A Market Speed Bump or Two

Doug Walters, CFA

Markets pulled back last week after a strong run, reminding investors how quickly expectations can shift. A combination of resilient economic data and a modest reset in AI-related optimism drove volatility. While short-term movements can feel unsettling, they are a normal and healthy part of the investment process. Uncertainty is always present, and disciplined, diversified portfolios are built to navigate exactly these kinds of environments.

Contributed by Doug Walters, David Lemire, Max Berkovich, Matthew Johnson

Last week, I asked permission from our readers to step back from the noise and focus on something near and dear to me. Community. This week, the daily noise rose to a level that could not be ignored.

Of particular note was last Friday. The S&P 500 fell 2.6%, the Nasdaq dropped 4.2%, and perhaps most notably the MSCI Emerging Markets Index fell 6.5%. As is often the case, it was not one thing that tipped sentiment. There were two primary narratives that collided with the market’s already high valuations.

The first was Broadcom, one of the biggest semiconductor companies in the world. Results were fine, but the company did not raise its full-year guidance for AI-related revenue. That was enough to disappoint investors who had grown accustomed to consistently higher projections.

The second was the May jobs report. Employers added 172,000 jobs, well above expectations, and the unemployment rate held steady at 4.3%. That is good for workers, but bad for Fed-watchers who are hoping for a rate cut. Strong jobs and high inflation make a rate cut difficult for the Fed to justify. Following the report, long-term Treasury yields moved back toward 5%.

With equity valuations high, these two reports provided investors some motivation to take profits. Elevated expectations came face-to-face with a shift in the rate outlook and tempered AI optimism. Markets adjusted accordingly.

So what do we make of it?

First, some perspective. This time last week, the S&P 500 was up 11% on the year, and Emerging Markets were up 28%. So we have been having a good year, and a pause or pullback after that type of advance is not only normal, it can be healthy.

None of this changes the bigger picture. The economy is not showing clear signs of stress. Employment remains strong, and corporate earnings have been relatively resilient. The Federal Reserve may remain on hold longer than markets would prefer, but being patient is not the same as responding to deterioration.

What last week does reinforce is something more fundamental. The future is not knowable in advance. It never has been. Markets move precisely because expectations change, often quickly and without warning. That uncertainty can feel uncomfortable in moments like this, but it is also what creates opportunity for long-term investors.

The goal is not to eliminate uncertainty. It is to build portfolios that can withstand it.

We have written before about the risks of concentration in a handful of names or themes. Last week was a reminder that when leadership areas reprice, they can pull the broader market with them. That is not an argument against equities. It is an argument for diversification, discipline, and maintaining exposure to a range of outcomes.

For most investors, the right course of action is the same as it was before Friday. Stay focused on the plan. Avoid reacting to short-term movements, and remember that periods like this are a normal part of long-term investing.

Markets will continue to have speed bumps. That is not something to fear. It is something to expect.

At heart, uncertainty and investing are synonyms.
Benjamin Graham

One thing to watch

As discussed above, last week’s Broadcom report failed to impress investors. Particularly uninspiring were the expectations for AI-related revenue.

This week, we get another read on inflation. The Consumer Price Index (CPI) is released on Wednesday, with inflation expected to jump from 3.8% to 4.2% – the highest value since April 2023.

About Strategic

Founded in 1979, Strategic is a leading investment and wealth management firm managing and advising on total client assets of over $3 billion, as of 6/3/26.

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