Melting Higher!
The major indexes are pushing to all-time highs, with markets increasingly pricing in a more stable geopolitical backdrop following tensions in Iran. Risk appetite has returned, and leadership remains concentrated in AI-driven market segments.
We continue to emphasize the AI theme as the dominant fundamental force driving earnings growth and investor demand. Companies tied to semiconductors, data infrastructure, and automation are leading this cycle, supported by strong capital spending and long-term secular tailwinds.
Liquidity conditions have also improved modestly. While the Federal Reserve has been in a quantitative tightening cycle since 2022, recent balance sheet movements suggest a slower pace of contraction, which can act as a tailwind for risk assets at the margin. The Fed’s balance sheet has increased by over $150 billion since Last December, which gives me the conviction to step on the gas and rest, knowing the Fed has our back.
That said, markets are becoming extended in the near term. The semiconductor index has rallied sharply in a short period, reflecting aggressive dip-buying behavior and momentum-driven flows. While this strength is constructive, it is unlikely to persist without periodic pullbacks.
This type of “melt-up” environment—where buyers chase strength and quickly step in on dips—can persist longer than expected, underscoring the importance of disciplined risk management. Sharp rotations or corrections can occur with little warning.
The S&P 500 is up approximately 5% year-to-date, and the broader trend remains positive. Client portfolios are participating in this strength, and we remain positioned to benefit from continued upside while staying attentive to risk.
Bottom line: The trend is higher, AI remains the primary driver, but conditions are increasingly extended. Managing risk—not chasing momentum—remains the priority.
Give thanks to the Lord, for he is good; his love endures forever. Psalm 118:29