and it did, but prices ran far ahead of profits, and even strong companies saw their stock prices fall sharply before the long-term story played out. The enthusiasm around artificial intelligence today feels similar. We believe AI may prove to be every bit as transformative over time. The open question is whether company earnings can grow into today’s prices as quickly as those prices have already climbed.
That is the real tension right now. Looking out over the next five or ten years, we remain optimistic about where the economy and innovation are headed. But looking at the data today, the signals point toward caution.
Positioning Update
In response to this environment, our positioning is largely unchanged. We continue to lean defensive, a stance we have held since last fall.
This is not a prediction that markets will fall. It is a reflection of what the current data supports. Our focus remains on stability and resilience, so that portfolios are better prepared if conditions become more challenging.
In practical terms, that means:
- A higher-than-usual allocation to cash and cash-equivalent positions, which are currently earning a relatively low-risk yield while we wait.
- A tilt toward steadier, more defensive areas of the market, such as consumer staples and health care.
Just as important is what we are not doing. We are not retreating from the market. Broad U.S. equity exposure remains part of client portfolios where appropriate, so clients continue to participate in the market’s leading companies, including technology. Our defensive posture is expressed around the edges, not by stepping aside.
The goal is twofold: to help soften the impact if the market does pull back, and to keep flexibility on hand, what we sometimes call “dry powder”, so we can move back toward a more growth-focused mix on better terms when the opportunity comes.
One honest note on this. When markets are charging straight up, as they have been, a more cautious approach can mean trailing a fully invested market in the short run. That is the trade-off of leaning defensive, and it is intentional. The chapters where this approach has tended to prove its worth are not the runaway months. They are the difficult ones.
What Could Change Our Positioning
We are watching closely for developments that would warrant a shift, including:
- Greater clarity from the Fed, particularly on whether the next move on interest rates is up or down.
- A broadening of the rally beyond a small group of companies.
- A meaningful reset in prices that improves the long-term setup.
If the data begins to reflect those changes, we would expect to adjust accordingly and move back toward a more growth-oriented allocation.
What Matters Most Right Now
Environments like this tend to reward discipline more than prediction.
When markets are rising in a straight line, it is easy to get pulled into the momentum and the headlines. Our approach is built around responding to data, not reacting to noise, and that holds whether the market is soaring or sliding.
We remain positive about the long-term picture. But for now, the data continues to point toward caution, and that is where we are leaning: staying defensive around the edges while remaining ready to move when the signals change. None of this requires dramatic action. It reinforces the value of staying grounded in a process that adapts as conditions evolve.
As always, if your financial situation, goals, or risk tolerance have changed, please reach out so we can make sure your plan still reflects what matters most to you.
Sources
- CNBC, U.S. markets coverage, May 2026 (cnbc.com)
- TheStreet, “Stock Market Today” daily recaps, May 2026 (thestreet.com)
- Advisor Perspectives, S&P 500 monthly moving-average update, May 2026 (advisorperspectives.com)
- S. Bureau of Economic Analysis, Personal Consumption Expenditures (PCE) price index, April 2026 (bea.gov)
- com, S&P 500 Shiller PE (CAPE) Ratio (multpl.com)
Past performance is not indicative of future results. Any references to relative performance are based on internal portfolio observations and are provided for informational purposes only. Indexes such as the S&P 500 are unmanaged, do not incur fees, and cannot be invested in directly. Individual client results may vary based on factors including timing, allocations, and specific investment objectives.
The opinions expressed are those of Strategic Advisory Partners, who reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs. There is no guarantee that their assessment of investments will be accurate. This material is for informational purposes only and should not be construed as investment advice. Past performance is not indicative of future results. All investing involves risk, including the loss of principal, and there can be no guarantee that investment objectives will be met.
