August 2026 Client Letter

Ed Peagler | August 10, 2026

The second half of 2026 began with investors facing no shortage of uncertainty, from the Iran conflict and higher oil prices to ongoing questions about the returns on massive artificial intelligence (AI) investments. Despite these challenges, the S&P 500 entered August near all-time highs, supported by a resilient economy and solid corporate earnings.

The AI investment cycle remains a dominant theme for investors. As major technology companies reported second quarter earnings, markets increasingly focused less on the promise of AI spending and more on whether that spending is producing meaningful results. Can major technology companies such as Microsoft, Amazon, Alphabet, and Meta generate attractive returns on the enormous capital being invested in data centers, chips, cloud infrastructure, and AI platforms? Second quarter results provided a mixed picture. Companies showing strong revenue growth, cash flow generation, and progress toward monetizing AI were generally rewarded, while companies with rising spending and less visible returns faced greater scrutiny.

We believe the underlying AI story remains intact. Business investment tied to AI continues to support economic growth, productivity, and corporate profitability across a growing number of industries. Investors should expect periods of volatility as markets evaluate the returns on these investments, but AI remains an important earnings tailwind for technology leaders and businesses adopting these tools.

Corporate earnings continue to provide an important foundation for stocks. S&P 500 companies in aggregate are growing profits nearly 30% year over year in the second quarter, excluding markups of private holdings in Anthropic, OpenAI, and SpaceX. Strength has also extended beyond technology, with earnings growth excluding the so-called Magnificent Seven tracking toward 20%. Encouragingly, stock market gains have been driven more by earnings growth than by valuation expansion, which we view as a healthier backdrop for equities.

The inflation picture remains mixed but could improve in the months ahead. The ongoing Iran conflict and solid economic growth have put upward pressure on long-term interest rates, leaving the Federal Reserve in a challenging position. Renewed hopes for productive talks to reopen the Strait of Hormuz, along with weaker Chinese demand for oil, have helped offset some supply concerns and kept WTI crude oil prices around $80 per barrel.

Overall, we believe resilient economic growth, the potential for restored shipping traffic in the Persian Gulf, solid corporate earnings, and continued AI-driven innovation provide a favorable backdrop for equities even after their recent advance. At the same time, geopolitical uncertainty and questions surrounding the returns on AI investment could contribute to periods of volatility. For investors, maintaining a diversified portfolio remains important.

As always, please reach out to me with questions. Thank you for your continued trust.

Sincerely,

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^{The PHLX Semiconductor Sector Index (SOX) is a modified market capitalization-weighted index composed of companies primarily involved in the design, distribution, manufacture, and sale of semiconductors.}

^{All data is provided as of August 5, 2026.}

^{All index data from FactSet.}

^{The Standard & Poor’s 500 Index (S&P500) is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.}

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^{Past performance does not guarantee future results.}

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^{This research material was prepared by LPL Financial, LLC.}