Q2 2026 Equity and Fixed-Income Quarterly Outlook

Hi everyone. Welcome to the Q2 Equity and Fixed Income Quarterly Outlook. My name is Brandon Balazi. I am the advisor relations manager here at Saturna Capital. We appreciate you taking the time to join us today. I have with me two members of our investment team. First, we have Bryce Fegley, who is the quantitative lead and portfolio manager and has been with Saturna Capital since 2001.

And then he's joined by Patrick Drum, who is our fixed income lead in portfolio manager, who's been with the firm since 2015. I'm going to pause here for a second for some disclosures,

I'm going to start with you. We ended Q1 with US equity markets and indexes kind of toward the low points or near the bottom for the year. Can you walk us through what you and the equity team saw through throughout Q2? Yeah, the you know, the backdrop coming into Q2 was that equities had been sort of chugging along, treading water for about six months.

We had the quarter begin with, you know, armed conflict, a war in the Middle East, the closure of a major shipping channel and the, you know, concerns or questions about the resolution of that. But underneath all of that, the main driver of the equity market for the past couple of years was the AI boom. And, you know, the end of the quarter, some of that had been worked out.

I'll kind of narrate where we began and where we ended. And throughout, you know, think sharing the perspective of our thinking is long term owners of businesses and avoiding trading, speculation, gambling. We'll talk a little bit about that. With the wave of IPOs that we expect this year, including the space IPO that is already begun trading. So where where do we start?

We started with this six month churn in equity indices. And pretty quickly into the quarter, we had de-escalation of the conflict in Iran. You know, that's not really worked out in terms of all of the nuance of how that de-escalation will work out over the long term, but pretty clearly it has been reflected in prices. Right? Well, was $110 a barrel at one point during the quarter and is now back to around 70.

We had some, you know, news overnight about resumption of some conflict, some attacks, exchanges and so forth, but that, you know, remains to be seen how much that will impact prices going forward. Still relatively muted, I think. But, you know, getting back to the story of the quarter, that was a big de-escalation. And it created a more constructive backdrop for the overall economy, because some of those uncertainties and risks are somewhat off the table in pricing and businesses ability to plan for a longer term outlook without being so concerned about deal political tensions, interrupting plans.

And with that uncertainty, kind of eased attention came back to the AI investment boom. And that's where we we kind of find ourselves again, where we have been for the last several years. And it's really been since 2023. Right. The initial release of ChatGPT as an app that you could pay for has fueled this enormous run on AI investment and optimism about this technology, and the scale really dwarfs the past investment moves that we've seen.

I started my career in 1997 at the dawn of the internet bubble, the so-called com bubble. And, you know, that was a major bubble. It resulted in 80, 90% losses in some of the companies that were major players during that time. And, you know, so there's lessons to be learned from that. I don't see that the AI investment boom has some has the same frothy, bubble like characteristics that the AI boom had, but it's clearly a huge story and probably even much bigger in terms of the spending in terms of some of the dire concerns or warnings about how it threatens to upend society, you know, displaced careers and these sorts of things.

So it's clearly very big deal. And the amount of spending and investment is continuing to fuel the increases in the equity market. The competitive dynamics is something that we think about a lot with the AI boom. And the issue is basically that for any individual company competing for these growing markets, their incentive is to capture market share. And the risk existential risk, like, you know, not surviving risk is that you under invest and your competitors take your customers because they have invested more aggressively.

So any at any individual company level, the risk is really under investing. And collectively that leads to a market that's probably going to over build. It's almost inevitable that there will be some overbuilding because of this incentive structure at the individual company level. And in Q2, I think we had some examples that kind of bear that out, right.

OpenAI is the company. Excuse me, the company that offers ChatGPT chatbot. And they've really cut some aggressive deals over the past year or so. They've sold future upside in their equity for future computing power. Their main competitors, anthropic, the maker of Claude and Claude, has really put up some staggering revenue growth numbers, user growth numbers. They haven't chased compute investment in compute as hard.

They haven't been as aggressive in making deals with companies and programmers love Claude in particular. I use it here to some extent, and yet it's slower, it's costlier, and they're compute constrained because they haven't been as aggressive in chasing customers. So, you know, that's an example of where the market has basically been concerned for as long as this boom has been underway, that we're going to overdo it with investment.

And the narrative kind of flipped during the second quarter that like, maybe we've been under investing, actually, maybe demand growth has been so strong. And these companies revenue growth has been so unfathomably large, especially given their increasing size, that we haven't invested enough. And so when you see a company like Claude growing so quickly, but not being able to provide as much in the way of service that its customers are looking for, I think that really lit a fire under the equity market and under chipmakers, under the semiconductor companies and all of the providers of compute that.

Wow. Maybe we've actually underdone it. So, you know, that was a pretty interesting thing that that narrative powered the rally in the market from basically the beginning or middle of April, well into May. Then by June, we kind of had this new idea of, of token maxing. And so it turned out that probably fueling some of this unprecedented growth in these model providers was a.

Propensity among some of the larger customers to maybe have overdone it a bit in how much they were spending on these new agents workflows. So this is basically, you know, taking ChatGPT or Claude and putting in orchestrator over it, that kind of runs the chat in a loop or the, you know, the AI in a loop to accomplish a task.

So a programmer says, hey, I want to build this project. Here are the goals. And then the orchestrator layer, you know, has the AI go and try to solve that step by step. And you know, that consumes quite a lot of compute and.

And companies, large tech companies like meta, like Uber, were pouring staggering amounts of money into trying to build out these workflows in a hurry to see what they could do with productivity gains, with taking market share from their customers, things like this. And I think the verdict is still out on that, but it looks like maybe they've overdone it a bit.

And maybe that frenzy in token use and spending was a little bit overdone. Maybe the results didn't scale with the spending. And then the big picture is that a lot of the spending has really been on programing specific tasks, right? Not necessarily the broad white collar work that's more qualitative. That requires more context where the productivity case is still unproven.

And I think that's where we're left. At the end of the quarter, we had a huge rally fueled by these staggering revenue growth figures. You know, possibly the concern that we'd actually been under building this whole time instead of overbuilding. And, you know, that's kind of an open question at the end of the quarter, maybe that was a spike in demand that won't be sustainable.

And maybe that particular slice of demand being programed specific won't scale to the broader economy. So you know that I hate to do the, you know, on the one hand or the other, but the question is still out. Are we over investing in this? Given the scale, the competitive dynamics point to the case being probably yes, at some point interrupted by the sorts of bursts of optimism.

So, you know, we we're invested in the AI sector, but, you know, we're always looking for signs that the companies we're investing in are, you know, still trading at reasonable prices. And we can justify owning them every day. The last thing I want to close out with all this optimism is fueling the biggest IPO wave in a generation.

Space came public. OpenAI and anthropic themselves may come public by the end of this year, maybe early next year, and this is genuinely exciting, but we expect to sit them out and why? So three standards. We applied everything we own quality and price. Quality is a big one. We want companies that have a proven ability to earn returns, competitive returns, and a lot of the IPOs space in particular, all of the the growth is really in the future.

You know, they've they've achieved amazing things with some of their.

Launch capabilities. But the growth promised in the IPO is really about building data centers in space, a totally unproven technology. And we're not going to pay for something that's still a hope. The investing standards require a proven track record. And more importantly, accountability is a public company that you can execute at a larger scale and under more intense scrutiny with accountable investors.

So that's a big one for us. And that kind of flows into governance and transparency. The SpaceX's IPO, a lot of newer issues come with concentrated control.

Unfriendly policies or structures for outside shareholders like super voting shares. Space has arrangements that make it genuinely hard to say whether outside shareholders have a claim on future profits, because there are sort of escalation clauses in in the founders contract compensation. So, you know, red flags and governance. And then just the broader picture is that a hyped IPOs or one of the biggest.

Well, Nippo is one of the biggest events in the life of a company. It's when investors in early, the founders and early investors have a chance to get out, and the public comes rushing in to replace them. But the incentives are misaligned because investors, insiders are the ones with the best information and the ability to kind of time when they exit, they want to.

Their incentive is to exit is at as high a price as the market will bear. And on the other side of that trade, you have less informed investors rushing in, sometimes at almost any price. So it's not that we'll never invest in these companies. I it's that investing in the days after an IPO has a pretty lousy track record.

The incentives point to why that might be the case, because there's a misalignment of information asymmetry there. It's not a prediction that the company will fail. Our decision to sit out. Right. It's more that we have high standards for what we'll own on your behalf, and what price will pay for that and what risks will accept. And we're not going to lower the bar for, you know, companies that have a lot of attention because of the hype around them.

So, you know, overall, we're not here to catch every wave. We have high standards for the businesses we invest in. We want reasonable prices we want and outlook that makes sense and business that we can understand, and the ability to grow revenue for years down the road, even when the excitement fades. So that's my wrap for the quarter.

That's great. One one question that that did come in is obviously AI is dominated headlines. And you know, we hold a good amount of technology and sector. And across all of our funds are there is there anything else outside of AI that's catching your eye or in Q3 that you're looking at in terms of opportunity from a from a sector level?

You know, there's ten other sectors in the in the in the S&P. What else is catching your guys's eye. Yeah, that's a great question because AI has become such a major component driving growth. It's like honestly the biggest story of my investing career as I said in my remarks. But you are right, there are other parts of the economy.

And, you know, so like one of the issues that has come to the surface again in recent weeks is this heat wave in Europe. And that points to the theme of climate risk more generally. You know, our our fixed income team in particular has done a lot of work on this, but it's something that we take really seriously as a firm at, at the firm level.

And so we measure investments and other sectors through a climate risk framework that might be industrials, for example, where they have the ability to provide solutions to heat waves like air conditioning, but also where they maybe have the capability to offset emissions or the things that cause climate risk in other areas. So even, you know, one of the stories that is interesting to talk about are these so-called air gas companies.

They basically provide, you know, gases to industrial companies like nitrogen or helium was one that came up with the Strait of Hormuz closure that's used to make semiconductor equipment. And the air gas companies are themselves pretty emissions intensive. But when you pair them with a industrial manufacturer and you a co-locate a gas plant next to a factory, you actually have a net emissions reduction because it costs a lot of money and it costs a lot of emissions to move gas from one place to another.

And, you know, so the production of gases is energy intensive and emissions intensive. But, you know, business that can improve emissions by locating next to key customers actually lowers emissions on net for the same amount of manufacturing output. So yeah, we look at we look at other things. I don't necessarily have particular sectoral themes.

To talk about outside of the climate risk one, but I'll take other questions. If you have anything specific you're wondering about, you know, that's actually a great segue into Patrick. And just to kind of, you know, recap with Bryce is we have not invested in the space IPO, and everything we do through the investment committee at capital has kind of a ESG screen, you can say, or a screen that we run it through as an active manager.

And back to the you know, you mentioned climate change. It's a great segue to Patrick, who is the portfolio manager on our fixed income products, including our sustainable bond fund and participation funds. So, Patrick, I can turn it over to you in a similar kind of question. What did you see in Q2? Walk us through what the fixed income team is thinking for Q3.

Well, thank you, Brandon. It's delight to be here. And thank you, everyone for joining this conference with us and providing a little lens as to how we think about things. Being on the fixed income side, I'm going to be kind of providing an overview of sort of the macro developments. There'll be some numbers, but for fixed income, so be the customer of that.

So the second quarter of 2026 was largely shaped by three key developments. First was the renewed supply driven inflation linked to disruptions in the Strait of Hormuz surrounding what we all know as the Middle East conflict. Second, the appointment of Kevin washes the as the Federal Reserve chair and the resulting uncertainty surrounding the resulting in a certainty surrounding the policy path and monetary policy.

And what's surprising in the third was the surge in yields as investors grappled with these strong inflation metrics, as well as new new messaging from the fed, which we'll spend a little time on. So I'll give you a warning. We're going to talk a little bit of numbers. So the CPI headline CPI index for May ended up increasing on an annualized basis to 3.8%.

It further accelerated to 4.3% in May. That represented the highest inflation print and read on an annualized basis since April of 2023. In looking at the data, the culprit is not a big surprise to see it was largely energy the energy index as of the end of May, on a month over basis, rose 4% on an annualized basis.

It was at 23.5%. It was substantive. Gasoline provides another kind of key indicator, rising 7% on a month over month basis and over the trailing 12 months, 40.5%. It is important to note headline CPI only has a 3% waiting to the CPI index. It provides a bit of a cap, clearly other. In contrast, shelter, which represents well over one third of the index, is waiting, experienced a much more modest increase, increasing 0.3% on a month over month basis or point on an annualized basis was 3.4%, an important measure that the fed and the investors look at is what is known as core CPI.

And this measures inflation, excluding energy and food. And that demonstrated a much more moderate increase of an annualized increase of 2.9%. This then now ties the fed. There's a lot of substantive activities that came in with the fed. First was the appointment of Kevin Warsh. And we'll spend a little time about his policies. Once in a moment, we'll provide some further guidance.

And his inaugural meeting in June, he marks the 17th individual to assume the chair of U.S. Auto Reserve. It's an important mark and a new chapter, which will kind of spend just a brief moment highlighting. But in June, on June 16th and 17th meeting the FOMC or what is known as the Federal Open Market Committee, it's a subset of the Federal Reserve.

And that's focused solely on its scope is on monetary policy and assessing benchmark rates. These rates are affecting everything from credit cards, prime mortgage rates and so forth. But the participants decided to leave the federal funds target rate unchanged at three and a half to 3.75%. But what was particularly notable about this meeting was the tone, a very hawkish and unexpected tone that surprised a lot of investors, and the committee responded or stated that inflation remained an elevated relative to the goal of the 2% goal.

This silver keeping what is known sort of a goal metric of the 2%, citing a supply disruption, supply chain disruptions causing prices to increase, in particular, with again, energy not particularly being a surprise aspect. But what further added to this hawkish narrative and a hawkish is a tone to express an increase in tightening of the fiscal conditioning or tightening of interest rates.

While the word dove or dovish reflects sort of an easing of financial conditions or a lowering of benchmark rates, meaning costs of borrowing or credit card or auto loans and so forth becomes less expensive. But the tones that surprise a lot of everyone from this meeting was this hawkish aspect. And this in part was a further exacerbated not by inflation but also a strong employment report in May.

This further limits of the capacity and policy choices of the film see that sets policy regarding monetary rates. In fact, in May the nonfarm payrolls report, which was revised downward, added 129,000 new jobs. The point is, is that unemployment came in at about 4.3%. This still points to a very robust economy. Now, I think context here is really important because this meeting really had an aggressive, surprisingly had an aggressive change in expectations.

With regards to the outlook on interest rates prior to this year's beginning and also the conflict, investors were largely coalesced with the notion that the federal of the FOMC was going to reduce benchmark rates by as much as 1%. That flipped to where now we're expecting an interest rate increase, a benchmark increase of, say, a quarter percent. So we could see ourselves at about above 4%.

In fact, the market is currently pricing by April of 2027, as much as two interest rate hikes. We're about a one half of an increase in interest rates. In fact, of the 18 foams participants, nine of penciled in an increase in venture strikes. So that really kind of brought a bit of change in tone. And the hawkish when you hear that word, I think another important aspect and this is I'll leave on the last part of the Fed is Kevin Walsh.

Now is the new fed chair. And part of that he is basically changing the business of the fed and just announced five subcommittees that are going to basically improve processes and procedures at the fed. And one of the more key elements, because we get the devil's in the details. But one of the most, most outward facing aspect is, is what the Fed's communications, Kevin Warsh, is going to be removing what is known as this forward guidance.

We hear such things as dot plots or detailed forward guidance that's eliminated. And so for investors this really we're facing at the end of the second half of the year strong inflation, robust employment data and now uncertainties with regard to the Federal Reserve's transparency as how they're going to be managing monetary policy. These uncertainties cause interest rates to rise substantially, but it's also going to part a likelihood of increased volatility, particularly around certain economic data points such as CPI or payroll.

As a result, I said interest rates surged. In fact, the 30 year to give all context rose 30 basis points. It got as high as in May May 19th at 5.18%. That level had not been seen in almost 20 years back in 2007. In fact, the two year increased three quarters of percent from about 3.5% to 4.18%. This really created a ratcheting rates.

And there's two parts of the curve, this effect. And in kind of keeping in mind for investors that how this works. The fed influences the front end of the curve meaning the short duration such as the two year treasury. And so things such as policy, strong employment data and inflation are going to affect it. The long end is not as much influenced by policy as much as it is by inflation, investors, expression, inflation and more.

Also more importantly, what we call risk premium or certainly kind of debt sustainability. So we're starting to see and this is what caught our eye. We expected the front end to increase because of changes in monetary policy from a decrease of expected rates to an increase what you saw in the two year rising three quarters of a percent.

But the surprising part was the long end also moving, meaning the long end because of inflation uncertainties, policy changes and more importantly, debt sustainability. It's been a busy it's been a busy one half of the year. I hope that provides an overview. It does. You mentioned the phrase you used. That's probably as an active manager and a fixed income manager.

Aggressive changes in in policy as a PM and an active manager. How do you how do you view that like is it you know, hey, we still hold to this eternal investment policy of more long term holders and these are short term. Any other thoughts behind that? No. Great question. Context does the does the working environment does the working environment that has changed that we're seeing ebb and flow change our approach?

The answer is absolutely not. There's ways to kind of balance it. First our framework does not change. You know we favor issue is with strong fundamentals, resilient cash flows and issuers that are well positioned to endure business cycle. We've been through business cycles. It's part of what we do. And the active management really helps us identify among, say, particular issuers and an index, which tend to be highly concentrated, which ones are better positioned in this type of environment to provide this level of endurance?

I mean, on balance, we know that inflationary pressures are probably going to subside as as in line with the progression in the reopening the Strait of Hormuz and conflicts. Hopefully ebb is our thoughts are with with everyone. But in the aspect of kind of the de-escalation of tensions. But even if prices do drop in those energy benchmark on CPI does decline.

Remember this conflict is over 120 days old as of mid-June. So that's about four months of supply chain disruptions. And because of those supply chain disruptions, it's likely to see inflation on the supply side remain sticky. Supply side inflation is very different from demand side inflation. And supply supply side tends to when corrected like in the Covid when supply chains moderate or kind of get back online for better lack of term or prices, inputs start declining.

You can see inflation re kind of gearing back down, whereas demand inflation because there's a lack of supply and a large amount of demand that inflation tends to be a lot more has has a little more longer aggression or a lot more better legs for, for kind of endurance. But supply side inflation imparts potential for ebbing. But we're still a little bit early and out of the woods.

And so our we're being very mindful about the prints with the Fed's guidance is on and expected volatility and inflation. But our stewards as being focused on the key elements of strong fundamentals, resilient cash flow and more importantly robust and resilient operating companies and entities is corridor thesis okay? That's great. We did have a question, and you covered a lot of it from the fixed income side of a question that just came in.

So I'm going to turn it back over to Bryce. And you know, the question that just came in was couldn't escalation of the conflict with Iran trigger economic conditions similar to 0708 financial crisis, or is the economy today more resilient? Right. You, you know, you talked about late 2000 or late 90s, early 2000 kind of internet bubble, but what are your thoughts about that?

Yeah, a couple of things.

One, one thing is the market or the sorry, the global economy is has become over the decades much less sensitive to energy prices. We're just more efficient in using energy. We require less energy per unit of economic output. So for that reason, you know, we wouldn't have thought it unreasonable for all prices to have gone to like $200 a barrel because it might have taken that kind of surge in prices to balance demand with reduced supply.

That didn't happen, but it wouldn't have been out of the question. And I think that that the fact that it it didn't even happen and that we, you know, countries were able to release enough reserves and sort of get through the worst of it without a major oil price increase, speaks to the resiliency of the global economy to energy supply disruptions.

So that's kind of the first part. I just think the the the overall global economy is less sensitive to energy prices. Now, you know, 17, 18 years later compared to where it was in the 2007, 2008 era when we had a prolonged increase in energy prices. The other thing that went along with that era that was maybe disruptive is it was really not just energy supply disruption.

It was a demand side story. It was a multi-year, really phenomenal run in Chinese economic growth that was consuming a lot of natural resources, you know, energy among them, but also raw materials like iron, metallurgical coal, aluminum and so forth. They were building out their hinterland with, you know, very large new cities and a lot of infrastructure to support roads, highways, airports and all of these sorts of things and a lot of housing.

So, you know, that that growth caused materials prices in general to rise. And it was a demand driven rise, kind of like what Patrick has just talking about. There's a difference between demand driven price increases and supply disruption, price increases. And the latter or side of the former, the demand driven stuff is a little bit more.

More resilient. It lasts longer and it's harder to tamp down because it kind of has some gears that churn in a flywheel effect behind it. So that's kind of the first part of it.

The second part of that is maybe thinking about what happened with energy prices and getting back to our philosophy. We don't really invest in the energy market at all due to the stranded asset risks. And it's easy to say this in hindsight now that all prices have kind of round trip from 70 to 110, back to high 60s, low 70s.

But if we had looked at the potential supply disruptions and said, let's go long energy, let's invest in oil companies and so forth, we would have had to do it from a trading perspective. We would have had to do it as speculators, almost like a gamble. Right? We're going to hope to ride this for a few months and then get out with higher oil prices.

And we don't do that. And, you know, having the long term view that, okay, there might be shorter term supply disruptions and large moves and energy prices. But what is the long term story here and is a sector that makes sense to be invested in. And the answer for us at least is no. Okay. That's great. And the second part of that question was how are the amount of funds position for that type of risk?

One thing you know, you can add to a price, but one reminder is that in the amount of funds, we almost entirely avoid the financial sector. In 2002, 2008, there was one sector you didn't necessarily want to be in. I think it's fair to say that financials was a big draw of the overall drawdown in that time frame.

Correct? Absolutely. Yeah, yeah. You know, financials is one part of the story, because the financial industry and banking industry is a tough one because it's sort of a way for firms to grease the wheels of economic growth without necessarily having a a clear growth trajectory of their own. You know, they use a lot of leverage to achieve growth.

And that consideration applies beyond financials. It applies to companies that use leverage for anything. And I guess what we what we tend to fundamentally avoid are companies that are using leverage, borrowing to as a source of growth or as a source of, of return. Yeah. We would rather see that growth in return be generated from organic underlying economic activity.

And, you know, that's where our philosophy orients us that, you know, from the AI story. Tying back into that, it does mean that we probably are more concentrated in those types of sectors technology, healthcare, some industrials and so forth, because we're avoiding others like financials and businesses that use a lot of leverage, like telecoms and utilities and these sorts of things.

That's great. Thank you Bryce. And the next question we got comes back to Patrick. And the question. I'm sorry I lost my screen. Two seconds was what is attracting investors to the fixed income market overall, you know, and what can we expect going forward? That's a great question. You know, currently what particularly is in is what's now attracting is as I highlighted, we're starting to touch some ire.

Interest rates or fixed income instruments are now producing rates of interest that we haven't seen in almost two decades. So we call that to carry trade the coupon or the profit rate for Islamic Islamic compliance, security income producing instruments. So this really provides a very favorable environment because in part, we're seeing, as Bryce indicated, within different segments of the equity complex as it relates to, say, technology sectors, there's some volatility.

We know we know certain parts of the global economy, such as we've seen, experienced substantial rates of positive returns. And whenever you get this volatility in a resume shift and change of interest rates and so forth, you being mindful of risk management. And so no better place is to offers a bit of that added safety of capital preservation and current income then fixed income instruments.

But also you're paid and compensated to be patient and also provide those with means of capital buffers. Coming forward of the remainder of half of the year is really kind of watching a fed policy. Fed policy is going to have a large influence with regards of in response to supply disruptions, how that impacts inflation, whether it's energy supply chain driven, we're really going to be attentive to employment reports.

That is also going to be a driver and that's going to be influencing the fed policy. And that is a result will also will will have a considerable influence on the behavior of the US dollar. The US dollar, as a result, over the recent three months is really kind of reared itself back into the limelight. Before it was rather saying when with a largely a broad view, that a weak dollar was going to be kind of a structural story through the 2026 period.

And that has not been the case through our multi-currency sustainable bond fund. Our exposures to the multi-currency have been very favorable. Some of the Latin American currencies, on a year to day basis or a trailing 12 year have been over a double digit, and that's been really helping some of those allocations in conventional fixed income investments. So factors being really back to the basics of that really indicated it's going to be inflation data, monetary policy and how that affects.

But the benefit is if you're a little uncertain and we are believers of this you know stick to the plan. We're long term investors. But providing that long term investor allocation, fixed income is providing a very a very favorable compensation, some of which we haven't seen in two decades.

One question from Brandon at Saturnia Capital, Patrick, is you mentioned employment reports. Is there a specific data point that that you guys like when you're looking at employment, do like nonfarm payrolls jolts? Do you do you look at unemployment rate? They all have their pros and cons. Do you just look at the entire employment picture as a whole?

Those are great questions, you know. And in fact, this is even a little bit of a Kevin Washington now being the new the US, the new Federal Reserve chair. And they're now looking in and going to be incorporating private data because in part, they recognized some shortcomings to government sponsored data. Now, the government sponsored data is very reliant and resilient.

But clearly private data such as JOLTS and other data sources like ADP provide a much more holistic perspective. The complexity of the economy in the economy have really changed employment. I mean, we'll have a lot of folks work in, say, Uber or a variety of different part time roles, but, you know, full employment has a much more different look.

So as it relates to employment, I tend to prefer unknowing where the unemployment rate is as a whole, which is around 4.3. That's an easier means of understanding the kind of the economy, current policies with regards to employment and more importantly, migration, immigration and so forth have changed some of the payroll data. And so it makes it a little more volatile.

ADP and some of the other sources of private data captured different parts of the economy, and they're subject to some of their own strengths and weaknesses. I find being mindful in the margin of the changes. But like the the non-farm payroll for May was revised downward by 43,000. It had a very attention getting announcement because it was more than almost twice as much of the the anticipated release.

And then to be dialed back really speaks to sort of like, okay, what's going on. So I tend to step back, acknowledge and be attentive to the the prints that are being placed. But it's I find it the unemployment report tends to be a little bit more of the keel in the water, providing a bit of the ballast as regards to sort of the the various variability in different interpretations.

These data points are so again, unemployment report as well as being attentive to the ongoing metrics. Great. And we have a few minutes left. One more question came in. I'll give you guys both maybe your 3030 to 60 second response. With ongoing geopolitical conflicts across the cross the world, they specifically mentioned Russia, Ukraine, Iran, Israel, Lebanon, India, Pakistan.

Do you expect the international markets to be more volatile and carry more risk going forward than the US market? And how is that investment strategy influencing you in your portfolio allocations? Patrick, since I have you on my screen, first, why don't you go first? Yeah. And this is where I think we really need to shape the narrative.

What was particularly interesting, we might remember a little over about a year ago, we had Liberation Day, right? And Liberation Day was probably one of the most substantive periods that really caught my attention. And it was watching how the asset markets became what you will find that US equity markets, whether it was the S&P or the Nasdaq, all drew down negative.

But what's interesting is that the MSE aqui only was down by like 1%. Emerging markets were still were staying positive. And if we move them forward through from that period because typically US equity investors typically investors are equity eccentric and equity minded. What I found particularly interesting in that period after Liberation Day is historically when you see volatility, usually when US markets go down or what we say has a whiff, the US has a cold, the world rather the US catches a cold, the rest of the world is kind of sick.

Or has the flu as an analogy, saying whatever occurs in the US is mild, it tends to be worse on the global side, but this was the first time this had flipped. And what I mean by that US markets went down well. Global and global equity and emerging markets actually held up if not were positive. And by year end the S&P, or rather the S&P, was up about 17% in the emerging market.

Equities as well as fixed income that year was up over 30% on the emerging market benchmarks. What I'm saying is, in part, Liberation Day changes in current policies and current related activities, as well as investor appetites have been reallocating elsewhere. It's in part also a lot of the fiscal global spending and the softening of the dollar and trade and trade and reemergence is really been an important part of this growing aspect.

And what that means is economic activity globally has been quite robust, and it's providing a favorable and important asset allocation that most investors don't think about, but are driving returns with less volatility, as noted with Liberation Day indicating US markets actually experiencing greater volatility, emerging in global, experiencing less, and also demonstrating stronger performance through the year. We're still expecting, at least from a fixed income perspective, that type of behavior.

But it really caught my attention because that was a change that I hadn't observed in about two decades. That's great. Thank you. Patrick and Bryce on the equity side, same question. Global conflicts. Yeah. You know, the bigger picture is the US market. Equity market has been on a long winning streak relative to the rest of the world. At the beginning of this year, emerging markets and developed international.

We're doing quite well. And the disruption of the war in Iran kind of upended that in brought them back to kind of where they started the year. And while the US sort of powered ahead. So it has been an issue, I feel like in some ways developed international economies and emerging markets have, you know, had structural problems that the US just hasn't had in terms of, you know, regulatory issues, dynamism, geography that just haven't worked out for them and the, you know, competitive dynamics of a global economy should, over time, steer them into the right direction.

We see that with, you know, some moves toward removing some excess regulation in Europe, in Japan and Korea, some of the cultural issues with cross ownership of equities seems to be easing, making it making the market for corporate control a little bit more viable so that bad managers can, you know, be booted out and replaced by more competent folks, which has been an issue in those markets.

So, I mean, yeah, there are structural impediments to economic growth in, in other parts of the world, but the prices of those economies of, of those equity markets has been, you know, quite a bit lower in terms of valuation because they haven't had the same structural characteristics and benefits of the US. So we're pretty constructive on international markets in emerging markets.

And you know that there are some like like your question alludes to some geopolitical or particularly, you know, conflict issues that that have come up recently that that aren't working for them. Okay. All right. And then, you know, just kind of asking you in a different way, is it making is the conflict in Iran making it more dangerous to invest globally versus the US?

Well.

Or to be determined. Yeah. It's it's hard to decouple. This issue is really a particular choke point of global commerce. So yeah for sure in the short term, while that conflict is ongoing and while there still uncertainty about it, it's going to hurt, particularly Europe and Asia, more than it hurts the US because they rely on supply coming out of the Gulf for energy and other downstream products.

I'm trying to put my long term investor hat on and think through the conflict. Are there other geopolitical sources of uncertainty mentioned? Russia? Ukraine, right. Yeah, that's a big one. It doesn't really impact economies in Europe as much as the Iran or in Asia as much as the the Iran conflict does. But it doesn't help anything in underpinning.

The bigger picture thing is just this kind of trend we've had towards the globalization or attempts to to have less of a globalized economy. Some of that is incentives for more supply chain resilience. Some of it is a desire for less.

Reliance on geopolitical adversaries. So you see this with us. And China is a is a big one, right.

It's unfortunate that we can all figure out how to get along better. But yeah, I would say that that is kind of the bigger, longer term risk is the decoupling of economies. It's trade is is typically a good for all of the company, all the countries and actors that participate in global trade. But it does come with a cost, the geopolitical cost.

If you're trading with adversaries and they cut you off or you cut them off. Yeah. And one of the other investment team members wrote a great piece for I forget the publication, but Monique wrote that great piece on comparing the US NATO relationship to a slow divorce. And so if you guys haven't seen that we can point to on our website or on our website, it's a great article making a very similar comparison.

So we're we're at 250. I don't have any more questions. So I wanted to thank everyone for taking the time to join us. All of our information's on our website. If you have any other questions, feel free to reach out to us. You know, Bryce, Patrick, thanks for taking the time today. Thank you for joining me. It's been a pleasure to have you.

You're welcome. Thank you guys.