Smart insight and clear visuals that matter – what we’re watching now and how intention and conviction shape our portfolios.
Passive Investing and Market Concentration
Market concentration within the S&P 500 has reached levels rarely seen in modern history. The 10 largest companies in the index now represent nearly 40% of it, a level not seen since the mid-1960s. Semiconductor-related companies alone nearly account for one-fifth of the S&P 500. As this concentration intensifies, we believe investors face growing risks in blindly tracking benchmark allocations.
We have seen this before. In 1980, fossil fuel companies comprised 29% of the S&P 500; today, they roughly represent 3%. Similarly, at the peak of Japan’s late-1980s equity boom, Japanese equities accounted for 44% of the MSCI World Index, whereas today they are roughly around 5%. History demonstrates how market leadership can erode over time and why investors should not simply mirror the risk profile of an index when it becomes unusually concentrated or extended, as is increasingly the case in markets around the world today. (Source: Capital Group, July 2026)
Despite these structural shifts, passive indexing now accounts for nearly half of all U.S. assets under management, driven by a widespread belief that index funds are inherently safer. By design, passive strategies are benchmarking mechanisms; however, we feel they lack enough built-in framework to manage valuation risk, adjust position sizes, or evaluate deteriorating business fundamentals. Passive indexes are not designed to assess whether a company’s competitive moat is widening or narrowing, nor to judge if current market prices adequately compensate investors for long-term risk. Our opinion is that relying entirely on market-cap weighting in an increasingly top-heavy market ultimately exposes portfolios to unmanaged concentration and valuation vulnerabilities. (Source: Capital Group, July 2026)
Defense and Aerospace Rebound
We have observed that private equity (PE) deployment in defense and aerospace has rebounded sharply following a multi-year lull in 2022–2023. Global sector deal value approached record highs at an estimated $50.3 billion in 2025 (just shy of 2021's $51.7 billion peak), while transaction count hit a record 332 deals. Momentum continued into Q1 2026 with $11.3 billion deployed, driven by a nearly 400% YoY surge in defense-specific deals. The rapid influx of private equity capital into aerospace and defense marks a structural shift in sponsor appetite, as Western governments execute multi-decade rearmament programs and expand defense budgets to historic highs. (Source: Penn Mutual Asset Management, 7/23/26)
By consolidating fragmented Tier-2 and Tier-3 component makers, sensor developers, and maintenance providers, Private Equity sponsors can capture operational efficiencies while insulating portfolios from single-program risk. The primary question we have is whether current entry multiples will hold if political shifts temper budgetary growth. For now, the convergence of dual-use technology, prolonged commercial fleet maintenance cycles, and guaranteed government backstops has turned defense infrastructure into one of private equity's most compelling cash-flow engines as they pivot from software heavy businesses.
Currency Pressures Reemerge in Asia
A couple weeks ago, margin calls and currency pressures in Korean markets spilled into local markets. This week, similar reverberations were noted in Japan, where the yen posted it’s largest increase against the U.S. dollar in more than two years. Japan’s Nikkei newspaper reported that officials once again stepped in to support the nation's sagging currency. Yesterday, the yen advanced as much as 3.3% against the U.S. dollar in New York trading, the most on an intraday basis since December 2023, when Bank of Japan Governor Kazuo Ueda indicated that the central bank was prepared to exit what was then the world's last negative interest-rate regime. (Source: Nikkei, July 2026)
While U.S. equities continue to trade near record levels, these developments highlight the ongoing volatility in Asian currency markets.
Mon, 8/3 @ 9:45 am: U.S. Manufacturing PMI
@ 10:00 am: ISM Report On Business Manufacturing PMI
@ 10:00 am: Construction Spending
Tues, 8/4 @ 8:30 am: U.S. Trade Report
@ 10:00 am: Job Openings & Labor Turnover Survey
@ 10:00 am: Factory Orders
Wed, 8/5 @ 8:15 am: ADP National Employment Report@ 9:45 am: U.S. Services PMI
@ 10:00 am: ISM Report On Business Services PMI
Thur, 8/6 @ 8:30 am: Weekly Jobless Claims
@ 10:00 am: Monthly Wholesale Trade
Fri, 8/7 @ 8:30 am: Employment Report
@ 8:30 am: Unemployment Report
@ 8:30 am: Avg Hourly Earnings, M/M% and Y/Y%
@ 3:00 am: Consumer Credit
Mary Ahn
Investment Research and Portfolio Strategy Manager
Cal Jones, CFA
Managing Director of Fixed Income
Eric Speron, CFA
Managing Director of Equities
Alton Tjahyono, CFA
Sr. Investment Strategist