"Once more unto the breach, dear friends, once more." -- William Shakespeare, Henry V

 

Friday's market move was notable and understandably drew attention. Major indices declined, with the S&P 500 down approximately 2.5% and the Nasdaq experiencing a steeper pullback, driven largely by weakness in technology and semiconductor stocks. While the headline move appeared broad, the underlying drivers were more specific.

 

The primary catalyst was a sharp shift in interest rate expectations following a stronger-than-expected May employment report. Job creation came in well above forecasts, which pushed Treasury yields higher and led markets to price in a greater likelihood of additional Federal Reserve tightening. This repricing put immediate pressure on equity valuations-particularly in areas of the market, such as technology and semiconductors, that had become increasingly extended during the recent AI-driven rally.

 

That trend reversed decisively on Friday. The Semiconductor Index declined more than 10%, while growth-oriented indices such as the Nasdaq fell close to 5%. This represents a meaningful unwind of what had been a narrow and, at times, accelerated advance concentrated in a small segment of the market.

 

In contrast, other areas held up relatively well. The Dow declined just over 1%, and sectors including healthcare, energy, and financials finished higher. This divergence suggests the move was less indicative of a broad market breakdown and more consistent with a rotation from Growth toward Value.

 

This is precisely why we have maintained diversified exposure. Our positioning in 2026 includes non-U.S. assets and allocations beyond technology-such as healthcare, financials, large-cap value, and more recession-resilient companies like Costco. While these areas have lagged year-to-date amid technology's dominance, they have recently begun to improve and provided relative stability during Friday's volatility.

 

From a broader perspective, the macro backdrop remains complex. The U.S. economy continues to show relative strength-particularly in the labor market-even as inflation pressures persist. At the same time, higher interest rates, elevated energy costs, and ongoing geopolitical tensions, particularly in the Middle East, continue to create uncertainty. Markets are increasingly balancing solid economic activity against tighter financial conditions and higher costs of capital.

 

This type of rotation can ultimately be constructive. Markets that become overly dependent on a narrow group of leaders can grow fragile, and periods like this often help broaden participation. That said, these transitions are rarely smooth, and we may continue to see elevated volatility as leadership evolves and prior leaders consolidate.

 

Looking ahead, attention will turn to upcoming inflation data and Federal Reserve policy expectations. These will be important in determining whether recent pressure on rates persists and how markets continue to adjust. A possible reopening of the Strait of Hormuz could be a catalyst for a bounce and supports owning risk assets. The macroeconomic backdrop continues to favor a broadening rather than a market top. Corrections will happen, but their timing and duration are nearly impossible to predict. Instead, our investment decisions are driven primarily by the fundamentals of the economy and the companies we own (and the valuations the market assigns to them).

 

As we have discussed, markets typically require time to stabilize following sharp moves, and additional near-term volatility would not be unusual before a clearer trend emerges. Maintaining a disciplined, diversified strategy remains especially important during periods like this.

 

We will continue to monitor developments closely and adjust as appropriate. As always, our focus remains on managing risk thoughtfully while keeping your long-term objectives at the center of our strategy.

 

Please feel free to reach out if you would like to discuss your portfolio in more detail.

 

Kind regards,
Michael