This spring gave markets a lot to digest. Conflict in Iran sent oil prices sharply higher, and that jump flowed quickly into everyday costs like gas and electricity, making inflation look worse than it had in months. Higher inflation, in turn, made the Federal Reserve more cautious about cutting interest rates, and that shift rattled both stock and bond markets for a stretch this year.

Underneath those headlines, a quieter story has been building for a while. For the past few years, a small group of giant technology companies has driven most of the stock market's gains. The investment firm KKR describes this as a “Divergence Conundrum”: on the surface, returns across different types of investments look fairly similar, but underneath, the gap between winners and losers is wide, and getting wider. Bonds, which investors have leaned on for decades to cushion the blow when stocks fall, have also been less reliable lately, a pattern that showed up again during this spring's stock market drop (KKR, 4-5).

None of this argues for changing a well-built plan in response to a volatile quarter. It does argue for recognizing that simply owning “the market” through a broad index is likely to do less of the work going forward than it has over the past decade. Being thoughtful about what you own, and why, matters more now. That is exactly the kind of environment a well-diversified, carefully managed portfolio is built for, and it is how we are thinking about your investments today.

Why Oil Is Driving the Conversation

In late February, conflict in Iran raised fears about the Strait of Hormuz, the narrow waterway that roughly 35% of the world's oil exports pass through. Oil prices jumped from around $60 a barrel in December to over $100 in March, a rise of nearly 70% in a few months (FIWA, 6). Oil touches almost everything: gasoline, heating, shipping, manufacturing. So when it spikes, prices tend to rise across the whole economy, and it hits some households harder than others. Lower-income families spend close to 17% of their income on energy, compared with under 3% for the highest earners, so a shock like this is far from evenly felt (JPMorgan, 2).

The Fed's Balancing Act

The Federal Reserve has one main tool, short-term interest rates, in service of two goals that often pull in opposite directions: keeping prices stable and keeping the job market healthy. Coming into 2026, the Fed and its counterparts in Europe and the U.K. were expected to keep cutting rates. The oil shock complicated that plan. Consumer prices rose 4.2% in May from a year earlier, well above the 50-year average of 3.6% (JPMorgan, 6), so markets pulled back their bets on future rate cuts, and some investors began wondering whether central banks in Europe and Japan might even need to raise rates instead (FIWA, 8). The Fed's own June forecast still points to modest rate cuts by year-end, but the road there looks bumpier than it did back in January.

Labor Market: Resilient but Uneven

The good news is the job market itself has held up reasonably well. Employers added 172,000 jobs in May, unemployment sat at a manageable 4.3%, and wages grew a bit faster than their long-term average (JPMorgan, 5). While there are a lot of headlines and concerns about AI exposure in the labor market, there is little evidence so far that AI is the main culprit behind the recent slowdown. According to Fidelity, AI accounts for an estimated 1% of the hiring pullback and 10% of layoffs (FIWA, 13). The more persistent story is bifurcation, as the recovery is not reaching everyone equally. Wage growth for lower-income workers has slowed more than for higher earners, and as noted above, that same group is more exposed to rising energy costs. It is a good reminder that a healthy economy on average can still feel very different depending on where you sit.

Sector Performance: AI Capital Expenditure Versus the Broader Economy

The first quarter delivered an unusually wide dispersion of sector returns. Energy led decisively, up 38.2%, followed by materials, utilities, and consumer staples, all classically defensive or inflation-sensitive areas. Growth-heavy sectors struggled, with information technology down 9.1%, communication services down 6.9%, and consumer discretionary down 9.2%.  At the index level, growth stocks fell 9.5% for the quarter while value gained 2.2% and small and mid caps posted modest positive returns, a reversal after three years of large cap growth dominance. (FIWA, 20).

This dispersion reflects a real divide in the underlying economy. Business investment remains heavily concentrated in AI-related capital expenditure from a handful of large technology and communications companies, while trade policy and financing costs have weighed more heavily on smaller businesses and cyclical industrials (FIWA, 16). KKR's research echoes this from the equity valuation side: mega-cap companies continue to post stronger margins, higher revenue per worker, and more durable access to capital than the broader small cap universe, a gap that has widened materially since the launch of large language models in the current cycle (KKR, 5).

Market Risks and Volatility Drivers

• Stocks are priced for good news. The market is trading at a meaningfully higher price relative to company earnings than its 30 year average, which historically has meant less room to absorb bad surprises without a real pullback (JPMorgan, 9).
• Riskier loans are not paying investors much extra for the risk. The gap between what safer and riskier borrowers pay has shrunk to some of the tightest levels in years, meaning investors are being paid relatively little to take on extra credit risk right now (KKR, 7 exhibit 8).
• Traditional safe havens are behaving less predictably. The U.S. dollar rallied sharply during the oil shock, but history shows it is an inconsistent safe haven asset during volatile periods, and it remains expensive relative to both developed and emerging market currencies (FIWA, 26). U.S. Treasury bonds, meanwhile, provided noticeably less protection during this spring's stock market drawdown than they typically did in the decade following the 2008 financial crisis, a real departure from the playbook many investors grew up with.
• Government borrowing keeps climbing. New federal spending should give the economy a modest lift this year, but rising interest costs on the national debt, here and abroad, are pushing long-term borrowing costs higher around the world (FIWA, 35-36).

Addressing Concentration Risk

A portfolio that simply tracks a broad market index today carries more concentration in a handful of mega-cap technology companies than most investors realize. We still believe the biggest companies deserve a place in a portfolio, but we are also making room for smaller, well-run companies. Where appropriate, we are tempering pure index concentration with quality-focused equity strategies and control-oriented private equity, which can bring operational improvement to smaller companies that have not yet captured the productivity gains flowing to the largest firms.

Fixed Income: Favoring Quality Over Reaching for Yield

Yields on bonds are genuinely more attractive today than they were a few years ago, which is good news for anyone relying on their portfolio for income. But we are not counting on falling interest rates to do the heavy lifting the way bond investors could in past decades. We continue to favor higher quality bonds and are watching riskier corners of the credit market more carefully.

Equity Diversification: Looking Beyond U.S. Large Cap

International equities continue to screen attractively relative to U.S. large cap stocks, although the valuation gap has narrowed after a strong recent run in Europe and Japan. Non-U.S. developed and emerging market equities continue to trade at forward earnings multiples well below both their U.S. counterparts and their own long-term averages (FIWA, 23). We continue to view thoughtful international exposure as a genuine source of diversification rather than a short-term tactical trade.

Private Markets: A Broader Toolkit for a Narrower Band of Public Market Returns

This is the environment our alternatives platform was built for. Investments like private credit, real estate, infrastructure, and other strategies that do not move in lockstep with stocks and bonds can offer real ballast when the usual relationship between stocks and bonds breaks down (JPMorgan, 11). These investments also tend to offer collateral protection, contractual or inflation-linked cash flows, and meaningful yield, characteristics that matter more when both public market returns and traditional bonds are doing less of the work they once did.  Through our platform, we continue to bring thoughtfully vetted access to these strategies to clients for whom they make sense.

What This Means for You

Volatility like we saw this spring is uncomfortable, and it is entirely reasonable to feel unsettled watching headlines about oil, inflation, and central bank policy shift from week to week. Our approach does not change with the headlines. It is grounded in a written plan built around your goals, time horizon, and tolerance for risk, and we manage to that plan rather than to the news cycle.

A few simple, unglamorous habits matter more than any single prediction about where markets go next.

• We rebalance on a schedule, not in reaction to headlines. When markets move, your allocation drifts. We check in and correct course regularly so a volatile quarter does not quietly turn into an outsized bet.
• We diversify beyond stocks and bonds. Investments that behave differently from the broad market matter more when stocks and bonds start moving together.
• We favor quality and discipline in both equities and credit rather than reaching for yield or chasing whatever performed best last quarter.
• We keep your goals in the driver's seat. Oil prices and Fed meetings will keep making headlines. Your time horizon, your income needs, and your goals have not changed because of them.

A Wider View

We genuinely believe the next several years will reward patience, discipline, and a portfolio built with intention rather than one assembled by default. We are grateful for the trust you place in our team, and we welcome the opportunity to discuss how these themes apply to your specific plan.

Sources

KKR Global Macro & Asset Allocation, “An Expanded Toolkit for the Next Investing Regime: Capital Market Assumptions,” July 2026.

J.P. Morgan Asset Management, “Guide to the Markets – U.S.,” 3Q 2026, data as of June 30, 2026.

Fidelity Investments, Asset Allocation Research Team (AART), “Quarterly Market Update,” Second Quarter 2026, data as of March 31, 2026.

Disclosure

The views and opinions expressed in this commentary are those of Summit Wealth Group as of July 20, 2026 and are subject to change based on market and other conditions without notice. This commentary is provided for informational and educational purposes only and does not constitute investment, legal, tax, or financial advice. It should not be construed as an offer to sell or a solicitation of an offer to buy any security, product, or service, nor is it a recommendation to buy, sell, or hold any particular investment or to adopt any particular investment strategy.

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