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| Quarter | Letter Date | Fund Name | QTD | YTD | Tickers | Themes | Quick Take |
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"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 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.
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