Weekly Investment Update (06/26/2026)

The next Weekly Investment Update will be published on July 10 due to the Independence Day holiday.

This week we saw early signs of a rotation in market leadership. At the very least, investors are navigating spikes in individual stock volatility as they weigh an ever-complicated backdrop for the AI trade: richer valuations, more visible competition, policy uncertainty, and growing questions about how durable some of today’s extraordinary economics will prove to be. At the same time, the broader macroeconomic backdrop remains supportive enough to allow for a possible leadership rotation without derailing the market altogether, with personal spending still firm, gross domestic product (GDP) revised higher, jobless claims easing, and oil falling back toward pre-conflict levels as flows through the Strait of Hormuz improve.

This backdrop reinforces the value of diversification and disciplined portfolio constructionThat is exactly why we build diversified, thoughtfully constructed, portfolios rather than simply chasing periods of narrow leadership. Especially as investors crowd into a smaller subset of companies, we have it is important  to be deliberate about the exposure we own one’s exposure. We are ever mindful that some of today’s winners are benefiting more from temporary supply-and-demand imbalances than from long-term, durable competitive moats. Periods of rapid change can make it harder to distinguish between businesses with genuine staying power and those riding less durable trends. That may create some near-term discomfort, particularly when markets continue to reward scarcity and momentum, but patience becomes more valuable as the cycle matures and the market begins to sort true long-term winners from short-lived beneficiaries.

Technical Factors to Drive Near-term Trading Activity 

What is happening: A confluence of repositioning events is expected to drive trading at month-end and into early July. Public pension defined benefit plans ($9 trillion in assets), university endowments and foundations ($950B in assets), options traders and market makers, and investors in strategies benchmarked to the Russell indexes are all expected to trade for technical reasons in this window. Mechanically amplifying the trading effects are leveraged ETFs ($218 billion in assets) and passive investments.

June 30 ends the fiscal year for around three-quarters of U.S. public pension plans and for most university endowments and foundations. As these plans begin their new allocation cycles, many rebalance, reevaluate, and reposition their portfolios. We do not foresee large asset allocation changes, but strong equity market performance can necessitate significant rebalancing to ensure allocations remain within set guidelines. June 18, 2026, also marked the largest options expiration on record, with $8.3 trillion of options having rolled off. Option expirations precipitate flows in underlying stocks, as investors close out and rebuild their exposures, and market makers trade the underlying shares to hedge their positions.

Additionally, June 26 marks the semi-annual reconstitution of the Russell indexes, with changes effective Monday, June 29. Over $12 trillion in assets are benchmarked to Russell U.S. indexes, and last year nearly $220 billion of stocks traded on the day of the reconstitution. This year, 62 companies are expected to be added to the Russell 1000 index, largely graduates from the Russell 2000. Industrials and technology account for the largest share, with several constituents tied to the AI theme. Another 37 are migrating down to the Russell 2000 index. The Russell 2000 is expected to see 237 additions overall and 163 removals; additions are dominated by healthcare companies (+87), followed not-so-closely by technology (+35) and industrials and consumer discretionary (+28 each). Companies are increasingly straddling growth and value indexes or moving between the two. The Magnificent Seven are expected to account for 17% of the Russell 1000 Value index after the reconstitution, up from 0% before last year’s reconstitution, and 48% of the Russell 1000 Growth, down from 52%. Amazon is expected to shift largely to the Russell 1000 Value, Alphabet and AMD to 100% Growth, and Microsoft and Apple to be included in both.

Why it matters: With exogenous factors (portfolio construction decisions of institutional and individual market participants) influencing flows, price movements will be driven more by supply/demand dynamics than usual in this time frame. Trading volumes and volatility will likely be higher than usual. We believe investors should look through near-term technicals to focus on long-term fundamentals, which remain healthy.

The Russell Value/Growth index reconstitution illustrates the limitations of mechanical style-box investing as a diversification strategy. The index provider evaluates growth based on sales and earnings growth and recent price momentum; the main criterion for value is price-to-book ratio. The two concepts are not mutually exclusive: a fast-growing company can be valued conservatively relative to the broader market and to its anticipated growth prospects. Many parts of the economy are becoming increasingly capex-heavy; for these companies, book values are set to grow. A company that can use its capex effectively to generate strong growth can find itself in both indexes so long as valuations remain sensible.

We believe a disciplined investment process focused on quality company fundamentals and portfolio design that goes beyond heuristics are critical for navigating short-term market noise and delivering strong long-term performance.

The United Kingdom Faces Renewed Uncertainty Following the Resignation of the Prime Minister

What is happening: The prime minister of the United Kingdom, Sir Keir Starmer, resigned on Monday after losing the confidence of his party. His resignation comes less than two years after he led the Labour party to a record landslide victory that ended 14 years of Conservative rule. Andy Burnham, the former mayor of Greater Manchester and a newly elected member of Parliament, is so far the only candidate to have entered the race to replace him. His candidacy had been widely expected after his recent by-election victory. 

Under Labour Party rules, any candidate for leader must secure backing from 20% of the party, as well as support from a small number of constituency parties and trade unions. Nominations close on July 16. If another candidate gains enough support to stand, the final decision will be made by Labour’s fee-paying members. However, if Mr. Burnham remains the only candidate when nominations close, he will win unopposed and become Labour leader shortly afterward. 

Why it matters: The upheaval comes as Britain marks the 10th anniversary of the Brexit referendum. The timing highlights the political instability that has followed the vote to leave the European Union, with the U.K. witnessing a rapid succession of prime ministers, beginning with David Cameron’s resignation after the referendum. Sir Keir Starmer will become the sixth post-Brexit prime minister to be forced from office. The last prime minister to resign before Brexit was Labour leader Gordon Brown in 2010. 

So far, the turmoil has been confined to Downing Street rather than the City of London. However, investors will want clarity quickly: an orderly handover, a credible economic team, and a clear commitment to fiscal discipline. Andy Burnham has yet to set out a full economic program, and he may be constrained by Labour’s “ironclad” manifesto pledges not to raise income or sales taxes. Even so, markets will watch closely for any sign of a looser fiscal stance, especially because Mr. Burnham leans left of the current Labour Party, and his record as mayor suggests a preference for higher public spending, a larger role for the state, and potentially a heavier tax burden.

Britain has little room for error because the economic backdrop is already fragile. Since Brexit, Britain has struggled with weak growth, with some estimates suggesting GDP per person is as much as 8% below where it might otherwise have been. More recently, the war in Ukraine and conflict in the Middle East have pushed up energy costs, hitting the U.K. harder than the U.S. Public debt is at its highest level relative to GDP since the 1960s, debt-servicing costs are elevated, and fiscal headroom is thin. Additional borrowing could create a damaging loop of higher government bond yields, tighter fiscal choices, weaker growth, and still more pressure on the public finances. Mr. Burnham will do well to remember Liz Truss’s reckless spending pledges and the subsequent financial market reaction that helped end her brief premiership. The episode underscored the power of the bond market. As Scott Bessent put it this week, “The bond market has taken out more governments than howitzers.”