TAGStone Quarterly Insights – Q2 2026

Published July 7, 2026

At a Glance

• The market's best quarter since 2020. US large-cap stocks gained 14.9% in Q2 and finished the first half up 9.6% — powered by corporate earnings on pace to grow roughly 24% in 2026, not by the headlines.
• But the price of admission is rising. Stocks trade near 20 times next year's earnings (long-run average: about 17), and the ten largest companies make up roughly 40% of the index. The next correction will come — and no one can tell you when.
• History says: expect it, don't fear it. Since 1950, declines of 20% or more have arrived about every four and a half years, averaging over 30% — and every one has so far proven temporary. Your plan was built with exactly these episodes in mind.

I’m happy to report on the continued progress of our clients’ long-term plans through what has been a very eventful first half of 2026.

When I say “progress,” I don’t simply mean that account values rose — although they did. Even in stretches when markets decline, the things that matter most to long-term investors — the growing earnings and dividends of the companies we own, and steady movement toward the goals in your plan — can keep advancing. That distinction matters more right now than it usually does, for reasons I’ll explain below.

As always, I’ll start with the principles that guide everything we do, then turn to the half-year just past.

First, the principles that don’t change

• We are goal-focused and plan-driven. We invest over years and decades to fund the goals that matter to you and your family — retirement, education, legacy — not to outguess the market’s next move.
• The order of operations never changes: first we define your goals, then we build a plan for reaching them, and only then do we construct a portfolio suited to that plan.
• Unless your goals change, there’s no reason to change the plan. And if the plan stays in place, so — broadly speaking — does the portfolio.
• We don’t react to current events — economic, political, or geopolitical. Experience teaches that the economy can’t be consistently forecast, and the markets can’t be consistently timed.
• Because markets can’t be timed, we stay invested through “good” markets and “bad.” That is the price of admission for capturing the market’s full long-term return.

What just happened

There has rarely been a more eventful six-month stretch than the one just past. Consider the list: a major war in the Middle East, severe disruption in energy prices, stubborn inflation, the sudden threat of higher rather than lower interest rates, stock valuations near historic highs, extreme concentration in the broad market averages, a collapse in Bitcoin and the precious metals — and, by far, the biggest initial public offering in history, built around spacecraft, of all things. Did I leave anything out?

How would anyone go about making rational investment policy out of that maelstrom? The answer — as I suspect is intuitive to you by now — is that one doesn’t, because one can’t. And that is exactly why, at times like these, we can step back and almost welcome the chaos, for one compelling reason: it has nothing to do with us. We have your goals, your plan, and a portfolio aligned as closely with both as we know how to make it. Nothing on that list of headlines changes any of the three. (The SpaceX IPO — and IPO investing generally — deserves its own discussion; watch for a dedicated post later this month.)

Through all of it, the S&P 500 gained 14.9% in the second quarter — its best quarter since 2020 — and finished the first half up 9.6%, or 10.2% including dividends.

Meanwhile, those of us who see ourselves as long-term owners of and lenders to consistently superior businesses — as distinctly opposed to traders in “the stock market” — can only marvel at what those businesses have been doing. Their earnings have soared and are continuing to grow, with analysts currently estimating S&P 500 earnings growth of roughly 24% for 2026. Their profit margins are at all-time highs. And they keep raising their dividends, even as they invest in more innovation and the growth of their businesses. Over the long run, earnings — not news cycles — are what drive stock prices.

A word about froth

Even so, soaring earnings are only half of any investment story. The other half is the price investors pay for them — and that's where a word of caution is in order. The S&P 500 currently trades at roughly 20 times its expected earnings for the coming year — well above its long-run average of about 17 — and the ten largest companies now make up roughly 40% of the entire index, a level of concentration exceeding even the 2000 tech-bubble peak.

Add speculative enthusiasm running hot — from legalized gambling to prediction markets to trillion-dollar IPO dreams — and it is entirely reasonable to ask whether a meaningful market decline could be coming.

The honest answer is yes — this emotion-driven market can significantly, even savagely, correct at any moment. And if history is any guide, it will, probably when the consensus is least expecting it. What neither I nor anyone else can tell you is when. But history offers useful perspective.

The S&P 500 began 1950 at a level of 17. Today it stands near 7,500. Along the way, by one careful count, there have been 17 separate declines of at least 20% — roughly one every four and a half years — with the average decline exceeding 30%. Every one of them has, so far, proven temporary: the long advance eventually resumed and carried the market to new highs.

I draw two lessons from that record. First, significant declines are not a sign that something is broken. They are a normal, recurring feature of the very market that produced those extraordinary long-term returns — and a decline that washes out speculative excess can even leave the market’s advance on firmer footing. Second, because we know our ability to time such a decline is nil, we plan to ride it out, as we always have. Your financial plan was built with exactly these episodes in mind.

This is also where portfolio discipline earns its keep. In practice, we are very broadly diversified equity and fixed income investors, and we rebalance periodically — systematically trimming our exposure to richly valued areas of the market so we can increase our ownership in out-of-favor (and perhaps more reasonably valued) ones. It will not have escaped your notice that this is the opposite of what most investors do, especially at times like this: chasing the sectors that have already appreciated the most, in the apparent belief that they can only go up even more.

Closing thoughts

None of this is a prediction. Markets may keep climbing; they may correct next month. Our approach doesn’t depend on knowing which. It depends on your goals, your plan, and a portfolio aligned with both.

I’m here to respond to any and all questions and concerns you may have — about the markets, your plan, or anything in between. Thank you, as always, for the trust you place in TAGStone Capital. It is a privilege, and indeed a joy, to serve you.