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Armbruster Capital Management's Q2 2026 review highlights a significant shift in market leadership as the Magnificent Seven stocks that dominated the prior three years posted negative returns in the first half, while broader market participation drove strong gains. Small cap stocks led with a 90.7% quarterly return, and AI sentiment propelled semiconductor names like AMD, Micron, and Intel to over 100% gains. The firm's large cap information technology fund returned 42% for the quarter. Emerging markets also delivered exceptional returns, with Taiwan Semiconductor and Samsung benefiting from AI tailwinds while trading at cheaper valuations than U.S. large caps. However, inflation rose throughout the quarter driven by energy price increases, with CPI reaching 3.2% and the Fed shifting from rate cut expectations to potential hikes. The S&P 500's Shiller CAPE ratio stands at 40%, near dot-com bubble peaks, with the top 10 stocks representing 38% of the index. The manager emphasizes that diversification into small caps, value stocks, and international markets is especially crucial given elevated large-cap valuations, even as high valuations don't necessarily signal an imminent downturn.
Market breadth is improving as the Magnificent Seven underperform and smaller, more diversified technology names drive returns, but elevated valuations for large-cap U.S. stocks necessitate increased exposure to small caps, value stocks, and international markets where valuations remain more attractive.
The manager expects that while strong returns have been achieved, longer-term returns may be more difficult to come by given that large-cap stocks are priced at nearly the highest level relative to earnings in history. The emphasis is on maintaining diversified exposure to small caps, value stocks, and international markets as more attractive areas. Inflation volatility from energy prices will likely continue to impact markets in coming months, and the shift in Fed policy from rate cuts to potential hikes represents a meaningful change in the macro backdrop.
| Date | Letter | Tickers | Keywords | Pitches | Quick Takes |
|---|---|---|---|---|---|
| Jul 7 2026 | 2026 Q2 | 005930 KS, AMD, INTC, MU | AI, emerging markets, inflation, market breadth, semiconductors, small caps, technology, Valuations | - | Market leadership broadened in Q2 2026 as the Magnificent Seven lagged while AI-driven semiconductor stocks and small caps surged, with some names returning over 100%. Despite strong performance, S&P 500 valuations near dot-com peaks and rising inflation prompt the manager to emphasize diversification into small caps, value, and cheaper emerging markets. High concentration and elevated multiples make exposure beyond large-cap U.S. tech especially crucial. |
| Apr 7 2026 | 2026 Q1 | - | Bonds, energy, Geopolitical, gold, inflation, Iran, oil, War | - | Iran war drove oil prices up 50% and energy stocks up 37.9%, while tech stocks fell 12.1%. Despite geopolitical tensions, markets remain resilient with S&P 500 avoiding correction. Gold was volatile, gaining 22% then falling 11%. Armbruster prefers liquid alternatives over gold and advocates staying invested through volatility rather than market timing. |
| Jan 8 2026 | 2025 Q4 | - | AI, Alternatives, Bonds, diversification, international, technology, Valuations | - | Armbruster Capital emphasizes diversification despite AI-driven tech dominance delivering 24.7% returns in 2025. International markets outperformed significantly while bonds gained 7.3% from Fed cuts. Elevated valuations and market concentration raise future return concerns, but historical patterns suggest diversified positioning across small-cap, international, and value stocks will outperform when valuations are stretched. |
| QUARTER | THEMES | TAGS |
|---|---|---|
| 2026 Q2 |
AIAI sentiment drove exceptional returns in both domestic and international tech stocks during Q2 2026. Companies like AMD, Micron, and Intel benefited significantly from positive AI sentiment, with some returning over 100% in the quarter. The large cap information technology fund returned 42% for the quarter capitalizing on these AI-driven gains. |
Semiconductors Technology Nvidia AMD Micron |
Market ConcentrationThe Magnificent Seven stocks (Apple, Microsoft, Amazon, Alphabet, Meta, Nvidia, Tesla) dominated returns over the past three years but generated negative returns in H1 2026. Market breadth improved as concentration declined from recent highs, though the top 10 stocks still represent 38% of the S&P 500. This broadening participation is viewed as healthier for the market going forward. |
Magnificent Seven Large Cap Technology Concentration | |
ValuationsS&P 500 valuations remain near long-term highs, with the Shiller CAPE Ratio at 40%, almost as high as the dot-com bubble peak. Despite strong recent returns pushing valuations even higher, the manager notes that high valuations don't necessarily signal an imminent downturn. However, longer-term returns may be more difficult to achieve at current levels, making exposure to more attractive areas of the market especially crucial. |
CAPE Ratio Dot-com S&P 500 Large Cap | |
Small CapsSmall cap stocks led domestic returns in Q2 2026, gaining 90.7% for the quarter. The manager emphasizes that exposure to small cap stocks is especially crucial given the current environment of elevated large-cap valuations, viewing them as a more attractive area of the market. |
Small Cap Value Diversification | |
Emerging MarketsEmerging market tech companies delivered exceptional returns in Q2, with Taiwan Semiconductor and Samsung Electronics as standouts benefiting from the AI sector rally. Despite recent strong gains, emerging market stocks still trade at valuations much cheaper than large-cap domestic stocks, presenting relative value opportunities. |
Taiwan Samsung Technology Semiconductors | |
InflationInflation rose throughout Q2 2026, with crude oil prices climbing above $85/barrel and CPI reaching 3.2% in May, the highest reading in over a year. The war contributed to higher energy and overall prices. Despite oil prices easing toward quarter-end, the period of volatility will likely continue to impact inflation in coming months. The increase in inflation led the FOMC to shift projections from rate cuts to potential rate hikes by year-end. |
Oil CPI Fed Rates | |
| 2026 Q1 |
OilOil prices skyrocketed 50% from $67 to over $100 per barrel due to Iran war disruption of Strait of Hormuz. Energy sector benefited significantly, up 37.9% for the quarter as elevated prices boosted performance. |
Oil Energy Iran Strait of Hormuz Crude |
GoldGold experienced volatile quarter with 22% gain in first two months followed by 11% decline in March. Long-term returns similar to bonds but with higher volatility and inconsistent inflation hedge properties. |
Gold Precious Metals Volatility Inflation Hedge | |
| 2025 Q4 |
AIManager believes market's assessment of AI risk differs from their own, with approximately 60% of underperformance attributed to positions where AI impact concerns drove stock declines. They view AI-impacted investments as having vast addressable markets and sustainable competitive advantages, expecting valuations to expand as market perspective aligns with theirs. |
Artificial Intelligence Disruption Valuation Software Analytics |
QualityFund exclusively invests in businesses with superior characteristics including high barriers to entry, sustainable competitive advantages, and durable growth prospects. Manager notes their quality-focused strategy was out of favor in 2025 as investors sold higher-quality investments to buy riskier stocks, but believes this creates compelling valuation opportunities. |
High Quality Competitive Advantages Barriers to Entry Margins Returns | |
Small CapsStrategy of owning competitively advantaged small and medium-sized businesses remained out of favor for most of the quarter. Fund focuses on businesses that were small-cap at time of purchase and have grown through stock appreciation, with weighted average holding period of 18.6 years demonstrating long-term approach to small-cap investing. |
Small Cap Growth Russell 2000 Outperformance Long Term |
| Date | Pitch Type | Author | Ticker | Company | Industry | Sub Industry | Bull / Bear | Exchange | Keywords | Action |
|---|---|---|---|---|---|---|---|---|---|---|
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| TICKER | COMMENTARY |
|---|---|
| AMD | Companies such as Advanced Micro Devices, Micron Technology, and Intel Corp. among others, benefited the most from positive broader sentiment in AI investment and contributed to much of the strong returns for the sector, both returning over 100% in the second quarter. |
| MU | Companies such as Advanced Micro Devices, Micron Technology, and Intel Corp. among others, benefited the most from positive broader sentiment in AI investment and contributed to much of the strong returns for the sector, both returning over 100% in the second quarter. |
| INTC | Companies such as Advanced Micro Devices, Micron Technology, and Intel Corp. among others, benefited the most from positive broader sentiment in AI investment and contributed to much of the strong returns for the sector, both returning over 100% in the second quarter. |
| 005930.KS | Taiwan Semiconductor and Samsung Electronics were two standouts as the tech sector globally took off in the second quarter. |
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