Presenters: Lowell Pratt, CFA, Andy Pratt, CFA, CAIA, and Adam Newman, CFA, CFP®, MT, RICP®, CEPA
Here is the webinar recording from July 22, 2026. You can browse the topics discussed and main takeaways using the sections and time stamps below:
Introduction
- Q2 delivered the best quarter for global equity markets since the second quarter of 2020, the rebound out of the initial COVID sell-off.
- April and May 2026 alone ranked among the top five best two-month stretches for the US market in more than 40 years. Stretches like that typically follow sharp crisis periods, such as 2008 or 2020.
- Emerging markets led the way this quarter, up almost 25%, continuing a second straight year of international stocks outperforming the US.
- The quarter was equity-heavy. Bonds posted fairly normal returns for the first time in a handful of years, a welcome change after a difficult stretch since 2022.
Q2 Market Performance Overview
- Enthusiasm around AI, earnings growth, and broader economic growth drove the quarter.
- International stocks continue closing the gap on the US, though there is still a long way to go after 15 years of US dominance.
- Investors with any level of diversification, whether international equities, fixed income, or other assets, are starting to be rewarded for staying disciplined.
Long-Term Market Summary
- Looking at 1, 5, 10, and 15-year windows shows the same broad trends holding up.
- The bond market has finally posted more normal returns despite ongoing headline volatility around interest rates, driven largely by geopolitics and sticky inflation.
- This is a notable shift for anyone who has held a meaningful fixed income allocation and wondered, since 2022, why it was even in the portfolio.
Fundamentals Driving the Rally: Earnings and Economic Growth
- The market keeps climbing this year despite geopolitical headlines, and the team pointed to a clear fundamental case behind it.
- Forward-looking sector data from FactSet and S&P show nearly every S&P sector, aside from staples and real estate, expected to post double-digit earnings growth over the next 12 months.
- Technology draws most of the attention, but healthcare, financials, and utilities are also forecast for double-digit growth.
- The economy backs this up: 90,000 new jobs per month this year compares with just 10,000 last year, alongside 2% real GDP growth.
- The team also addressed a common question: are we in another AI bubble like the late 1990s dot-com run? Unlike the 1990s, when earnings growth for the leading companies was flat to declining, today's leaders are seeing accelerating earnings. That is a meaningful difference the team plans to revisit later in the Q&A.
Valuations: Why P/E Multiples Are Contracting
- Rising stock prices usually push valuations higher, but the opposite has happened this year. Price-to-earnings multiples have actually contracted through the first half of 2026.
- The reason: earnings are growing faster than prices are rising.
- Large caps trade around 20 times forward earnings. Mid and small caps trade at notably cheaper levels, a gap that has persisted for a while as large caps have justified their premiums with stronger earnings momentum.
- Trailing 12-month earnings have also accelerated across large, mid, and small caps since 2020, a sharp change from the post-financial-crisis period when earnings growth was closer to flat.
US Equity Strategy: Size and Style Performance
- Large growth stocks had another strong quarter, up 22% for the year and 26% over the past 12 months, which on the surface points to another mega-cap-driven market.
- But June told a different story: none of the Magnificent 7 stocks were up that month, while small and mid-cap stocks performed well.
- The Russell 2000 posted a 40.8% return, the largest number on the size and style table, both for the quarter and the trailing one-year period. That would surprise most investors still assuming this is purely a mega-cap, AI-driven market.
Market Breadth Is Widening
- Comparing the market-cap-weighted S&P 500 to its equal-weight version shows a long stretch where mega-cap stocks strongly outperformed, a fair criticism that the bull market's gains were narrow.
- In June, that changed. 72% of stocks in the S&P 1500 beat the index outright, and 78% of small-cap stocks beat the S&P 1500.
- July numbers came in a bit softer, with about 60% of stocks (and 60% of small caps) still beating the index, as large caps regained some relative footing. Still solidly above a 50-50 split.
- Broader participation is a healthy sign. It means gains are not limited to a handful of AI winners, and there is more room for stock selection to add value.
Small-Cap Rally: How Far Can It Go?
- The Russell 2000's strength this year raises a natural question: will small-cap outperformance continue, or is this another head fake after several false starts in recent years?
- On a rolling three-year basis, the window the team's process is built around, large caps still lead small caps by about 7%. But the trend line is moving back toward zero.
- The team is watching this closely but has not yet made a change to increase small and mid-cap exposure across portfolios.
Growth vs. Value: Momentum Still Favors Growth and the July Reversal
- On the real-time growth-versus-value indicator, the line still points toward growth, even as the rolling three-year size trend shifts.
- Momentum, meaning stocks with strong recent price trends tend to keep trending, has been an unusually powerful factor in 2026, largely fueled by AI enthusiasm.
- In July, that reversed hard. Momentum stocks fell 24% for the month, the sharpest drop since the financial crisis.
- In the team's view, this looks more like a rotation and some profit-taking that helped fuel the market's broadening, rather than a signal of a broader downturn. As always, that read could change as more data comes in.
How Burney's Investment Process Has Evolved
- Burney's process began more than 50 years ago as a small-value stock-picking strategy, one that worked well until the late 1990s, when a historic pro-large-cap year in 1998 was immediately followed by a historic pro-growth year in 1999.
- That stretch taught the team its most important long-term lesson: every factor exposure cuts both ways. Small, value, profitability, quality, and momentum all carry a long-term edge, but each will work against you for periods of time.
- That lesson led to today's dynamic size and style process, layered with a stock-level scoring model (SCORE) weighted toward profitability and quality, plus a separate momentum signal used for shorter-term decisions.
- After major market sell-offs, the team shifts to a Recovery Score model that looks for stocks that have been beaten down the most rather than stocks with strong momentum, since those dynamics flip during recovery periods.
- The process also incorporates a licensed third-party signal that flags companies likely to see positive or negative revenue and earnings surprises. It is the most expensive single input in the process. (Note: pending compliance confirmation on whether the vendor name AlphaDNA can be used in written marketing copy. If cleared, we can reinsert the name here.)
- All of these signals are blended into an internal alpha estimate, then run through a portfolio optimizer the team has used for 15 to 20 years to build portfolios that track intended size and style targets while maximizing that alpha estimate.
- This structured process lets the team look back on any period and identify exactly what worked and what did not. The team has pointed to momentum and the licensed earnings-surprise signal as notable contributors this year.
Q&A
Questions addressed in the Q&A session included:
- Is the stock market in an AI bubble?
- Aren't valuations stretched at this point?
- Are we due for a correction, and how should investors think about that risk?
- Aren't midterm election years historically bad for the market, and how is Burney positioning portfolios for it?
- What's the outlook on inflation and oil prices given the conflict in Iran?
- What are the strengths and weaknesses of the US and global economies over the next 6 to 12 months?
- Will international stocks continue to outperform, or will the US regain its lead, and how should investors think about international allocation?
- How does Burney handle dividends in client portfolios?
- Can you provide an update on the BRES ETF?
If you have questions like these or wish to discuss your financial planning needs, Schedule a Meeting with us.
Past performance is not a guarantee of future results. Indices are not available for direct investment. This presentation is for informational purposes only and does not constitute investment advice. Burney Wealth Management is a registered investment advisor. SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the advisor has attained a particular level of skill or ability.