Aptus Quarterly Market Update: Q2 2026

Full Transcript

Derek

All right. Welcome, and thanks for joining us. We’re actually pretty much right at the bell. We’re doing our second quarter wrap. So nice timing, y’all. We’ve got three of our best and brightest, founder of the firm, JD Gardner; head of equities, David Wagner; head of fixed income, John Luke Tyner. We’re just going to go through some of the stuff that happened in Q2. More importantly, talk about what may be ahead. I’ll do a disclosure.

I feel like I’m in a little bit of an echoey room. So I’m going to do this and let the smart guys talk. The opinions expressed during this call are those of the Aptus Capital Advisors Investment Committee and are subject to change without notice. This material is not financial advice or an offer to sell any product. Forward-looking statements are not guaranteed.

Aptus reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs. More information about Aptus’s investment advisory services can be found in its form ADV Part 2, which is available upon request. A whole lot of activity. Well, certainly, April and May, and then a little bit of chop in June, but all kinds of rotations. So I know you guys have plenty to talk about. Fire away.

David

Yeah. No doubt. Thanks for that, Derek. So we always start these calls off just a little bit differently than we do on our monthly calls. But if you’ve joined these calls in the past, you probably know that we start off talking always about something positive or optimistic, because we just live in a world that, in my mind, it rewards fear or bearishness or some type of instant gratification, and that’s not how I like to live my life and many of us at Aptus don’t want to live our lives.

We want to have fun here at Aptus. And I think over the last 13 years of our existence, and I’m actually not inflating that number, JD, on 2013, but I think over those 13 years, we’ve definitely learned a few things. And I think one thing that we do so well at Aptus is that we want to share our learnings, because we hope that it helps every single one of our partners grow, not just as people, but really as investors.

While I can’t say that we’ve always been right, but I can promise you that we’re always going to remain pragmatic and learn from our mistakes. We’ve made a lot in the past, but again, we’ll remain pragmatic. So many of you all know on this call that I have rants. So I’m going to give you my most recent rant, and it actually is what my entire newsletter is about in regards to the HBO show, as I write thematically, the HBO show Succession.

But the theme is basically how investors, they need to recognize change faster in this market. And I think what I start off by saying is that the worst personality trait of an investment professional, it’s to resist change. I mean, markets, they’re constantly evolving. And the investors that fail to adapt, they’re the ones who get left behind. I think stubbornly clinging to outdated frameworks, familiar names, or comfortable narratives, it’s just not a sign of discipline. It’s actually a blind spot.

I mean, we all know that the greatest opportunities in markets, they’ve almost always emerged from change, and the greatest losses have often come from those who refuse to see it coming. I mean, an open mind is not optional in this profession. It is the job. And I think this wisdom here, it’s even more apparent today, as it feels like everything in this market, it’s changing. And not only is it changing, it’s changing just so quick.

I mean, think about AI. Think about the Fed and Kevin Warsh and how he views the world, the evolution of valuations, or the composition of different markets. Change is everywhere, but the most sensible approach to change, it’s always a balanced one. And in my opinion, it’s what JD is about to talk about here soon. It’s going to come from the asset allocation level, and I think that’s personally where we do our absolute best work.

But recognizing change in an investment industry that tends to be very slow-moving and antiquated in its thinking, I think, gives us and yourselves such an advantage. But before I pass up to JD to talk briefly, let me leave you with a few things, because I speak, and so does JD, John Luke, and the rest of the team, to people all across the country to kind of get their gauge of where they stand mentally in the markets.

But I think I’ve kind of gathered my overall thoughts on two things that could maybe help advisors and investors from looking at this world in the right perspective, and the first one would be is the pursuit of perfection. It’s an ultimate pressurized failure mindset. It’s one that will eat every single investor alive if they continue to chase it. Everyone wants to be the hero, because they care, and they really want to win just so badly.

But the markets and success, it doesn’t live in that realm, and the second one I would say is neither does comparison. Comparison is the absolute thief of joy. And if one or an investor continues to compare themselves, if they continue to do it all the time, I think they’re going to remain very much joyless. So remember that markets, they don’t reward loyalty. You don’t need to be loyal to bonds. It rewards those who are pragmatic in their thinking, and it just absolutely starts with asset allocation. So, JD, I’ll pass it off. I’ll pass the rock to you to continue that thought.

JD

Yeah. Thanks, Dave. I appreciate it. And this is totally off script here, but first off, thanks, everybody, for tuning in. I think there’s some pretty good content here from Dave and JL, but I was just thinking, as you were talking, if you rewound 30 years and you look at the market cap of the S&P, the biggest names, if I’d have said, “Hey, in 30 years, there’s going to be multiple multitrillion-dollar companies in the market,” probably the best investors in the world would…

I don’t know if they would have bought that or not, because if this data is right, you’re looking at Exxon at a $100 billion market cap. So a ton has changed, but this is one thing in the midst of all the change and how quickly the world is moving, is, “Hey, if you get your asset allocation right, I think you can get a lot of other things wrong and still be successful.”

And that’s really been kind of the theme of Aptus since we started, which is, this business is just driven and it is handcuffed to certain assumptions that we don’t think make sense. And fortunately, for us, if we can help inject improvement at the allocation level, it solves so many problems. We show the chart on the right a lot. The chart on the left though, I feel like it’s easier to read.

Asset allocation is 90-plus percent. Security selection and market timing, which are much more fun to talk about, but those usually get the headline, and asset allocation kind of gets not the credit it deserves. But our whole thing, and I think we have a track record at this point, is, if we can help think differently about the risk and fixed income and, quote, unquote, “safe investing,” I think we can materially improve the ability for your clients to compound wealth.

And kind of jumping one slide forward, this is just… We’ve started showing this over to… We’ve been doing this for however long, so beating the same drum, but this is the biggest risk to us. I know everybody focuses on drawdown, but this is attacking your portfolios and the hard-earned time and energy every single day, and we do not think this is going to stop.

And I know, without putting my personal opinion too strongly in here, just looking at what’s going on, the fiscal backdrop, all of the capex spending, all of this is going to lead to more debt in the system, to money supply expanding, and all of that supply has to be absorbed somewhere, and we continue to think risk assets are going to be what absorbs it.

So I believe that it’s our job to help free up allocations to own more of the risk that absorbs some of this inflationary impact and to free you of some of the things like… Assuming bonds are going to protect your equities and assuming that they’re real, they can protect purchasing power on a real basis, especially after tax. I think those are flawed assumptions.

And so, everything we’re doing, from the services we deliver to the funds, to the overlay, to the buffers, all of the stuff we’re doing, they’re just solutions and tools to help you improve allocation to get more into risk assets, away from the, quote, unquote, “safe assets,” because we think, ultimately, that’s going to lead to higher compounding. So I’m not saying anything you hadn’t heard us say, but I’ll turn it back over to Dave and JL. And at the end of this, happy to answer any questions that pop up as they go through the data.

David

Yeah. Keep having the questions pour, and then we’ve had a few here. We’ll try to answer them as we go. If we can’t answer them on this call, definitely give us an email or give me a call. Put my cell phone number on out there. But when it comes to markets, John Luke, what’s the word that we all utilized, I think, a bunch back just three months ago for those that were very skeptical of the market given geopolitics? What was it? Panicans, John Luke?

John Luke

I believe it was a panican.

David

I don’t know if you coined that or someone else coined that. It definitely was just such another great example. One that probably should have been learned from one of the previous case studies of the tariff tantrum of early 2025 was that, “Hey, you know what? If you’re a panican, if you bring in geopolitics, if you bring in a lot of emotions into this market, you’re likely going to find lower-than-average returns.”

We know that markets and geopolitics or politics as a whole, they go together like lamb and tuna fish, and those that had the ability to sit on their hands over the past few months definitely came out the other side much better than those that tried to tinker too much and to trade too much. We have a saying here that overtrading is like a piecrust. The more you mess with it, the worse off it is.

But this past quarter, obviously, the market bottom so far this year on March 30th, we just had one of the best quarters for the S&P 500 since 2020, and we’ve just had the second-best quarter for the technological side of the market, i.e., the Nasdaq, really since 2001. So for the quarter, the S&P 500, as of end of day yesterday, it’s not updated for today yet, is up about 14.3%.

But one thing I’d want to talk about is that markets, risk assets, basically everything that JD always talks about in regards to the hurdle rate and the need to own risk assets, they’ve continued to work. But while it may feel like the risk assets that have worked have been very concentrated on the tech side of things, I think we need to take more of a broader view of this market and recognize that there’s been broadening not just on the performance side of things, but also on the earnings side of things.

I mean, just go back over the past year, year and a half. Look how international stocks have performed, specifically on emerging market side of things, or even small caps. Small caps have definitely worked their way back off of their bottoms. But one of the main elixirs on why some of these aspects of the market worked has all come back from earnings growth.

I think many investors have been surprised by not just the resilience of earnings growth here in the U.S., but the call options of earnings growth, specifically internationally on the emerging market side, on how EM has been very much tied towards the AI trade. So basically here in the United States, you have a lot of great optimism on the tech side through AI, but you’re also definitely getting it through Samsung, TSMC, SK Hynix on the emerging market side that has allowed returns on EM to be greater than 25% over the last six months.

But the one big thing we’ve been talking about here at Aptus over the last little bit is that when the market feels like it’s very chaotic or tumultuous, the best thing that an investor can do is to get back to the basics, and the basics of this market are just so very, very simplistic, and it’s follow where earnings are going and follow the overall profitability of the market.

And that’s where I want to spend a lot of my time here on this, is let’s focus on earnings and profitability. And what this chart on the right-hand side is showing you, it’s proving this point that at the end of the day, geopolitics don’t matter. Politics don’t matter. The only thing that matters really for the markets over longer periods of time, it’s earnings growth, and this chart is basically overlaying that S&P 500 index price and the overall S&P 500 earnings, and there has a correlation of 98%.

For those that don’t know, if you get two variables in the financial market that are that linked or really have a correlation over 0.3 of 30%, that means they tend to very much work in tandem, and that’s why we can put geopolitics and politics in our rearview mirror and just focus on overall economic earnings, not just for domestic markets, but also international markets.

And we’ve just seen an absolute boom in earnings here domestically speaking, not just on the mega-cap tech side, but also on the smaller cohorts. Many people may not know that nine of the 11 gig sectors within the small-cap universe, they’ve actually outperformed their larger brethren on the sector perspective side so far year to date.

So while we’ve seen a lot of economic earnings growth on the mega-cap side, we’ve definitely seen it on the ex-Mag Seven side and even on the Russell 2000 side. I mean, just look at the expectations for Q2 2026 on the left-hand chart. It goes all the way out to Q4, and you’re seeing Mag Seven earnings growth of about 30%. Obviously, it’s coming down due to the law of large numbers, but you’re starting to see that the broadening of the market on small caps, they’re starting to really see their earnings expand, and I think that’s very much a reason to be optimistic moving forward into the future of having some type of broadening of the market.

But the second factor that we always tend to look towards is profitability, and one thing I’ve always said is that it’s very difficult for markets to get into trouble when you see operating margin of an index increasing or staying static. The market tends to see some type of trouble when you’re actually seeing receding overall operating margins. And right now, you’re not seeing that across really any cohort of the market.

So I show you three different charts put out by Strategas talking about operating margin. And operating margin for the S&P 500, it’s no surprise. It’s kind of going up and to the right. It’s continuing to hit new all-time highs. Obviously, that’s off the back of the operating leverage that you’re getting from the tech sector itself.

But I think the other two charts are really more important to me in my opinion, because it’s showing you the operating margin for the equal-weighted S&P 500, but then also small caps and their operating margin. So for the equal-weighted indices, you are seeing margins really start to increase. They’re not hitting new all-time highs like what we’ve seen on the S&P 500 market cap-weighted indices, but they’re still inflecting higher.

Small cap, on the other side, they seem pretty static really over the last five years, and I think that’s more of a rationale of so many more smaller-cap companies. They’re hamstrung to overall interest rates. Small-cap companies, they tend to have higher, on average, debt, but not only that, their debt tends to be more floating rate debt.

So now that we’ve kind of lived in this regime of higher rates for longer, they haven’t really got that whole benefit of lower interest expense allowing their margins to expand, and I think that actually gives you a lot of the reason why you’ve seen large caps, as measured by the S&P 500 over the last five years, basically double the return of small caps, and it all comes back down to margin.

But again, to prove my point, when the market feels like it’s chaotic or in turmoil, the best thing that an investor can do is to get back to the basics of this market, and that’s going to be overall economic earnings growth and profitability growth. But before I pass to John Luke to talk a little bit about bonds, I want to go through something for you, and it’s going to be more so in regards to the chart on the right-hand side here.

One comment that I’ve continued to get from different partners across the U.S. is that they’re like, “Hey, Dave, there’s been so much concentration in this market contributing to returns. What if some of those AI names that have driven this market over the past little bit, what happens if they falter? Will the market also falter?”

And I have actually continued to disagree with that, and you saw a case study from August of ’25 to February of this year where a lot of the hyperscalers and the winners of the past previous three years, the AI winners of the past previous three years, they kind of took a break, and they’d actually even pull back, yet the market from August ’25 to February ’26 increased by about 8%. The average stock increased by about 10%, and you saw that exact same case study occur over the past month here in June.

Virtually, the top eight companies here in the United States or within the S&P 500, they pull back an average amount of about 10%, yet the market was only down 1.8%. The equal-weight stock was actually up 2.4%. So it’s saying that, “Hey, you know what? That baton of what drives performance can be passed from the mega-cap names to the average stock.” And if that happens, that doesn’t mean that the market is going to falter. All right? It’s just a broadening out of the market, and that’s something that is very normal and very healthy in my mind.

So the last thing I’d probably say before I pass it to you, John Luke, is talking about valuation. In my opening remarks, I spoke about how investors need to see the forest through the trees and how things evolve over time or how they change over time. Continually, I get asked about valuation and if it’s a worrisome aspect for me given its, quote, unquote, “elevated levels.”

And we’ve recognized that over time, valuations have changed because the composition of the index has changed, that differently, we become more of a asset-light type of industry from an asset-heavy type of industry. We’ve started to see overall margins substantially expand, not just within large caps, but really across a broad spectrum of companies here domestically, which allows us to yield that asset class a higher valuation.

And in my opinion, and John Luke or JD, you could disagree with me, is I actually think valuations are more than palatable right now. I don’t see them as expensive at all. And what these charts are showing you, specifically the one on the far left, is looking at the forward price-to-earnings ratio for the S&P 500, and it’s saying that over the last, call it, five years, we’re trading right in line with average.

Even if you look at the Nasdaq, it’s actually trading below its five-year average. But if you look more towards the international markets, they’re trading a little bit above their historical averages over the last five years. Well, they have a lot of different kind of growth aspects there, specifically on the EAFE side. Even if we had a chart up there on EM, we could talk a whole different picture and story on it.

But if you look at the domestic markets here, valuation on the large-cap side or on the small-cap side of things, they don’t worry me whatsoever. I think we’re actually very much at a launching pad for this market right now, given the necessity to own risk assets, but more importantly, from an earnings growth perspective.

If you look at over the last two years, almost 100% of the S&P 500’s return has come from earnings growth, not from valuation expansion. And as we kind of reconcile this new revolutionary technology, I actually see margins going higher, which means, I think, valuations can go higher. You can call me crazy on that, but I just continue to think that there’s going to be a continued bid for risk assets given the backdrop of what’s going on with the Fed and with fiscal policy and the overall debt load that we have here in this country.

So if I were to grade myself one to 10 on how optimistic I am on this market right now, I’m probably a seven or eight. And while we just are coming off one of the best quarters over the last five years or the second-best quarter for the Nasdaq over the last 25 years, I don’t think that yields the conversation where we should turn allocations to be more conservative. I think it’s the exact opposite right now, where I think the biggest risk to everyone on this call is becoming too conservative and not owning enough risk assets.

JD

Yeah. And Dave, JL, before you say anything, the one obvious point is, there’s been talking about the Mag Seven and everything else, but all the capex spending. If that actually turns into free cash flow at some point, and I know we’ve seen some interesting expectations and data around some of that. That is Dave’s point, the necessity to own risk assets. We continue to stress, safe isn’t necessarily safe in this environment. Risk assets, in our opinion, is probably more safe if your goal is protecting purchasing power, which should be the goal.

John Luke

Yeah. I mean, it just look like SpaceX did a bond issue last week, and it was oversubscribed by 5 billion. They’re borrowing for 30 years at less than 6.5% rates. So when it comes to the demand for that future growth, if these companies are able to borrow at cheap levels of financing and turn it into future returns, they’re going to cash flow as the value of that debt erodes and they pay it back with dollars in the future, and I think that’s the continuation of the game. That’s back.

I remember talking about Amazon when they issued 40-year bonds at sub-3%, and I think that worked out pretty well for them back in 2020 or 2021. But I think what we’ve seen in Q2 was kind of top-heavy. Right? The beginning of the quarter was really focused on, is the Iran conflict over? What’s oil prices going to do? Is Kevin Warsh going to get the nomination? Is he going to actually get put into the seat?

And then since then, you’ve kind of seen a lot of things ease. I think what stands out to me is, the bond markets kind of muddled around for the quarter. You lost a little bit in price, but you made your interest expense. And I think the general story with bonds is, with where rates are, it’s hard to get a ton of volatility, because you’re getting a decent amount of income, and I don’t think that we’re way off in terms of the direction of where rates are going.

And so, one of the biggest things that really stood out to me was the anchoring of inflation expectations almost instantly as soon as Warsh got officially the nod, and then even more after his first meeting a couple weeks ago. And so, the chart here at the top just looks at the five-year, five-year forward inflation breakeven, and the simple way to say it is that’s what the market thinks that the future inflation’s going to be looking ahead, and you can see it’s very well-anchored at just over 2%.

That’s not a market that’s fearful of runaway inflation. And so, I think what I would… Dave, next one here, but I think, really, we’ll kind of keep this part simple, and then I want to focus on Warsh and some of the task force and the direction that we think things could be headed. So the left side is focused on global bond yields. It’s kind of been a story the last couple of years where global bond yields have been rising. All bond yields have been rising, but off of a pretty low base.

The key difference that we see is that global central banks have a different mandate than the Fed. It’s a single-focus mandate that’s set on inflation. And so, you’ve seen several different central banks outside of the U.S. react to higher oil prices and hike rates. Hiking into a supply chain crisis is typically a bad deal, I think, in probably most people’s opinions that look at this and think about it, but if that’s their mandate, that’s what they have to do.

Bank of Japan is a little bit different where rates are still pretty darn low, and they’re moving off of another base. So I think one thing we would really pay attention to is, with the pullback in oil prices that have really slid way lower the past month, do these central banks react back in the opposite way? And I would bet yes. The second piece on the chart here on the right is, you continue to see a fairly hawkish market on expectations for rates.

There’s over 100% chance of a rate hike priced in right now by October. And so, while the next couple meetings are kind of a toss-up, especially July, it does look like the market’s kind of focused that we might get at least a 25-basis-point hike in October. The funny thing about October is it’s on the 28th of the month right into the face of the midterms, which doesn’t seem like a very smart time to hike rates, but I could be silly in thinking that.

So whenever I think about Warsh, you got to think about a man that left his seat at the Fed after the financial crisis, because he didn’t want to pass over his principles, and I think the market has looked at Warsh as someone that’s going to bend the knee to Trump, and that’s what you saw the big spike in yields back in mid-May.

And I think what he’s done since with his wording, his communication, how he’s kind of rounded forces at the Fed has instilled a lot of confidence with the market and his capability to anchor inflation and to make independent decisions. And so, Dave, next one. And I think these are a couple key things he’s going to have to focus on.

Treasury rollover, it’s something we would be remiss not to talk on. We’re rolling over over 8 trillion of Treasuries, I think, over the next 12 months. So it’s a lot of bonds to get to market. And the second piece on the right side, I think it really hits home. It might be a little bit fuzzy in the graphics, but the simple way to look at it is really inflation expectations over the next one, two, five, and 10 years, and all of them have just hooked down massively.

And I think, of course, this is tracked hand in hand with oil prices and just what’s going on in the Middle East and where it seems like we’re maybe closer to some type of resolution, but I think a lot of it’s also based on Warsh. So next one, Dave. The dot plot, I guess it’s irrelevant now, because we might get that next off, but what you’ve seen with inflation data outside of some of the headline risk of oil prices, it has moved higher, but it hasn’t moved as higher as a lot of people maybe expected, back to the panican label.

A lot of folks focused on $250 oil prices. And lo and behold, we’re at 70 bucks today. So I think we continue to see the market respond to favorable economic growth, which is essentially what I think Kevin Warsh wants. He wants the market to respond to economic growth and not to what the Fed says, and I think that’s a big piece of how he’s going to lead things moving here.

Inflation, we saw headlines, spike pretty big in March and April, and a couple of the reports have been hot. The last one was softer than maybe feared, but I think these things work their way back down with oil prices over the next few months. You still have goods inflation working lower. Core inflation is slower-moving, and also a big focus on shelter.

Shelter prices continue to at least level out, if not marginally move lower. The key chart that we’ve included for, I don’t know how many of the last quarters looks at the consumer price index versus the CPI inflation trend, and this basically tells the story as good as anything. You better own something that can grow, because if you’re owning bonds, you’re getting your money debased.

So this is what I wanted to finish on, and then I’ll turn it back over to Dave or JD. So Kevin Warsh has come into a Fed that’s had inflation above target for going on six years. And so, I think what he realized, and like I said about his principle of character in leaving the Fed before, was we need some reforms in what the Fed’s doing.

And so, he’s come up with five key tasks forced that will be put into place by the end of the year, some at different speeds, but I think will really bring some significant reform across the Fed that maybe bring it back to what we saw 20 years ago. And so, the first piece is communication, and I think the key thing there is he wants the market moving based on the economic data and not based on what the Fed told them to believe, and that’s a key piece where you look at every week, there’s at least two or three Fed governors giving their economic opinions, and it’s just a lot of noise, and they get locked into certain things.

And you saw that back in 2021 where they said they weren’t going to hike, and we saw inflation balloon like it did. The second is the balance sheet, which this one’s probably the most controversial, and there’s some moving parts. But I think the key thing here is the structure of the balance sheet. So Warsh doesn’t want the Fed to own mortgages, which I think is probably a good thing. That created a lot of imbalances back right after COVID.

And then the second piece is QE, so how fast that the balance sheet grows, and he wants to put some measures in place to govern how that QE can happen. The third is the sources and uses of data. And I think we can all agree that if you look back to last fall when we were in the government shutdown, the fact that the Fed didn’t have the data that they needed to make decisions was ludicrous. So some updates to how we get the data and the timeliness of the data, the accuracy of the data.

The Fed should be using the same data sources as the CEOs of all the top companies in the United States. It’s crazy that they’re using surveys that have, I don’t know, 20, 30% response rate. And so, a big change on that that I think will probably get pushed through. The fourth and fifth, I think, have a lot of importance in Warsh and the direction of rates. So the productivity piece is something that Warsh has spoken a lot about.

If you’ve listened to his interviews or read any of his pieces, he’s really focused on the market or the Fed should not penalize disinflationary growth that is essentially the market investing in future growth. And so, when we see increases in productivity, that’s the good kind of growth. That’s the noninflationary kind of growth.

And we’ve seen time and time again, the Fed step too early or too late. But oftentimes, they come in and they hike rates at the wrong time, and they slow down an economy that’s ginning maybe in good fashion. So they’re going to do some reviews to that. And then the fifth is inflation, and they’re not reviewing the 2% target, but they are focused on what they got wrong the last six years and why inflation’s been running like it has.

And so, I think all of these bring some honesty and integrity to what the Fed’s doing. They obviously have a huge team of economists. A big focus of this task force was bringing in people not only from the Fed, but also from the private sector, and getting a mix of thoughts and reactions and mindset on how they can make things better. I’ve been impressed with Warsh. I think that the market has too. And with a lot of the responses we’ve seen with how things have shifted in the right direction, inflation expectations have moved down. I think he’s very credible and able to kind of conquer the situation that we have moving forward.

David

John Luke, it kind of goes back to my comments on change. I feel like everyone dislikes this plan and his thoughts on the balance sheet, but the Fed has been doing this dance, and they’ve done it before. I mean, Greenspan’s deliberately opaque, minimalistic statements were themselves a style of choice that later chairs deliberately reversed in favor of more transparency and especially detailed guidance.

I mean, then you think about Bernanke. He pushed Fed towards explicit inflation targets and far more communication during the financial crisis, then Yellen and Powell followed of expanding forward guidance even further, and then walking the market through all their thinking meeting by meeting. I think, John Luke, one of my favorite quotes that Warsh had, he said, “Stop talking so much. More thinking, less talking.”

But I have a question for you, John Luke, on this. Given how we need to change our thinking and evolve with our thinking, with Kevin Warsh, his new ideology here, do you think the rules of engagement with this different style of Fed, do you think, changes how we should invest, or do you think it changes how the market may react in certain situations?

John Luke

Yeah, but I think that that’s kind of the objective, is he wants the economic data to do the talking on how the Fed needs to have their reaction function in place. So maybe you do get more volatility, but I think at the end of the day, it’s letting free markets work, where we’ve kind of taken that away the last few years, where we’re giving you the exact playbook of what’s going to happen right now of what we’re going to do in the future.

And I think letting markets work and do their thing and set rates is probably the most efficient process that can happen. Now, the key caveat to all this is, will it happen? Because it’s not just his vote. He’s got to get approval from a bunch of other well-paid economists with PhDs. So we’ll see.

David

So you’re saying we may finally have a full business cycle again, something that really hasn’t happened over the last 16 years?

John Luke

We’ll see once it happens.

David

Which I think will be very welcoming.

John Luke

Yeah.

David

Yeah. Yeah. Well, we’ve had a few questions come in. JL, JD, maybe we just pair these here, and it goes in regards to… The first one is kind of talking about technology gains have tended to be disinflationary, and I think that’s one of the things that we’re so excited about with this revolutionary technology of AI. But the question came in and says, “What do you make of Apple raising prices to deal with a chip shortage? Is that essentially inflationary? Is it a temporary inflationary push of resetting of a higher price level, which disinflation can ultimately come back to tech?”

I would say this is more of a segmented part of the market of what’s going on with Apple. I actually want JL to pipe in here too and his thoughts what’s going on with Micron and Apple. I think it’s quite comical, but this is just one part of the market. Obviously, iPhone prices are going up and priced by about, what, 200% or so. But at the end of the day, the consumer still has the opportunity to upgrade their phone and pay those prices or not.

So I don’t see it as a problem right now. We know that DRAM pricing and NAND pricing, it does tend to be pretty commoditized over longer periods of time where you can see it revert back into the future once that supply-demand dynamics of Econ 101 comes more into equilibrium. But I don’t see this tech, this new revolutionary tech of AI driving any type of inflationary force. In fact, I think it’s very much the exact opposite.

John Luke

Yeah. You buy a phone, what, every one to three years. So yeah, it might be more expensive when you’re buying it at that point, but I think it’s less impactful than your groceries, your rent, car, your gas, et cetera. So I think it’s notable. There was a great article. Happy to share if anyone wants to see it. But essentially, it talked about the last down cycle.

MU, it was the CFO or the CEO, was talking about how Apple essentially strong-armed them on pricing where they wanted to take six or seven bucks per chip, and Apple would only pay five bucks, and now it was 20 bucks, and whatever the numbers were. But essentially, they had domineered their way into keeping their margin. And so, I think this was a little bit of spike in response to that from Micron. So it just shows that they got a lot of pricing power right now.

David

We had another question come on in just asking about oil and energy. “Can it go any lower?” The assumption of the question that energy is going to go higher as people refill the reserves and the Strait of Hormuz is not open, and more in regards actually to, what about from a consumer spending perspective? When does higher oil prices really start to affect consumer spending? Which, obviously, would affect the core tenets of this market that we just spoke about, earnings and profitability.

I’m not too worried about it right now. I have a chart here that I’m trying to find. Yeah. It’s the slide right here. I think the best chart actually I could show in regards to oil and the consumer is this chart on the right-hand side here. Ever really since the shale revolution and horizontal drilling and the more tech-savvy energy companies, the United States isn’t as hamstrung to international global oil prices as we were back in the ’73 embargo, during the ’90s, or the invasion of Afghanistan in 2003, because of this newfound technology within shale production allowing us to be a net exporter of oil.

So said differently, our oil prices here in the United States, they’re not going to be as affected to geopolitics that’s going on with the Strait of Hormuz or really anywhere in regard to OPEC+, Russia, or Iran. But what this chart is showing you is saying, “You know what? We recognize that there’s been a substantially large spike in oil so far this year, but it’s coming off a very low base,” especially if you look at it from a gas price per gallon perspective, which is the chart on the left-hand side.

Well, the chart on the right-hand side is saying, “Hey, you know what? Consumers, they spent an exorbitant amount of money on oil expenditures in previous years, for example, 2022, where we spent actually more money than what is expected to be spent here in 2025.” So I don’t see the rising cost of inputs from oil or fertilizer really deviating the core aspect of this market of earnings or profitability or overall consumer spending rate now. We’re just not hamstrung to that market like we were 10, 20, 30 years ago.

JD

And we’ll start wrapping here. I think we’ve covered a lot. If you’ve got more questions, hit us directly too, if you’ve got more specific stuff for your business or any clients. I would stress, I would love to be able to put in front of you some of our options-based solutions to help improve the allocation. We do think the overlay biz, some of the things that we’re able to do at the client level has been really valuable, whether it’s lending at the lowest rate possible or handling concentrated risk.

Obviously, the hedged equity space, we think, is incredibly powerful in this environment. And then I would stress, the buffers to find outcome in general has been a huge thing that we’ve seen either funded with fixed income or getting cash to work off the sidelines. Would love for y’all to pop us with questions on the buffers.

That’s a huge space and growing quickly, and we feel really confident in what we have out there as a tool if it’s apples to apples versus a competitor or as a tool to materially alter asset allocation. So please hit us up, but we do appreciate the time. And if you’ve got any questions, we are here to answer them. And D-Hern, thank you for orchestrating today.

Derek

Yeah. And I would just say, each of the three guys on the call does a lot to help communicate with clients. I know Dave will lead the way in making sure that our quarterly market outlook gets out before anybody else’s, and that stuff is chock-full of things that could help. The sense in talking to advisors is that clients are out there watching the headlines, watching the news, and they just get lambasted with all kinds of different opinions.

And so, I think the way that we’ve organized both the communication and the investment side helps cut through some of that garbage and just keep them on track, keep them in the allocation that’s been designed for them. So anyway, I want to thank everybody for doing that, and be on the lookout for fresh materials in the next few days.

John Luke

Thanks, everyone. God bless.

JD

Bye, everyone.

John Luke

Have a happy 4th.

JD

Happy 4th.

Derek

Thanks all.

JD

Bye.

David

Happy 250.