| ANNUALIZED SINCE INCEPTION | QUARTERLY | YTD |
|---|---|---|
| - | - | - |
The second quarter of 2026 delivered one of the strongest rallies in years, with the S&P 500 returning 15.2% and small-cap stocks leading the way. The Russell 2000 posted its best first half since 1991, up 22.6% year to date, while the equal-weight S&P 500 outpaced the cap-weighted index. This broadening of market participation is the healthiest development in years. The quarter began with a geopolitical shock as the Strait of Hormuz closure sent oil surging 94% in Q1 before falling 38% in Q2 following an interim accord. Inflation remains elevated, with CPI at 4.2% and core PCE at 3.4%, driven partly by the AI build-out's impact on electricity and hardware costs. The Fed turned hawkish under new Chair Kevin Warsh, with rate hike odds rising. Corporate earnings are strong, with Q2 growth expected at 23.1% on broad-based upward revisions. The manager maintained discipline through volatility, adding to quality names during the spring selloff and trimming winners in June. Key risks include consumer affordability pressures and sticky core inflation from AI infrastructure spending. The manager expects headline inflation to ease as oil effects fade, potentially reducing Fed tightening pressure.
Broader market participation, led by small-cap stocks posting their best first half since 1991, signals a healthier bull market after years of narrow leadership. The manager welcomes this shift and maintains a disciplined, diversified approach designed for full market cycles rather than chasing concentrated index momentum.
The manager expects headline inflation to ease in the second half as the oil shock fades, but core inflation tied to the AI build-out is likely to prove stickier. The Fed will likely deliver less tightening than currently priced if inflation rolls over as expected. The manager ranks inflation as the most important factor for the second half, followed by the Strait of Hormuz truce negotiations, market breadth, and consumer spending. The tone is cautiously optimistic, with a focus on discipline and patience through full market cycles.
| Date | Letter | Tickers | Keywords | Pitches | Quick Takes |
|---|---|---|---|---|---|
| Jul 22 2026 | 2026 Q2 | - | AI, Fed policy, Geopolitical Risk, inflation, market breadth, oil, small caps | - | Small-cap stocks led a powerful Q2 rally, posting their best first half since 1991 and signaling healthier market breadth after years of narrow leadership. Oil volatility from the Strait of Hormuz crisis is fading, but AI infrastructure spending is driving sticky core inflation. The manager maintained discipline through the spring selloff, adding to quality names and trimming winners, positioning for full market cycles rather than chasing concentrated index momentum. |
| Apr 28 2026 | 2026 Q1 | - | energy, Fed policy, Geopolitical, inflation, Iran, Market Rotation, oil, value | - | Iran conflict drove oil up 77% and accelerated rotation from growth to value stocks. S&P 500 fell 4.3% while energy surged 37%. Fed held rates steady as inflation hit 3.3%. Biondo views value rotation as healthy correction despite geopolitical uncertainty. Growth strategies underperformed while dividend strategies outperformed during the quarter. |
| Jan 22 2026 | 2025 Q4 | - | AI, earnings, growth, inflation, rates, technology, Trade Policy, volatility | - | US markets delivered strong 2025 returns led by technology despite early volatility from inflation and trade concerns. Fed cut rates three times while maintaining restrictive stance. Corporate fundamentals stayed healthy with robust AI-driven investment. 2026 outlook hinges on persistent inflation pressures, labor market divergence, and earnings growth needed to justify higher valuations amid continued selectivity requirements. |
| Oct 24 2025 | 2025 Q3 | - | Capital markets, Economic Policy, Federal Reserve, Market Commentary, rates, tariffs, Trade Policy, volatility | - | Markets demonstrated exceptional resilience in Q3 2025, with the S&P 500 gaining 8.1% despite government shutdown and trade tensions. Fed rate cuts and broad sector participation supported the rally, while capital markets activity rebounded. However, escalating US-China trade disputes and prolonged shutdown risks require disciplined positioning and sector diversification going forward. |
| QUARTER | THEMES | TAGS |
|---|---|---|
| 2026 Q2 |
Small CapsThe Russell 2000 index of small-cap stocks returned 21.6% for the quarter and is now up 22.6% year to date, its best first half since 1991. The Russell MicroCap index did even better, up 26.1% and 28.0%. For the first time in years, the smallest companies led the way, and it was not close. The equal-weight S&P 500 is up 12.1% this year, versus 10.2% for the cap-weighted index. The average stock is beating the giants. |
Russell 2000 MicroCap Equal Weight Breadth |
AIThe AI build-out is driving significant capital expenditure, with the five largest cloud companies expected to spend roughly $741 billion this year, up nearly 75% from 2025. Goldman Sachs projects that data centers will drive nearly half of the growth in US power demand through 2030. The same spending that just handed the Philadelphia Semiconductor Index its best quarter on record is also a reason core inflation could prove stickier than the oil math alone suggests. |
Data Centers Cloud Semiconductors Inflation | |
OilThe closure of the Strait of Hormuz handed the global economy a genuine supply shock. Brent crude surged 94% in the first quarter, its biggest quarterly jump since 1990, then gave nearly all of it back, falling 38% in the second quarter to settle just under $73 per barrel. An interim accord signed on June 17 opened a 60-day window to negotiate a permanent truce. With crude back in the low $70s, the headline inflation pressure from oil should reverse in the second half. |
Brent Strait of Hormuz Supply Shock Geopolitical | |
InflationThe Consumer Price Index rose 4.2% over the twelve months ended May, the fastest annual pace in more than three years. Core PCE, the Fed's preferred gauge, has drifted up to 3.4% after three consecutive months of gains. Much of the headline pressure stems from the oil shock still working its way through the pipeline, but the AI build-out's push on electricity and hardware prices is what the manager watches most closely because it will not unwind the way oil did. |
CPI Core PCE Electricity Data Centers | |
RatesKevin Warsh chaired his first FOMC meeting on June 16 and 17, and while the committee unanimously held the federal funds rate at 3.50%-3.75%, the message around the decision turned distinctly hawkish. Nine of eighteen committee participants now project at least one rate hike by year-end. The CME FedWatch Tool puts the odds of a hike at the late-July meeting near 1 in 3, and of at least one hike by September near 70%. The manager believes the consensus is drawing the wrong conclusion from the new chair's tough talk. |
Fed FOMC Hawkish Hikes | |
EarningsAnalysts now expect second-quarter earnings growth of 23.1% on revenue growth of 12.3%, and both estimates rose during the quarter, which is rare. The upward revisions have come from well beyond a handful of technology names, and that breadth of profit growth is exactly what a durable bull market requires. |
Profit Growth Revenue Breadth Revisions | |
| 2026 Q1 |
OilWTI crude oil surged 77% during the quarter due to the Iran conflict and closure of the Strait of Hormuz. Brent crude rose from $61 to $118 per barrel, its largest inflation-adjusted quarterly increase since 1988. Energy stocks dominated Q1 with the S&P 500 energy sector surging over 37%. |
WTI Brent Strait of Hormuz Energy Stocks Iran |
ValueValue stocks outperformed growth throughout Q1, gaining about 1.3% while growth stocks declined over 8%. The shift toward value and away from overpriced growth stocks was viewed as a healthy and overdue correction. Value beat growth in each of the three months consistently. |
Value Stocks Growth Stocks Rotation Outperformance | |
InflationInflation rose to 3.3% over the past twelve months, with gasoline accounting for nearly three-quarters of the monthly gain. The Fed's preferred inflation measure was revised up to 2.7% for year-end 2026. The inflation challenge remains concentrated in energy rather than built into wages or services. |
CPI Fed Energy Costs Wages | |
RatesThe Fed held rates steady at 3.50%-3.75% with market expectations shifting from two to three cuts to just one cut for the year. Longer-term Treasury yields rose over the quarter with the whole curve moving sharply higher. Powell's term expires May 23, 2026 with Kevin Warsh as leading successor. |
Federal Reserve Treasury Yields Rate Cuts Powell | |
IranOperation Epic Fury launched February 28 as joint US-Israeli military campaign against Iran, targeting military facilities and nuclear sites. The conflict effectively closed the Strait of Hormuz and reset the investment landscape. The near-term outlook hinges on how long the conflict lasts and how it ends. |
Geopolitical Risk Military Campaign Middle East Conflict | |
| 2025 Q4 |
AIPershing Square views AI as a major driver of market performance and structural growth, particularly benefiting megacap technology companies. The firm has positioned in AI beneficiaries like Alphabet, Amazon, and Meta, seeing AI integration as a key catalyst for these businesses. They believe AI-driven earnings growth justifies higher market multiples for leading technology companies. |
Artificial Intelligence Technology Cloud Data Centers Machine Learning |
MegacapsThe firm has significantly increased exposure to high-quality, higher-growth megacap companies, believing they offer structurally superior growth at reasonable valuations. Pershing Square argues these companies have sustainable competitive moats and deserve higher multiples given their growth profiles compared to the broader market. |
Large Cap Technology Growth Market Leaders Quality | |
BuybacksPSH has repurchased 74 million shares representing 29.7% of initial shares outstanding at an average discount to NAV of 29%. Share buybacks contributed 1.2% to 2025 performance and remain a key strategy for addressing the discount to NAV. |
Share Repurchases Capital Allocation NAV Discount Shareholder Returns | |
DividendsPSH revised its dividend policy in Q2 2022 whereby dividends now increase with NAV. The quarterly dividend has increased 84% from $0.10 per share in 2019 to $0.1837 per share currently, representing a key component of total shareholder returns. |
Dividend Policy Income Shareholder Returns Capital Allocation | |
| 2025 Q3 |
RatesThe Federal Reserve cut rates by 25 basis points in September, marking a formal shift toward easier monetary policy. Updated projections suggest two or more additional cuts before year-end, with the 10-year Treasury yield moving up toward 4.1% and the 2-year yield near 3.5%. |
Federal Reserve Rate cuts Monetary policy Treasury yields Borrowing costs |
Trade PolicyThe US has threatened to impose 100% tariffs on Chinese imports beginning November 1, while China has expanded controls on rare-earth exports. These developments push trade narrative from latent risk to active front-runner in macro uncertainty, highlighting the importance of supply chain flexibility. |
Tariffs China trade Rare earths Supply chains Trade tensions | |
Capital MarketsConfidence has been gradually returning to deal-making, with companies pursuing mergers and acquisitions after a quiet start to the year. IPOs picked up in technology, healthcare, and clean energy, while credit markets showed improvement with companies issuing new bonds at more favorable rates. |
M&A IPOs Credit markets Bond issuance Deal making | |
VolatilityDaily swings in both equities and bonds have grown sharper as investors react to changing expectations around monetary policy, trade tensions, and fiscal uncertainty. Rather than viewing this as instability, it reflects markets adjusting to a new phase of the cycle. |
Market volatility Daily swings Policy uncertainty Market cycles Turbulence |
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