Dear Clients and Friends,
Markets reached a high for the year around June 1 and have since been sluggish to down, with the tech-heavy NASDAQ in last place, 8% below its high. The year-to-date picture, however, still looks robust, with major US stock indices up in a tight range of 7-8%. Why has the pause button been hit? I think it is a combination of factors: summer vacation on Wall Street and Main Street, tug-of-war between AI worries and AI excitement, and concerns that the Fed might have to raise interest rates and uncertainty in that regard as to what kind of Fed chairman Kevin Warsh will be. Then there are foreign and domestic political risks – most notably the Iran war and the midterms – that are moving towards an inflection point of some kind.
What to make of it all? When you manage portfolios you can’t just invest on the basis of any particular outcome even if you have – or think you have – well informed opinions. You have to find the portfolio that is appropriate in most circumstances. I continue to remind myself of that and let it be the through line in how I manage my clients’ money.
The Market Leaderboard
The leaderboard has not changed from our last scorecard on May 1 as far as stock indices are concerned. The major change is Gold, which is now down 6.2% year-to-date and has dropped to the bottom of the pack. Emerging Markets continue to outperform by a substantial margin and continue to be underappreciated in terms of financial headlines, as their ascent does not fit the prevailing narratives.
Source: Y-charts.
Bonds, defensive in nature, have a place in portfolios, but have not delivered positive returns year-to-date, as sentiment around interest rates has shifted from an expectation of cuts, to an expectation of hikes. Five out of twelve months are in the books and a diversified portfolio looks more sensible than ever as we navigate so much uncertainty while at elevated stock price levels.
AI and Jobs
Much digital ink has been spilt – and I am among the guilty – on whether the AI investment cycle is a bubble. Will the massive AI spending boom by the large tech companies turn out to be a bust, a classic case of exuberance? At the very least it feels circular. For example: Nvidia is working on a $350 billion financing deal for OpenAI, which OpenAI will use to – drum roll please – buy Nvidia chips. However, the true bubble might not be the circularity, but the chance that AI in fact delivers on its promise of massive job losses, euphemistically referred to as “productivity growth.”
In a perfect world, higher productivity means more economic output per worker, which should partially accrue to employees and partially to shareholders. The shareholders will get their share, I am sure of it. But for the workforce, higher productivity might translate into fewer jobs rather than higher payroll. It would exacerbate income and wealth inequality. However, if the disruption proves more dramatic than just a continuation of the trendline that has benefited knowledge workers and the wealthy, then those who have benefited to-date, may be in peril. I am referring to the scenario where consumer spending collapses because not enough people have good paying jobs. Then, productivity becomes a wealth destroyer rather than a wealth creator.
To be sure, I do not believe that the worst case scenario of AI – and I am not talking about the dystopian outcomes; just the economic ones – will come to pass. Usually when we predict job loss due to technology, it speaks to a lack of appreciation for the human capacity to reinvent the future. And we don’t have to guess. The employment numbers will tell the story. So far on the economy-level, it looks like a nothingburger, though admittedly, that is of little consolation to the white-collar worker who lost his job to Claude.
Fires & Extreme Heat
This summer has been an unwelcome reminder that wildfires are no longer regional nor seasonal. The World Cup Final in New Jersey almost had to be postponed or relocated due to the toxic smoke enveloping the New York Metro area from the fires in Canada. In France and Spain, more than 300,000 people have been displaced by wildfires west of Bordeaux and near Madrid. A fire burning through hilly, rural terrain in Ávila, west of Madrid, has become Spain’s largest on record, scorching more than 500 square kilometers.
A Day at the Beach, Lacanau, France, July 24, 2026
I could make what I believe is a factual statement and say climate change is the accelerant if not the fuse, but all that solicits are nods and eye rolls. A more engaging question is how are we going to adapt to a hotter, often drier climate? Fires are terribly costly, in terms of resource deployment and property and habitat destruction. They are also terribly hard to prevent and in fact we may have tried too hard in recent decades, whereas allowing for more controlled burns might have been the better strategy in retrospect.
Loss of life occurs due to wildfires, though the death toll pales in comparison to the loss of life from extreme heat. According to IS Global and Nature Medicine research, heat-related deaths in Europe over the summers from 2022-2024 amounted to 181,000. The silver lining is that while wildfire deaths are harder to prevent, we can really move the dial in a positive direction with the bigger killer that is heat-related deaths. The best investments are often those that profitably address the biggest needs. When it comes to investing in heat adaptation, there are several industries of particular interest.
Cooling and HVAC
Companies that make air conditioning, heat pumps, and industrial cooling equipment sit closest to the heat adaptation investment theme. Examples include Trane Technologies (NYSE: TT), Carrier Global (NYSE:CARR), Daikin (Tokyo: 6367), and Johnson Controls (NYSE: JCI). Of those, I am currently invested in Carrier. AC penetration is still low in much of southern and eastern Europe, which is where mortality has been highest. Given Europe’s stricter environmental codes, the prospects look particularly attractive for heat pumps, which are superior in terms of sustainability and competitive in terms of cooling ability.
Building Materials and Cooling Infrastructure
It is not just a lack of AC that makes European buildings so ill-equipped for the new reality of frequent heatwaves. The building stock on average is much older than in the US and flowed from building codes that didn’t account for extreme heat. Reflective “cool roof” coatings, insulation, and energy-efficient glazing reduce indoor heat load, especially in older buildings without AC. Companies in this space include Owens Corning (insulation), and Saint-Gobain (glazing, insulation materials broadly used in Europe). The issue with some of these names is that they are diversified industrial companies, so you are investing in more than just climate adaptation, which may or may not be desirable.
Water Utilities and District Cooling
Heat waves strain both water supply and increase water demand for cooling. District cooling networks (piped chilled water for whole neighborhoods) are a growing infrastructure investment in the Middle East and increasingly in southern Europe. Water utilities represent another prime target for heat-driven infrastructure investment. European utilities, like many American utilities, operate in a regulated environment, so when analyzing the specifics, it is important to understand the cost recovery and pricing mechanisms of the utility in question. That said, it is an industry that will see substantial investment over the next few decades.
Grid Resilience and Backup Power
Heat waves spike electricity demand right as wildfires and heat itself threaten grid infrastructure, so transmission and grid-hardening investments are an area that will have tremendous positive impact and a multi-decade investment cycle. A company that I have looked at, but not yet invested in, is Quanta Services. They build and maintain grid infrastructure – like power lines and substations – while also serving as a leading contractor for renewable energy projects such as wind, solar, and the grid connections needed to bring that power online. Investors have taken note and the stock is up 55% year-to-date. It has come off its highs some, however, and might yet provide us with a good entry point.
Remote Health Monitoring and Telehealth
A little more tangential, in terms of investment theme, but since the elderly and chronically ill account for most heat-related fatalities, companies enabling remote vital-sign monitoring, wearables, and telehealth might provide an interesting opportunity as well. I have not yet delved into how to translate that idea into specific stocks, but it is on the docket for further research.
Investing in IPOs
On 6/12, SpaceX – Elon Musk’s satellite, space transportation, and AI company – went public at a share price of $135, minting the world’s 1st trillionaire. Within 4 days, the stock peaked at $225.64, corresponding to a market capitalization of nearly $3 trillion, trailing only Nvidia, Alphabet and Apple in terms of valuation.
On July 31, 2026, the stock closed at $108.37, a $1.5 trillion wipeout, 52% decline from its peak and 20% below its IPO price. Almost no one had this on their bingo card. The analyst at Morningstar looked way off base on the IPO’s eve with his $63 target price. Now, he is closer than all sell side analysts on Wall Street and the $800 target price of Raymond James is the one that looks out of place.
SpaceX: Ringing the Opening Bell Before Putting Investors Through the Ringer
Now, it is entirely possible that a few months from now this has all reverted and the stock is scaling new highs. One can never be sure. Facebook is an interesting example in that regard. Its IPO was not successful, falling 50% in the months after its market debut. Yet, the stock went on to deliver 21% annualized returns over the 14 years since it went public.
There are some other interesting IPOs on deck for later this year: OpenAI (ChatGPT) and Anthropic (Claude). While any one IPO might be a successful investment, the evidence, perhaps counterintuitively, suggests that you are better off owning the broad stock market and having exposure to new companies as they make their way into the indices, than to buy IPOs after they hit the market, for the sake of buying IPOs.
Academic research by finance professor Jay Ritter (University of Florida), who has tracked IPO performance for decades, has found that IPOs as a group tend to underperform the broader market over 3-5 year periods after listing. When people cite companies like Google and Nvidia, as proof that investing at the IPO is very profitable, they are exhibiting – consciously or not – a behavior error in their thinking called survivorship bias. We remember the successes and forget the failures, kind of like that uncle who always wins at the casino. This bias obscures the truth that IPO investing is not in itself a winning strategy and that on average it is in fact a way to underperform the broader stock market.
To be clear, investors who receive an IPO allocation usually do better than those who buy on the first day of trading — assuming the IPO is successful and registers a first-day pop. However, retail investors usually receive fewer than 10% of the shares in an IPO. For SpaceX that number was supposedly 30%, though in practice even that higher percentage meant a very small allocation, given the small number of shares in the numerator and the high number of retail investors in the denominator. For example one of my clients who had requested a SpaceX allocation through Robinhood received a single share.
What is the takeaway? If you believe in the prospects of a company coming to market via an IPO and wish to buy the stock, you should do so. Perhaps you are looking at the next Google. However, you should not buy IPO shares from the perspective that they are a sure-fire way to generate market-beating returns. Evidence suggests that, in the aggregate, you are better off ignoring them than collecting them.
As I sign off, August is at our doorstep. Can you believe it? It will be a time of family vacations and recharging the batteries on my end. Oregon summers are incredible, Florida summers less so, but family duty calls. Maybe I will chip away at my reading list, though it’s always waxing, never waning. Wishing you a beautiful mid and late summer and don’t give into the “dog days of summer” blues; it aint over til it’s over!
Don’t hesitate to reach out with any questions or comments or would like to learn more about our investment advisory services.
Kindly,
Jan P. Schalkwijk, CFA – JPS Global Investments