by Scott Martindale
  CEO, Sabrient Systems LLC

Quick note: Sabrient’s new Q3 2026 Baker’s Dozen Portfolio will launch on Monday 7/20 as a 15-month portfolio with a mid-cap bias and a diverse group of 13 stocks across 8 business sectors, including several under-the-radar names. Notably, the next-to-terminate Q2 2025 Baker’s Dozen shows a gross total return of +54.7% from its inception date of 4/17/25 through 7/10/26, vs. +45.6% for SPY. Until 7/17, the Q2 2026 portfolio remains in primary market for new investment. Its top performers so far are Seagate Technologies (STX), Roku (ROKU), and AbbVie (ABBV).

Overview

During Q2 2026, the S&P 500 and Nasdaq Composite indexes posted their best quarter since the pandemic recovery in 2020, rising +14.9% and +21.4%, respectively, driven by AI-related chip stocks, as the resilient bull market powers on. And encouragingly, market breadth expanded nicely as the Russell 2000 small cap index was up +21.4% (following a flat +0.9% Q1), giving it its best H1 since 1991 (+22.6%) as investors sought to broaden their exposure into growing companies poised to benefit from the One Big Beautiful Bill Act’s (OBBBA) tax policies, deregulation, and incentives.

After ChatGPT arrived in November 2022, the market was all about AI-dominant Big Tech, creating hyperscale, and spending unprecedented capex (consuming all the hyperscalers’ massive cash flow, plus some new debt) that drove a 150% gain in the Nasdaq over the ensuing 3.5+ years (annualizing around 30%/yr). But so far this year, the “S&P 493” have vastly outperformed the MAG7 (which peaked on 5/14 and then sold off 15% by 6/26 before bouncing), and investors have invited small caps—and other “trickle down” industries benefiting from massive AI capex—to join the party, despite the event-driven oil price shock, inflation spike, and rising Treasury yields. But Treasury yields are likely being driven more by the hawkish Fed talk than from concerns about structural inflation, and although the coast isn’t entirely clear of macro hurdles, it would be highly unusual for this broadening advance to spell the end of the bull market.

In my full commentary below, I discuss:

1. The trend in consumer sentiment vs. stock prices
2. AI capex and power demand
3. Fundamental tailwinds and the impact on China
4. The “SaaSpocalyse” and what happens next
5. Global liquidity concerns
6. Status and outlook for GDP, inflation, jobs, and productivity
7. My final comments section on stanching the insidious rise of socialism in this country
8. Sabrient’s sector rankings, positioning of our sector rotation model, and some top-ranked ETF ideas

Investor preferences even within Big Tech are definitely rotating. Suddenly, Apple (AAPL) has caught up with Alphabet (GOOGL) as the top performing MAG7 stocks YTD. Apple is expanding its relationship with Broadcom (AVGO) in a $30 billion chipmaking deal to produce more than 15 billion chips in the US, including expansion of Broadcom’s Fort Collins, CO facility. There are now 13 stocks in the $1 trillion market cap club—the MAG7 plus tech sector comrades Taiwan Semi (TSM), Broadcom (AVGO), SpaceX (SPCX), and Micron (MU), along with financial Berkshire Hathaway (BRK-B) and healthcare name Lilly & Co (LLY).

Meanwhile, previous investor darling NVIDIA (NVDA) is now trading at its lowest multiple since 2019. Despite posting an 85% YoY increase in revenue, hitting a whopping $81.6 billion last quarter, share price has been flat such that its forward P/E at around 22x is on par with the broad S&P 500’s composite forward P/E. Compare that to its 5-year average of 72x. The chart below is from Phil Rosen of Opening Bell Daily.

After pulling back nearly 20% from its all-time high on 5/14, NVIDIA has recovered some ground and is up about +13% YTD, but rival Advanced Micro (AMD) is up +160% and Intel (INTC) is up +200% over the same timeframe, with forward P/Es around 75x and 125x, respectively. More broadly, according to Morgan Stanley, the P/E premium for the MAG7 versus the other S&P 493 has compressed from above 30% to roughly 10%. I suppose investors don’t see how it can continue to achieve such amazing growth and huge margins, which are attracting more competition in the space. Regardless, analysts continue to raise estimates, and NVIDIA should remain a growth juggernaut for the foreseeable future—particularly with hyperscaler capex (much of which buys NVIDIA products) projected to reach $1 trillion in 2027.

Incredibly, although NVIDIA lost around $1 trillion in market cap during its May-June correction, it is now back above $5 trillion in market cap and is the world’s largest company—on par with Germany’s entire nominal GDP, which is the third-largest economy in the world behind the US and China. NVIDIA represents about 8.5% of the S&P 500 index market cap, and it is larger than: 1) the entire Russell 2000 small cap index ($3.5 trillion), 2) 6 of the world’s top 10 stock exchanges (including UK, France, Italy, India, and Spain); 3) 6 of the 11 sectors of the S&P 500 individually; and 4) the combined market cap of the S&P 500’s Materials, Real Estate, and Utilities sectors.

Broadening beyond the market’s biggest stocks is well in motion. Both the Russell 2000 small cap index (+20% YTD) and the Dow Jones Transportation Average (+18% YTD) have had their best start to a year since 1991. Financials, Healthcare, and Industrials all displayed outperformance versus the broad S&P 500 during June. Corporate profitability has been solid across industries, reflecting resilient demand, disciplined cost management, technological innovation, and sustainable productivity gains—not to mention the trillions of dollars in capex for the gradual onshoring/reshoring of manufacturing, much of it already underway. Net corporate income now accounts for 12.4% of GDP.

As I write about regularly, the outlook for inflation continues to improve, particularly given the many underlying global disinflationary trends. This week brings the June CPI/PPI numbers, which I expect will be lower—although the resumption this month in hostilities in Iran and the resultant jump in oil and gasoline prices might signal some inflationary pressures for the July metrics and cause investors (and the Fed) to hold off on any celebration. Notably, seven OPEC+ countries (Saudi Arabia, Russia, Iraq, Kuwait, Kazakhstan, Algeria, and Oman) agreed to increase oil production by a combined 188,000 barrels per day starting in August. But beyond that announcement, supply chains have rapidly diversified in response to the Strait of Hormuz bottleneck—and what the International Energy Agency (IEA) has called “the largest supply disruption in history”—such that it is no longer strangling the global economy, as I discussed in my April post. Indeed, this was long overdue as Iran has not been a reliable observer of the “right of transit passage” in narrow international straits under the UN Convention on the Law of the Sea (UNCLOS) in 47 years.

In my full commentary below, I discuss the divergence between poor consumer sentiment versus strong advisor sentiment and a rising stock market, as well as the shift in focus from both the federal government and institutional investors into hard assets and infrastructure. Moreover, through the end of this decade and likely beyond, I expect to see smaller government and less low-ROI government spending in favor of more high-ROI capital allocation from an unleashed private sector as the primary engine of organic economic growth through fiscal support like favorable tax policy, deregulation, and other supply-side incentives for reshoring/onshoring to increase productive capacity.

This should lead to strong real GDP growth, a peace dividend, rising productivity and a resumption in other disinflationary trends that bring back inflation under 2.5%, and a new “hands-off” Federal Reserve under new chairman Kevin Warsh that aims for less market intervention and does not fear that robust economic growth (aka “overheated” or “above trend”) fuels inflation. Instead, Warsh believes as I do that inflation in general is driven by excessive monetary expansion and deficit spending (including massive spending bills, “helicopter money,” and QE), rather than by a strong and productive private economy.

As such, I still think the S&P 500 might hit 8,000 by year end, although I also think gold, silver, copper, and bitcoin remain long-term accumulation plays, even though they might see further near-term headwinds (e.g., war, a hawkish Fed, and a strong dollar). Given the market broadening beyond the Big Tech titans, and assuming the Fed does not become overly hawkish, we continue to see opportunities in active stock selection, small caps, and bond-alternative dividend payers.

Indeed, Sabrient’s Baker’s Dozen, Forward Looking Value, Small Cap Growth, and Dividend portfolios have been largely outperforming their benchmarks. Our latest Q2 2026 Baker’s Dozen Portfolio launched on 4/17 as a 15-month portfolio with a mid-cap bias and a diverse group of 13 stocks across eight business sectors. It remains in primary market until Friday 7/17, and then the new Q3 2026 Baker’s Dozen launches on Monday 7/20. And, as a reminder, our Earnings Quality Rank (EQR) is licensed as a quality prescreen to the actively managed, low-beta First Trust Long-Short ETF (FTLS), which now has over $2.4 billion in AUM.

Sabrient employs a variety of fundamental financial factors in our quantitative models and portfolio selection process. Sabrient Scorecards for Stocks and ETFs are investor tools that provide access to several of our proprietary models for idea generation and portfolio monitoring. To learn more, I invite you to visit https://MoonRocksToPowerStocks.com where you can download founder David Brown’s latest book (an Amazon international bestseller) and 2 bonus reports (on investing in the Future of Energy and Space Exploration)—all in PDF format—and start subscribing to the Scorecards, which make David’s process easy for idea generation and portfolio monitoring. They include our Top 30 stocks each week for 4 distinct investing strategies—Growth, Value, Dividend, and Small Cap. To go straight to the Scorecard subscription, go to: https://www.moonrockstopowerstocks.com/sabrient-scorecard

Here is a link to this post in printable PDF format. As always, I’d love to hear from you! Please feel free to email me your thoughts on this article or if you’d like me to speak on any of these topics at your event!  Read on….

  by Scott Martindale
  CEO, Sabrient Systems LLC

Quick note 1: Sabrient’s new Q2 2026 Baker’s Dozen Portfolio just launched last Friday 4/17 as a 15-month portfolio with a mid-cap bias and a diverse group of 13 stocks across 8 business sectors, including several under-the-radar names. Notably, last year’s Q1 2025 Baker’s Dozen just terminated on 4/20 with a gross total return of +46.7% (vs. +20.3% for SPY).

Quick note 2: I invite you to visit https://MoonRocksToPowerStocks.com to learn more about Sabrient founder and former NASA engineer David Brown’s new book (an Amazon international bestseller) that details the fundamental factors underlying Sabrient’s models. Immediately download the book and 2 bonus reports (on investing in the Future of Energy and Space Exploration), plus a detailed report on the new Q2 2026 Sabrient Baker’s Dozen (all in PDF format) and learn how to access Sabrient Scorecards, an investor tool that provides access to our proprietary scores to make the stock evaluation process easy for idea generation and portfolio monitoring.

Overview

It didn’t take long for stocks to surge back to new all-time highs. Despite some commentators asserting that $100/bbl oil is here to stay given the damage wrought on energy infrastructure and supply chains, investors were unphased. The S&P 500 quickly reclaimed both its 50- and 200-day moving averages simultaneously (before the dreaded “death cross” could occur) in an historic run, and then continued to surge to new highs in response to Iran resolution optimism, earnings season confidence, resurgent zeal for the Tech/AI/blockchain Supercycle, falling bond yields, and a weaker US dollar, as safe haven capital rotated back into risk assets. Just a few weeks ago, I wrote in my 3/31 post that the S&P 500 had closed below its 200-day moving average for eight straight sessions and was struggling to hold support at the 300-day moving average, but that the selling seemed near exhaustion and ready for at least a bounce to fill gaps in the chart. Well, it got a lot more than a bounce.

Big Tech led the April surge. Bloomberg pointed out that over half of the S&P 500’s gain can be attributed to these seven companies—NVIDIA, Amazon, Microsoft, Broadcom, Alphabet, Meta Platforms, and Apple, which gained a combined $4 trillion in market cap. The rally commenced on 3/31 even as oil prices were still rising (to nearly $120/bbl on 4/7). This divergence is similar to what it did in 1990, which marked a low for equities at the time. But then on 4/8, crude oil fell suddenly and sharply, ultimately falling to near $80/bbl last Friday on ceasefires and news of that a peace agreement might be nigh along with a reopening of the Strait of Hormuz. (However, investors must keep in mind that we are still dealing with a fanatical, apocalyptic theocracy that is neither rational nor trustworthy…and indeed we can’t be sure if there is a true central governing body with whom to make a lasting deal.)

According to Bespoke Investment Group (BIG), since 1928, this is the first time the S&P 500 has reached a new all-time high within 11 days of a 5-10% pullback. In the midst of this historic rally, DataTrek noted, “Will the S&P 500 need to retest its March 30th lows, or was that a classic ‘V bottom’? History shows stocks don’t need to retest if investors are sure that policy has changed enough to address the causes of prior declines. We believe that is the case now and remain positive on global/US stocks.” Indeed, last week for the first time ever, the S&P 500 closed above 7,000 and Nasdaq above 24,000, while the Dow is eyeing 50,000 once again—and this bull market is now approaching 1,300 calendar days since its last 20% peak-to-trough correction (which ended on 10/11/2022).

Furthermore, the CBOE Volatility (VIX) Index is solidly back below 20 (the “fear threshold”), and the 10-year Treasury yield has pulled back to 4.25%. Notably, credit spreads are subdued, with high-yield plummeting from a peak of 3.46 pps on 3/30 to just 2.83 today. The credit market is highly sophisticated and historically a better predictor of economic distress than equities, so the current tightening in spreads suggests that despite high oil price and lingering uncertainty about direction, institutional fixed income investors are not pricing in rising default risk.

However, the market is surely not off to the races from here, in my view. The charts are extremely overbought, there has been narrow Tech leadership during this recent surge, and traders have taken on additional leverage. So, stock will likely pause to at least consolidate gains and more likely pull back to test bullish conviction at key support levels.

Nevertheless, I think the overall outlook for 2026 remains bright. Yes, the ongoing Iran conflict has created vast uncertainties and severe impacts on energy and supply chains—and by extension, inflation. But don’t forget, as we entered Q1 earnings season, corporate earnings expectations continued to be revised higher—now expected to be around 13% YoY for the S&P 500 in Q1 and 17% for full-year 2026—fueled by massive capex in AI, blockchain, energy, and re-industrialization/reshoring of factories and power infrastructure, leading to rising productivity, increased productive capacity, a resumption in disinflationary trends, and economic expansion.

In addition, the One Big Beautifull Bill Act (OBBA) has fully kicked in with its tax reform, deregulation, pro-energy policies, and broad support for the private sector to retake its rightful place as the primary engine of growth (with more efficient capital allocation and ROI than government). Federal government staffing is shrinking, helping to contract the budget deficit, along with tariff revenue, fraud identification/reduction (especially in big-ticket line items like Medicare/Medicaid). And don’t forget the enthusiasm for this year’s IPO market, with names like SpaceX/xAI, OpenAI (ChatGPT), and Anthropic (Claude) expected to soon go public. In February, Anthropic closed a $30 billion funding round at a $380 billion valuation, backed by Alphabet, Amazon, Microsoft, and NVIDIA. SpaceX seems to be targeting a June listing at a valuation of at least $1.75 trillion. No doubt, the US continues to be the world’s leading economic growth engine.

As the WSJ noted last week, “Oil prices have retreated. Wall Street banks just posted blockbuster earnings. And CEOs are touting the strength of the US economy. That combination has stocks back on the brink of records and some investors thinking a strong earnings season could power them even higher.” And as Barclays sees it, “There is a wall of worry—but it’s worth climbing.”

Regardless, the Iran conflict and seesaw of shipping blockades has laid bare the risks to the global economy of overreliance on supplies of critical energy and petrochemical supplies from a volatile part of the world and a very narrow waterway/chokepoint that has been long at the mercy of a terrorist regime. Facing down this systemic threat had to happen before Iran’s military capabilities—supported by China and Russia—reached the point of no return, in which the fallout of confrontation could be catastrophic. But also, the need for more diversified petroleum and petrochemical supply chains is no longer a mere discussion point.

Looking ahead, the Atlanta Fed GDPNow forecasts only +1.3% for Q1 2026, but it can change quickly with new data points. The jobs market remains in a lackluster “no hire, no fire” mode, with falling job openings, fewer opportunities for new college grads, and wage growth that has not kept up with price increases, as real (inflation-adjusted) hourly earnings declined -0.6% in March and have risen only +0.3% over the past year. As the Fed put it in their Beige Book, labor demand is “stable, with low turnover, minimal layoffs, and hiring mostly for replacement.” So, jobs growth is slowing and wage growth is decelerating. Overall, I continue to believe the overall economic picture suggests room for another Fed rate cut—but certainly not a rate hike, as some inflation hawks still suggest—and I still think today’s fed funds rate should be 3.0%.

The topics covered in today’s post are eclectic. I discuss stock patterns and valuations, the economy, inflation, debt, liquidity, and Fed policy, and in my Final Comments section I touch on more esoteric topics like lessons learned from the Iran conflict, supply chains, reverse lightering of oil tankers…and even some passages from Catechism. Then I close with my usual update on Sabrient’s sector rankings, positioning of our sector rotation model, and some top-ranked ETF ideas.

I expect stock market performance to be more dependent upon robust earnings growth and ROI—rather than AI hope-driven multiple expansion. Regardless, rather than the broad passive indexes (which are dominated by growth stocks, Big Tech, and the AI hyperscalers), I think 2026 should continue to be a good year for active stock selection, small caps, and bond-alternative dividend payers—which bodes well for Sabrient’s Baker’s Dozen, Forward Looking Value, Small Cap Growth, and Dividend portfolios, which are packaged and distributed as unit investment trusts (UITs) by First Trust Portfolios.

By the way, our new Q2 2026 Baker’s Dozen Portfolio just launched last Friday 4/17 as a 15-month portfolio with a mid-cap bias and a diverse group of 13 stocks across 8 business sectors (InfoTech, Financials, Industrials, Healthcare, Consumer, Comm Services, Energy, and Materials), including familiar names like Taiwan Semi (TSM) and Cheniere Energy (LNG), but also under-the-radar names like machinery maker Allison Transmission (ALSN) and engineering & construction firm Dycom Industries (DY). Notably, last year’s Q1 2025 Baker’s Dozen just terminated on 4/20 with a gross total return of +46.7% (vs. +20.3% for SPY), led by infrastructure engineering & construction firm Comfort Systems USA (FIX), oil & gas equipment and services firm TechnipFMC (FTI), and chipmaker Advanced Micro Devices (AMD).

Also, small caps and high-dividend payers tend to benefit from market rotation—which should resume as the war comes to a (hopefully swift) resolution, so Sabrient’s quarterly Small Cap Growth and Dividend portfolios might be timely investments. And, as a reminder, our Earnings Quality Rank (EQR) is licensed to the actively managed, low-beta First Trust Long-Short ETF (FTLS) as a quality prescreen (Note: FTLS never lost support at its 200-day moving average during the March selloff).

I have been encouraging investors throughout this global turmoil to exploit market pullbacks by accumulating high-quality stocks as they rebound. By “high quality,” I mean fundamentally strong, displaying a history of consistent, reliable, resilient, durable, and accelerating sales and earnings growth, positive revisions to Wall Street analysts’ consensus estimates, a history of meeting/beating estimates, rising profit margins and free cash flow, high capital efficiency (e.g., ROI), solid earnings quality and conservative accounting practices, a strong balance sheet, low debt burden, competitive advantage, a wide moat, and a reasonable valuation compared to its peers and its own history.

These are the factors Sabrient employs in our quantitative models and “quantamental” portfolio selection process. You can learn how to access several of our proprietary models for idea generation and portfolio monitoring through Sabrient Scorecards, as well as download Sabrient founder David Brown’s latest book (an Amazon international bestseller), by visiting this link: Moon Rocks to Power Stocks

Here is a link to this post in printable PDF format, where you also can find my latest Baker’s Dozen presentation slide deck. As always, I’d love to hear from you! Please feel free to email me your thoughts on this article or if you’d like me to speak on any of these topics at your event!  Read on….