America at 250 … Hot!—2nd Quarter 2026 Commentary

America at 250 … Hot!

God Bless America! I hope you and yours enjoyed celebrating our nation’s big birthday last weekend. What a remarkable experiment America has been. Surely our brave, revolutionary founders would be amazed to see our republic today, to learn that what they boldly proclaimed 250 years ago—that all men are created equal, that rights, including life, liberty and the pursuit of happiness, come from their creator, that governments derive their powers from the consent of the governed—still stands! What a gift to each of us. It is humbling to think of the countless Americans who have led, built, invented, fought, sacrificed, died, taught, and inspired us to hold it together since independence. May we honor their legacy by doing our part to preserve the republic as we look ahead to our 300th birthday in 2076.

The 250th was special and it was significant. It was also hot! Not the best time for the A/C to fail. That’s what happened at the Bragg Financial building last week. Yep. We’ve had a warm week at our workstations to be sure. Our people have endured sweating through suit pants, bullying over box fans, and a fair portion of finger pointing. My brother John Bragg has learned that frugality has its limits. John, in addition to his duties as a full-time Client Advisor at Bragg, is our designated property manager. It is an unpaid position, but he takes it seriously nonetheless.

John was alarmed last week when our loyal HVAC service technicians said they’ve exhausted their efforts and simply can’t fix the A/C. John asked, “What do you mean you can’t fix it? Surely it can be fixed!” They explained that our 16-year-old system had experienced a “catastrophic failure.” They reminded John that they had strongly recommended replacing the old system more than two years ago when we endured a similar sweltering week when the system was down. At the time, they had given us a quote for a new system. Sticker shock resulted in John’s “deferring the maintenance,” as they say. He told them, “Nah, let’s just repair it. It’s so much cheaper. We’ll be fine.” John’s alarm last week transitioned to a full-on panic when our aforementioned loyal HVAC service technicians told him the new system wouldn’t be ready for two months. Needless to say, he’s had a tough week at work!

In his defense, John comes by it honestly. Like many a first-born, John listened carefully to the lessons of our father, Frank Bragg, who for the last sixty years has preached (and practiced) a sometimes-extreme form of frugality. Dad buys most of his clothes at BJ’s Wholesale and still owns most everything he owned 50 years ago when we celebrated America’s bicentennial. A typical exchange:

Benton: “Nice jacket, Dad.”

Frank: “Yep. Cost me $17 on sale at BJ’s.”

Some of Dad’s lessons: Live well below your means; pay yourself first; take care of the nickels and dimes and the dollars will take care of themselves; put your tools away; if it breaks, fix it, and so forth. I was impressed the other day when he commented on government inefficiency using a Latin phrase: “Oculus domini saginat equum.” He usually sticks to plain English. He translated for me, “The horse fattens best under the watchful eye of its owner.” Fancy Latin or plain English, this is the philosophy that led us to pass on hiring a property manager. And now, John Bragg is scrambling to find some cool air.

John Bragg and loyal HVAC service techs fighting a losing battle

Speaking of hot, we’ve had a very hot stock market.

How hot? This is the fourth calendar year in a row that stocks have delivered robust returns. The S&P 500 climbed roughly 26% in 2023, added more than 24% in 2024, another 17% in 2025, and is up just over 10% for the first half of 2026. Four good years in a row. It might be easy to talk yourself into believing that this is simply the way things work. It is not. We have seen stretches like this before—the back half of the 1990s delivered five straight years of 20%-plus returns leading up to the 48% decline of the dotcom bust—so a run like this is not unprecedented. But neither is it the norm. The long-run average for stocks is closer to 10% a year, and that average is built from many years that look nothing like the average. Four hot years in a row is unusual, and for investors, it is a gift.

The heat in this market is not evenly distributed. For most of the last few years, a small handful of enormous technology companies—the ones Wall Street christened the Magnificent 7—did the bulk of the work. More recently, the story has begun to change. The Magnificent 7 as a group are actually down a few percent so far in 2026, while the other 493 companies in the index—what market commentator Ed Yardeni has cheerfully rebranded the “Impressive 493″—have held up better. Smaller companies, value companies, and a number of unloved corners of the market have started to participate. Yardeni, who likes to call this era the “Roaring 2020s,” has been making the case for a broadening of the market for some time, and this year he is looking prescient. Concentration, it turns out, can work in reverse.

Even within a single sector, the gains have been remarkably uneven. Consider technology, often considered a monolithic group of companies that tend to show high correlation of returns. Of late, performance within tech has diverged dramatically. Memory chipmakers have been on fire. Micron Technology, a company that spent most of its corporate life as a cyclical commodity chip manufacturer, reported that revenue for fiscal Q3 ending in May 2026 more than quadrupled from the same quarter the prior year. Net income for the same quarter grew from $1.8 billion in 2025 to $28 billion in 2026. This exponential growth resulted from surging demand for the memory chips that artificial intelligence requires. As you might expect, investors saw the surprise results and the stock soared. Over twelve months ending June 30, Micron was up more than 800%. Advanced Micro Devices (AMD), maker of processors that power AI, was up more than 300% for the same period, and Applied Materials, which doesn’t make chips, but does sell the equipment on which the chips are made, was up 295%. Intel, left for dead not long ago, is up five-fold over the last twelve months. Meanwhile, in the very same sector, the software-as-a-service companies have gone in the opposite direction. For the same twelve-month period, Salesforce was off 40% and ServiceNow was down 50%. Oracle declined by 32% and even Microsoft, a proud member of the Mag 7, was down 24%. The old assumption that “tech goes up together” has abruptly stopped being true. Sleepy cyclical chipmakers have become the darlings, while yesterday’s high-margin software champions have languished. Even with the underperformance of certain pockets of the market, the net numbers have been positive.

Why So Hot?

There are several reasons for the market’s continuing strength and they are worth separating.

The first is a genuinely good economy. Real GDP has been growing at a respectable clip; the June release from the Bureau of Economic Analysis showed GDP growth of 2.1% in the first quarter of 2026 and 2.7% from a year earlier, according to analysis by consulting firm EY. Unemployment remains low, in the neighborhood of 4.2%. Inflation, the villain of the early part of this decade, has proven stubborn. May’s CPI came in at 4.2%, a three-year high, pushed up by the energy spike tied to the conflict in the Middle East. The encouraging news is that underneath the energy shock, core inflation held to 2.9% so the broad price pressures of a few years ago have not returned and energy prices are now moderating as well. The American consumer, whom pundits have doubted for three straight years, keeps getting up, going to work, and spending money. In explaining sustained consumer strength, some analysts point to a wealth effect among Baby Boomers, who hold an enormous share of the nation’s net worth and who are now spending it—traveling, helping the grandchildren, remodeling the kitchen—in a way that keeps the economic engine humming. It is hard for stocks to fall apart when the economy underneath them is this sturdy.

The second reason is corporate earnings, which have been outstanding. This one matters most, because over long periods of time, earnings—not narratives and not sentiment—are what drive stock prices. Companies have delivered. According to FactSet, using earnings data through June 30, analysts project S&P 500 earnings to grow by a whopping 24% in 2026—a figure that has been revised higher all year, as company after company beat expectations. This steady increase in expected earnings growth is the opposite of the usual pattern, in which estimates drift lower as the year wears on. And the strength is not confined to a few giants. Only two of the five largest contributors to this year’s earnings growth are Magnificent 7 names; the other 493 companies are on track to grow earnings by around 12%. As for Mag 7 companies, for its fiscal year ended January 2026, Nvidia posted well over $200 billion in annual revenue and a net margin of more than 55%—numbers that would have been unimaginable for a chip company a decade ago. Microsoft’s Azure cloud business grew 40% year over year and the company sits on a backlog of contracted future revenue exceeding $600 billion. These are not paper profits or hopeful projections. When earnings like these show up quarter after quarter, stocks tend to follow.

The third reason is artificial intelligence, and here we move from hard data to something more emotional. AI has convinced a great many investors that the future will be dramatically different from the past, and that the companies building this technology will capture staggering value. There is a palpable urgency in the market—a fear of being left behind. It is clear that many investors have stopped asking merely what a company might earn next quarter and have started trying to build into their models the enormous, hazy promise of a technology that is changing faster than anything we have seen. That is a very different way of valuing a business, and it introduces a very different kind of risk.

The Exciting Headlines

If you open the Wall Street Journal, turn on CNBC, or scroll through Bloomberg, you can’t miss the excitement. In June, SpaceX completed the largest initial public offering in history, coming public at a valuation around $1.75 trillion, pricing at $135 a share, and briefly touching $225 before trading back down to $170 by June 30. Just fifteen trading days after the IPO, it was fast-tracked into the Nasdaq-100. The financial press was breathless and already is buzzing anew about the anticipated public offerings of Anthropic and OpenAI, the two leading artificial-intelligence labs, either of which would be an event on par with Taylor Swift’s marriage to Travis Kelce. Goldman Sachs recently raised its forecast for 2026 IPO proceeds to $225 billion. And then there are the stocks I mentioned earlier—Micron, AMD, Applied Materials—that have gone, in the space of twelve months, from afterthoughts to phenoms.

It is genuinely amazing to watch. A sleepy, cyclical memory-chip company becomes one of the most valuable enterprises in the country practically overnight. And watching it, an investor cannot help but feel something. The ship is pulling away from the dock. Everyone seems to be aboard, laughing on the deck, headed somewhere wonderful. And here I stand on the shore. “Without me?” That feeling has a name—FOMO, the fear of missing out—and it is one of the most powerful and dangerous forces investors face.

The Scary Headlines

Open that very same Wall Street Journal, and right next to the breathless story about the next trillion-dollar IPO, you’ll find an article warning that the market is an AI-hyped bubble that will drag down the US economy. Just this week, the Wall Street Journal ran a piece citing several reputable economists sounding the alarm about AI. Torsten Slok, chief economist at Apollo Global Management, argued that it couldn’t end well, predicting that AI will either be too effective and therefore eliminate jobs, raise unemployment and cause a deep recession. Or, it will be a great disappointment resulting in many billions of lost investment, devastated portfolios, and great harm to the economy. Other economists in the article pointed to the risks of AI-driven cyber attacks potentially crippling the US financial system. Also this week, the Wall Street Journal reported that Michael Burry, the investor immortalized in the book and movie The Big Short for calling the 2008 housing collapse, has widened his bet against the AI trade, warning that a wave of chip investments marks “the beginning of the end.” Read a few articles like that on a morning when the market is down 2% to 3%, and a very different emotion takes hold. Not fear of missing out, but plain old fear.

The bubble case is easy to make, and in some respects compelling. The Shiller cyclically adjusted price-to-earnings (CAPE) ratio recently pushed above 40, a level reached only once before in American history—right before the dot-com crash. The ten largest companies in the S&P 500 account for more than 40% of the index. The numbers that trouble the skeptics are real: the hyperscalers (Amazon, Microsoft, Meta, Alphabet) are projected to spend somewhere between $650 billion and $725 billion on AI infrastructure this year, up from $410 billion last year, while the AI ecosystem—consumer and enterprise combined—is generating a small fraction of that in actual revenue. We are certainly in the early days of spending on AI, especially corporate spending, but time will tell if these massive investments will generate the returns markets have priced into stocks. A final concern is the constraints. Will we have enough power to deliver AI as promised? Communities are increasingly pushing back on data center construction, fearing the extra strain placed on local power grids and water resources.

The bull case is also strong. The dot-com bubble burst because it was built on companies with no earnings. That is not what we have today. The leaders of this market are among the most profitable enterprises the world has ever known, throwing off real cash by the tens of billions. The technology is not a promise; it is steadily being woven into how tens of thousands of companies operate, with the large majority of big enterprises using it in some form. Earnings are real and adoption is happening at scale. Will we learn of overvalued companies and even bubbles in parts of this market? Absolutely, and we fully expect meaningful volatility—perhaps a bear market, perhaps a recession—somewhere in our future. But “there will be volatility” and “it is all a mirage” are two very different statements, and the honest investor has to hold both the excitement and the danger in mind at the same time.

How We Are Using AI at Bragg Financial

Bringing this down to our own very warm offices on South Caldwell Street may be helpful. We are using these new AI tools, and we are learning as we go. They help us summarize documents, draft first versions of routine correspondence, sift through research, and handle some of the tedious work that previously took a lot of time. The honest assessment, at this point, is that these are incremental improvements—useful, welcome, but not revolutionary. And the more we use them, the more convinced we become of two things. First, you need a human in the loop. The tools are confident even when they are wrong, and in our business a confident error is a dangerous thing. Second, far from replacing people, we find we need more of them. In fact, we plan to hire five people this year. In addition, somewhat ironically, considering the beating that software companies have recently taken, we are spending more on software than we previously were … AI-enabled software. Finally, we’ve determined that fully capturing the transformative capabilities of AI will require a significant investment of time and money.

Our experience at Bragg Financial is anecdotal. But I suspect it is being repeated in thousands of companies right now, all of them scrambling to figure out how to turn a remarkable new tool into a better business. That process takes time. It always has. Electricity, the automobile, the personal computer, the internet—each arrived with enormous promise and each took years, sometimes decades, to genuinely reshape the economy. And each, ultimately, raised our standard of living and grew the economic pie in a way that benefited nearly everyone on the planet. We think this one will, too. The path there will be bumpy—there will be ups and downs, volatility, and disappointment along the way. There is one thing that is different this time, and it is the thing that unnerves people: the pace of change is faster than it has ever been. And yet, when we weigh it all, we remain optimistic. Humans are very good at adopting a new tool and putting it to work, and very good at solving the problems that come with it.

Putting Optimism Into Practice

How do we translate that optimism into an actual portfolio? We do it by remaining humble. We remind ourselves, every single day, that we cannot see the future—not the direction of the market, not the winner of the AI race, not the timing of the next recession. We place our trust instead in free-market capitalism and in the simple, durable idea that owning pieces of good companies—businesses run by talented people who get up each morning trying to solve problems and earn a return on capital—is the best place we know to store and grow wealth over time. And we refuse to concentrate the portfolio. We diversify—across asset classes, across sectors, and across individual companies—precisely because we know we will be wrong about some things. Watching Microsoft, one of the finest businesses on earth, trade at a price 32% below its all-time high is a bracing reminder of why. No single company, however brilliant it looks today, deserves a bet-the-farm allocation. Diversification is our insurance policy against our own certainty.

There you have it. 250 for the USA, a hot summer, a hot market. Thank you for choosing Bragg Financial to help you keep your cool. We are grateful, as always, for your trust.

This information is believed to be accurate at the time of publication but should not be used as specific investment or tax advice as opinions and legislation are subject to change. You should always consult your tax professional or other advisors before acting on the ideas presented here.