Earnings, Energy, and a New Fed Regime: What Drove the Quarter and What We’re Watching Next

Phenomenal second-quarter returns across the major indices erased the anxiety of the first quarter, and strong earnings growth was the primary driver of that recovery. But the sentiment behind those gains looks more fragile than the headline numbers suggest. Beneath a quarter defined by a record-setting earnings season, a geopolitical shock that faded faster than anyone expected, a genuine regime change at the Federal Reserve, and the early innings of two structural supply stories in energy and semiconductors, we see a market that is less forgiving, more selective, and increasingly focused on which companies can actually deliver on the promises priced into their valuations. Below, we break down the major drivers of 2Q returns and the trends we’ll be watching as the second half of the year unfolds.

A Record Earnings Season, With Little Room for Error

Q1 2026 delivered the strongest earnings growth since late 2021, with the S&P 500 posting 28.6% year-over-year growth and roughly 84% of companies beating both profit and revenue estimates. It marked a sixth straight quarter of double-digit gains, and importantly, the strength stretched across nearly every sector rather than resting on a handful of tech giants alone. The biggest storyline, unsurprisingly, was the “Magnificent Seven,” where investors made clear they will keep funding massive AI infrastructure spending, now running near $650–725 billion for the year, but only for companies whose cloud businesses are growing fast enough to justify it. Alphabet and Amazon were rewarded with rallies on that basis, while Meta and Microsoft actually fell despite beating estimates, simply because their spending plans raised fresh questions about payback timelines.

That divide points to a broader shift in market mood. Investors barely rewarded companies for meeting expectations, but punished misses almost twice as hard as usual — a clear sign that with valuations already trading above historical norms, there is little patience left for disappointment. We expect this asymmetry to persist into the back half of the year, and we think it argues for greater selectivity within, rather than broad exposure to, the AI-adjacent trade.

The Strait of Hormuz: A Textbook Case of Market Desensitization

The Strait of Hormuz crisis offered a textbook illustration of how markets adapt to bad news over time. When the war first broke out in early March, fear spiked hard: the VIX jumped above 35 within just nine days, and oil prices posted their largest monthly rise on record. But each subsequent escalation landed with less force than the last. When the administration announced a formal blockade of the strait in mid-April — arguably a more serious development than the initial outbreak — stocks barely reacted, with strategists noting that markets had already priced in the worst-case scenarios.

By early May, even violent swings in oil prices barely moved equities at all, helped in large part by the strength of Q1 earnings giving investors a competing reason to stay optimistic. By June, volatility had settled back to a calm, everyday level, and when a genuine peace deal was finally signed reopening the strait, markets celebrated with a solid rally rather than reacting with fear — the mirror image of how the crisis began. The lesson for us: oil markets stayed jumpy and headline-sensitive for months, but equity investors adapted quickly, treating repeated bad news as old news well before the underlying situation had actually improved. That gap between physical-market risk and equity-market complacency is worth watching closely if tensions in the region resurface.

Fed Regime Shift

Kevin Warsh took over as the Fed’s 17th chair in May 2026, confirmed in the most partisan vote for the role in modern history, and inherited about as difficult a backdrop as any incoming chair has faced: core PCE inflation running near 3.3%, up from 3.0% at the end of 2025, pushed higher largely by the Hormuz-driven spike in oil prices. Despite that, the labor market has held up well, with private employers adding roughly 117,000 jobs a month through May and unemployment steady around 4.3% — a sharp turnaround from the near-stagnant hiring of 2025.

That combination — sticky inflation paired with a resilient labor market — has flipped rate expectations on their head. Investors began the year pricing in two or three cuts by December; they are now pricing in essentially none, and some are even betting on a hike. Warsh, despite a reputation as more dovish, used his first press conference to hammer home the Fed’s commitment to the 2% inflation target and price stability, comments markets read as unmistakably hawkish. He has also signaled a desire to eventually pare back forward guidance and rethink how the Fed models inflation, favoring more attention to supply-side forces like AI-driven productivity and energy shocks over the Fed’s traditional demand-driven framework. The bigger story here is less about any single rate decision and more about a genuine regime shift in how the Fed communicates and thinks about its mandate — layered on top of an economy where a geopolitical energy shock, not the usual demand-driven cycle, is doing most of the work.

Energy: Oil Normalizes While Nuclear Becomes a Structural Story

The oil side of the energy story is entering a calmer chapter. With the Strait of Hormuz reopened and Gulf flows gradually normalizing, most major forecasters — the EIA, JPMorgan, Morgan Stanley — now see Brent easing from the crisis-era $100+ range back toward $75–80 a barrel by 2027 as supply rebuilds, though full normalization of Gulf production could stretch into next year, and any renewed friction in negotiations or shipping could snap the war premium right back.

Layered on top of that near-term oil story is a much bigger structural shift: AI data centers are driving the fastest growth in U.S. power demand in decades, and traditional grid buildouts simply cannot move fast enough — pushing hyperscalers directly toward nuclear. Every major hyperscaler has now signed at least one nuclear deal, with 13 announced projects committing over 9.8 GW of capacity as of May 2026, including Amazon’s $500 million backing of X-energy’s small modular reactor technology and Microsoft’s deal to restart Three Mile Island. Small modular reactors in particular are drawing the bulk of investment because they are factory-built, faster to deploy than a decade-long conventional plant, and can provide the continuous, carbon-free baseload power that intermittent wind and solar cannot match on their own — something Goldman Sachs has flagged as the real bottleneck for data center buildouts. That dynamic is rippling into commodities as well: uranium prices have stabilized around $84–86 a pound, with analysts projecting a move toward $100–125 as reactor demand accelerates.

Beyond nuclear, hydrogen fuel cells and on-site microgrids with battery storage are emerging as secondary options for operators seeking backup or supplemental power. Put together, the picture for investors is less “oil versus alternative energy” and more a genuine bifurcation: oil is normalizing as a geopolitical-risk trade, while nuclear and adjacent power technologies are becoming a structural, multi-decade growth story tied directly to AI infrastructure spending — less a bet on energy prices, and more a bet on which suppliers can actually deliver reliable power fast enough to keep pace with data center demand.

Memory Chips: The AI Buildout’s Clearest Supply Crunch

If energy is one structural bottleneck of the AI buildout, memory is the other — and arguably the clearest supply crunch story of 2026. Unlike past chip cycles, analysts are calling this one structural rather than temporary. Samsung, SK Hynix, and Micron together control over 95% of global DRAM production, and all three have shifted the bulk of their manufacturing capacity toward high-bandwidth memory (HBM), the specialized stacked memory that feeds AI accelerators like Nvidia’s GPUs. The economics explain why: a single HBM3E module sells for roughly $60–100, versus $5–10 for an equivalent amount of conventional DDR5 — an easy choice for manufacturers when capacity is constrained.

The price impact has been extreme. DRAM contract prices surged 80–90% in Q1 2026 alone, and TrendForce is now forecasting another 58–75% increase in Q2 for conventional DRAM and NAND. Micron has confirmed its HBM output is effectively sold out for the year and has retired its consumer-facing Crucial brand entirely to focus on data-center products. This differs from prior boom-bust chip cycles in two important ways: AI infrastructure spending, projected near $650 billion in 2026 across the major hyperscalers, is a structural and still-growing demand source rather than a temporary surge; and new fab capacity takes years to bring online — Micron’s new Idaho and New York facilities will not ship product until 2027–2030 — so simply “making more chips” cannot fix the imbalance quickly. Most forecasters, including Intel, Gartner, and IDC, now point to 2027 or even 2028 before conditions normalize.

The fallout is already visible well outside the AI industry. Laptop, smartphone, and automotive manufacturers are facing 15–20% price hikes and production constraints, with Tesla and other automakers openly warning that the shortage will limit output in 2026. For investors, the read-through mirrors the nuclear and data-center energy story: this is not a cyclical dip to trade around, but a multi-year capacity reallocation in which the companies controlling scarce, high-margin production — Micron, SK Hynix, Samsung — sit in a structurally advantaged position, while downstream consumer hardware makers absorb margin pressure they cannot fully pass on to price-sensitive buyers.

Looking Ahead

Taken together, the second quarter told a consistent story: fundamentals were genuinely strong, but the market’s tolerance for anything less than strong has narrowed considerably. Earnings, geopolitics, monetary policy, and the AI infrastructure buildout all pointed toward the same conclusion — a market rewarding proof over promise, and increasingly discriminating between AI beneficiaries with a clear path to monetization and those still asking investors to trust the spending. As we move into the third quarter, we’ll be watching earnings guidance for signs that the AI capex cycle is translating into durable revenue, tracking how quickly Gulf oil production normalizes against any renewed geopolitical friction, and following the two structural bottlenecks — power and memory — that may end up defining which companies can actually scale the AI buildout they’ve promised.

Friday’s offering is one of the most consequential IPOs in a generation. This piece goes beyond the headline — segment by segment, so you understand what you’re actually buying before trading begins.

In This Piece

1. What You’re Actually Buying: Three Companies in One
2. Connectivity — The Cash Machine That Funds Everything Else
3. Space — The Infrastructure Bet Hidden Inside an R&D Loss
4. AI — The CapEx Story: xAI, Grok, X, and the Physical Stack
5. Consolidated Financials: Reading the Numbers Honestly
6. Liquidity, Debt Structure, and the Bridge Loan
7. Valuation: What 94x Revenue Requires You to Believe
8. Governance and the Musk Question
9. The Lock-Up Schedule and What It Means for Near-Term Volatility
10. Bottom Line

I. What You’re Actually Buying: Three Companies in One

The S-1 is unambiguous: SpaceX is three distinct operating segments — Space, Connectivity, and AI — with varying maturity, different financial profiles, and in some respects limited immediate operational overlap. Understanding what you own requires treating each independently before considering the long-term thesis that ties them together.

The company’s stated mission is to make life multiplanetary, understand the nature of the universe, and extend consciousness to the stars. That language sounds abstract until you recognize that every one of its current business decisions traces back to a physical infrastructure thesis: the belief that whoever controls the hardware of the future — rockets, satellites, data centers, chips — controls the economic value that flows through it.

The combined entity as of Q1 2026 includes the original SpaceX rocket and Starlink businesses, xAI (acquired February 2, 2026), and X Holdings, which was acquired by xAI in March 2025. The financial statements have been retrospectively recast to consolidate all three as if they were always one company. That matters when you look at the income statement: the AI segment’s substantial losses are now embedded in the historical record alongside Starlink’s gains.

Key context: Only approximately 5% of the company will be available to trade on Friday. All publicly listed shares are Class A, carrying one vote each. Class B shares carry 10 votes. Post-offering, Musk is expected to retain approximately 85% of total voting power. You are buying a minority economic interest in a founder-controlled enterprise. That is neither inherently good nor bad — but it is the precise nature of what you own.

II. Connectivity — The Cash Machine That Funds Everything Else

Starlink is the business that makes the rest of the SpaceX story financially viable. There is no softening that. The Connectivity segment generated $11.4 billion in revenue in 2025, $7.6 billion in 2024, and $3.9 billion in 2023 — a compound growth rate that would be exceptional for any business, anywhere.

What is driving this? Starlink subscriber growth has been extraordinary — 96.5% growth in 2024 and 104.7% growth through Q1 2026 year over year. The S-1 is clear that average revenue per subscriber (ARPU) has been declining in parallel — down 8.1% in 2024 and 22.9% in the most recent quarter — as the company expands internationally into lower-priced markets and introduces tiered plans. This is the deliberate strategic trade: sacrifice unit economics to capture scale, then rebuild margins as costs come down with the launch of the next-generation V3 satellite via Starship.

Why the Margin Trajectory Matters

The key mechanism here is cost structure. Connectivity cost of revenue is heavily weighted toward satellite depreciation and kit delivery costs — both of which scale with volume but decline per unit as Starship’s economics materialize. Each Starship launch can deploy 60 V3 satellites versus Falcon 9’s current capacity, and each V3 satellite offers one terabit per second of downlink capacity. A single Starship launch could provide a 20-fold increase in downlink capacity versus a Falcon 9 mission. When that happens, the cost per megabit of Starlink capacity falls dramatically — and operating margins expand without a price increase.

Enterprise and government revenue is also growing alongside consumer. Aviation, maritime, land mobility, and government connectivity all contributed in 2025 and Q1 2026. The Starshield program — a dedicated, classified constellation for U.S. national security — is a separate but meaningful contributor to the government line. SpaceX is the primary launch provider for the U.S. government and executed 11 of 12 National Security Space Launch missions in 2025.

The bottom line on Connectivity: This is a business with genuine, durable competitive advantages — low latency, global coverage, and a satellite constellation that represents approximately 75% of all active maneuverable satellites in orbit as of Q1 2026. It is already generating the kind of operating leverage that most growth companies spend a decade chasing. It is also the segment that is currently funding everything else.

III. Space — The Infrastructure Bet Hidden Inside an R&D Loss

The Space segment is the public face of SpaceX, and its financials require the most careful reading. The segment posted a $657 million operating loss in 2025, up from essentially breakeven ($21 million income) in 2024. On the surface, that looks like deterioration. It is not. It is the consequence of $3 billion in Starship research and development expense flowing through the income statement in a single year.

What Starship Actually Changes

The economic argument for Starship is straightforward. In 2011, putting one kilogram into Low-Earth Orbit cost approximately $54,500. Falcon 9 brought that to $2,720/kg through reusability. Starship, at scale, is designed to bring that number to $100–200/kg — a roughly 14x reduction from today. The payload capacity increases from Falcon 9’s 23 metric tons to an expected 100 metric tons for Starship V3, with future generations targeting 200 metric tons.

The S-1 discloses that Starship R&D is currently expensed as incurred — because the vehicle is still in development. At commercialization, that changes: Starship costs will be capitalized and then depreciated into the cost of revenue of whichever segment’s payload was launched. The operating loss in the Space segment today is, in economic substance, a capital investment in a technology that transforms every other part of the business. That does not eliminate the execution risk. SpaceX had completed 11 Starship flight tests as of the filing date; the 12th was scheduled. The vehicle has not yet entered commercial operational service.

The Space segment’s revenue mix — 63% Launch Services, 37% Launch and Development in 2025 — reflects its current government-contract-heavy profile. SpaceX services NASA CRS missions, Department of War contracts, and NSSL launches. These are long-duration, cost-plus-adjacent contracts. The revenue base is stable but not fast-growing on its own. Growth in this segment is a Starship story.

IV. AI — The CapEx Story: xAI, Grok, X, and the Physical Stack

This is the segment that makes SpaceX’s IPO genuinely different from anything that has come to market in recent memory. And it is also the segment that demands the most honest accounting of what you are being asked to believe.

xAI was acquired in February 2026 — four months before this IPO. The AI segment includes the COLOSSUS and COLOSSUS II data centers in Memphis and Southaven, Mississippi; the Grok family of large language models; the X social platform; Grok Voice, Grok Business, Grok Enterprise; and the Imagine image and video generation system. As of March 31, 2026, the combined Grok and X platform had approximately 550 million MAUs, with about 117 million using Grok’s AI features.

The Revenue Story Inside the Loss

The AI operating loss is real, but it obscures two things worth separating. First, a significant portion of the loss is GPU depreciation — not cash outflow in the current period. The company acquired and depreciated an extraordinary amount of GPU hardware to build its compute clusters, and that depreciation flows through R&D expense. Second, revenue in Q1 2026 reflects a meaningful shift in mix: AI solutions and infrastructure revenue (Grok subscriptions, data licensing) grew $191 million year over year, while advertising revenue declined $100 million due to a platform advertising rebuild. Advertising headwinds are cyclical. Grok subscription growth is structural.

The Physical Stack Thesis

SpaceX’s S-1 makes an argument that is unlike anything in a typical tech IPO. The claim is that the binding constraint on AI growth is not software or algorithms — it is the physical infrastructure: chip manufacturing, data center capacity, and power generation. The company that controls the physical stack controls the AI era. SpaceX frames itself as uniquely positioned to own that stack from chips (Terafab, a chip manufacturing initiative with Tesla and Intel) through compute (COLOSSUS) through distribution (Starlink, orbital data centers).

The Terafab initiative is worth flagging. It is described in the S-1 as a general framework — specific projects, timelines, and capital expenditures have not yet been determined. The orbital data center concept is similarly aspirational. These are genuinely compelling long-term vectors, but they are not near-term financial contributors. Investing on the basis of Terafab or orbital compute is a 5-to-10-year thesis, not a 2026 catalyst.

Grok and the X Competitive Advantage

The most defensible near-term differentiator in AI is Grok’s access to approximately 350 million daily posts on X — a real-time data feed that no other frontier model possesses natively. While Grok currently lags behind Claude, ChatGPT, and Gemini on many general benchmarks, the S-1 notes it reached frontier-level performance in scientific reasoning (GPQA Diamond benchmark) within two years of the initial release — faster than any competitor has publicly disclosed. The iteration pace is the key variable. An AI company with 1 gigawatt of compute, proprietary real-time training data, and a rapidly advancing model is a different kind of competitor than its current benchmark position suggests. SpaceX also disclosed a compute agreement with Cursor — the AI-native IDE — and holds an option to acquire it outright in the 30-day window following the IPO, which would add $3.1 billion in assets (primarily $2.7 billion in cash) and a major developer-facing product to the platform.

V. Consolidated Financials: Reading the Numbers Honestly

The consolidated income statement tells a story that requires context. Total revenue grew 33% to $18.7 billion in 2025, from $14.0 billion in 2024. The company swung from $791 million in net income in 2024 to a $4.9 billion net loss in 2025. That swing is driven almost entirely by two items: the AI segment’s accelerated compute build (including $3.9 billion in additional GPU depreciation and cloud computing costs), and a $1.3 billion tax provision reversal tied to the One Big Beautiful Bill Act that unwound a deferred tax benefit recognized in 2024.

 depreciation, share-based comp, restructuring, and impairment. It reflects the underlying cash-generative capacity of the operating segments before the AI build-out absorbs it. The Connectivity segment alone generated $7.2 billion in Adjusted EBITDA. The Space segment generated $653 million. The AI segment was negative $1.24 billion. The math shows a profitable, compounding core business funding a high-conviction capital expenditure program.

VI. Liquidity, Debt Structure, and the Bridge Loan

This section of the S-1 deserves more attention than it typically receives in pre-IPO coverage. SpaceX held $15.9 billion in cash and equivalents plus $7.8 billion in short-term marketable securities as of March 31, 2026 — a total liquidity position of approximately $23.7 billion. That is a strong position. The complexity is in the debt stack.

In March 2026, SpaceX drew a $20 billion unsecured bridge term loan to retire the legacy X and xAI debt that came with the acquisition. The bridge loan matures September 2027, with two optional three-month extensions. The company simultaneously amended its existing revolving credit facility to $5 billion (from $1.5 billion), maturing May 2031. The bridge loan creates a near-term refinancing obligation — the company will need to either replace it with permanent capital (likely senior notes or term loans from IPO proceeds or follow-on activity) or extend it. That is a known and manageable task for a company with $23.7 billion in liquidity and investment-grade ambitions, but it is a real item on the calendar.

On the debt: Interest expense rose 23% to $1.9 billion in 2025, driven by GPU financing arrangements and the debt inherited from the xAI acquisition. This is not distressed leverage — but it is meaningful, and the cost of the AI build-out extends into the financing lines, not just the income statement.

VII. Valuation: What 94x Revenue Requires You to Believe

At a $1.77 trillion expected valuation and $18.7 billion in 2025 revenue, SPCX enters trading at approximately 94x trailing revenue. That is not a valuation multiple with historical precedent for a business of this size. It is, instead, a forward-looking investment in what the business becomes. The question worth asking directly: what does the S-1’s own financial history imply about the return available at this price?

If you use the Connectivity segment’s $7.2 billion in 2025 Adjusted EBITDA as the baseline, and apply a 25x EBITDA multiple — generous but not extreme for a business with this growth profile — you get a Connectivity-only value of approximately $180 billion. The Space segment, at $653 million in EBITDA with a significant development option in Starship, might command $50–100 billion at a reasonable growth multiple. That leaves approximately $1.5 trillion of the expected valuation attributable to the AI segment, which generated negative $1.2 billion in Adjusted EBITDA in 2025.

At $1.77 trillion, roughly 85 cents of every dollar of valuation rests on what xAI, Grok, the physical stack thesis, Terafab, and orbital infrastructure become — not what they are today

That is not a reason not to invest. It is the precise nature of the investment thesis. Investors in SPCX at IPO are not primarily buying Starlink’s cash flows — though those are real and valuable. They are primarily acquiring optionality on a set of long-duration technological outcomes that, if realized, could be worth multiples of the current price. If Starship delivers its cost-curve promise, the orbital economy is transformed. If Grok achieves frontier-model status on a 1-GW compute cluster with proprietary real-time data, the AI economics change. If Terafab produces a vertically integrated chip and compute stack, the physical infrastructure thesis is complete. Each of those outcomes requires meaningful execution in an environment where SpaceX is facing well-capitalized competitors in every domain.

The IPO is expected to be oversubscribed. Nasdaq 100 inclusion — which typically occurs 15 days post-offering — will mechanically force index-tracking ETFs to buy shares at whatever the market price is. That technical demand is real and will support the stock near-term. It is not the same as the business being worth the price.

VIII. Governance and the Musk Question

Governance in a dual-class IPO is always a negotiation between investor protection and founder execution. In SpaceX’s case, the negotiation has essentially been resolved in favor of the founder. Musk will control approximately 85% of voting power post-IPO. The Class B structure means Class A shareholders — the public — have limited ability to influence board composition or major decisions. The S-1 explicitly notes that Class B shareholders elect a majority of the board.

This cuts both ways, and the analysis depends on your view of Musk’s track record and incentives. The case for accepting the structure: Musk’s dual roles at Tesla and SpaceX have driven extraordinary value creation. His vision for what SpaceX could become — and his willingness to absorb risk that conventional management would not accept — is what produced Starlink, Falcon reusability, and the Starship program. Investors who are uncomfortable with concentrated control have that concern priced into the offering in the form of the Class A discount that typically applies to such structures.

The case for caution: Key-person risk is not abstract. Musk’s attention is now divided across SpaceX, Tesla, DOGE, X, and xAI. The AI segment’s acquisition was executed four months before this IPO, which means public investors are buying into a strategic pivot that has not yet been tested at scale. And the bridge loan refinancing, the Cursor acquisition option, and the Terafab build are all items that require capital allocation decisions in the near term — decisions that will be made without meaningful public shareholder input.

IX. The Lock-Up Schedule and What It Means for Volatility

Lock-up provisions determine when pre-IPO shareholders can sell. SpaceX’s lock-up schedule is structured as a series of rolling tranches — not a single 180-day cliff — which distributes the supply pressure but also creates known dates of incremental selling.

The practical implication: supply will enter the market progressively beginning within weeks of Q2 earnings, which arrive roughly 60 days post-IPO. The Nasdaq 100 inclusion demand and the rolling lock-up structure create a specific kind of technical environment — strong mechanical buying early, followed by steady insider supply over the following six months. This is not a reason to avoid the stock, but it is a reason to think carefully about entry timing and position sizing in the first two quarters of trading.

X. Bottom Line

SpaceX’s IPO is one of the most interesting offerings in years, for reasons that go well beyond the hype. Starlink is a real, compounding business with extraordinary growth, improving margins, and a structural moat that no competitor can replicate on a short time horizon. The Space segment is a leveraged call option on Starship commercialization, with a stable government contract base underneath it. The AI segment is expensive, early, and enormous in ambition — and the combination of 1 gigawatt of owned compute, proprietary real-time training data, and a rapidly iterating model team is not trivially dismissible.

What the S-1 asks you to do is value two things simultaneously: a world-class operating business that is already generating $7+ billion in segment EBITDA, and a venture-scale portfolio of options on technologies that are still in development. The first part of that valuation is tractable. The second part is speculative by definition.

At approximately 94x 2025 revenue and a $1.77 trillion implied market cap, the market is pricing in significant execution on the venture-scale options. That may prove correct — the team that built Starlink from scratch has earned a higher prior probability of success than most. But investors should be clear about what they are paying for, what they own, and how much of the valuation rests on outcomes that have not yet occurred.

Bulls Say

• Starlink is the only low-latency global broadband network — a structural monopoly in 164 countries generating $7.2B in EBITDA and growing at 50%+ annually
• Starship V3 could reduce launch costs to $100–200/kg, transforming the economics of every other SpaceX business simultaneously
• 1 GW of owned compute, 350M daily posts of real-time training data, and an iterating frontier model is a durable AI competitive position
• The physical stack thesis — controlling chips, compute, and distribution — is a coherent and ambitious strategy unavailable to purely terrestrial AI companies
• Nasdaq 100 inclusion within 15 days creates mechanical demand that supports the stock near-term

Bears Say

• At 94x revenue, approximately $1.5 trillion of the valuation is attributable to an AI segment that lost $6.4B in 2025 and has no clear path to profitability in the near term
• Class A shareholders have no meaningful governance voice; 85% voting control rests with one person whose attention spans five organizations
• Starship has completed 11 flight tests but has not entered commercial service — the transformation thesis depends on execution that remains unproven at scale
• Starlink ARPU has declined consistently as the subscriber base expands internationally; margin recovery depends on V3 cost curves materializing on schedule
• Rolling lock-up tranches beginning ~60 days post-IPO create predictable supply pressure across the first six months of trading

The right question is not whether SpaceX is a great company — it is. The right question is whether it is a great investment at this price, on this timeline, with this governance structure. That is a question every investor has to answer based on their own risk tolerance, time horizon, and portfolio construction. If you are interested in a conversation about how SPCX would fit within your specific situation, I’m available to work through it.

— John McKay, CFA

This material is provided for informational and educational purposes only and does not constitute investment advice, a recommendation, or an offer or solicitation to buy or sell any security or investment strategy. The views expressed are those of the author as of the date of publication and are subject to change without notice. The author is a financial professional and may hold positions in, or manage client accounts that hold positions in, the securities discussed. Such holdings are subject to change at any time without notice. While the author strives to present information in a fair and balanced manner, no representation is made that this commentary is free from bias, and readers should be aware of potential conflicts of interest. The information presented is derived from publicly available sources believed to be reliable, but accuracy and completeness are not guaranteed. Past performance is not indicative of future results. All investing involves risk, including the possible loss of principal. This commentary does not take into account the investment objectives, financial situation, or particular needs of any specific person. No advisor-client relationship is created by the receipt or review of this material. Readers should consult with a qualified financial, legal, or tax professional before making any financial decisions. Reading this material does not create an advisor-client relationship.

This piece is a short rundown on SpaceX leading into their Initial Public Offering Friday June 12, 2026. A more in depth piece will be released Wednesday for those interested in a deeper dive.

After a brief hiatus, we’re back! This Friday, SpaceX will kick off a blockbuster year for Mega-Cap IPOs. It is important to conduct diligence on any company prior to making an investment decision. The following is a short snapshot of SpaceX heading into the IPO; a more in-depth piece will be available Wednesday.

The Company

What are you buying? SpaceX is currently broken into three companies, with limited synergies between these operating units.

Connectivity—Starlink—this is the cash machine that allows the rest of the business to function. It is also an incredible business. In 2025, the unit generated $11.4 Billion in revenue, 50% Year-over-Year growth, and an operating margin of roughly 40%. This has seen subscriber growth of 91-105% each of the last three years. In the simplest terms, this is a business unit with incredible growth and operating leverage that will enable it to reduce prices while maintaining high operating margins.

Space—The face of the business. While currently running at a loss, largely driven by R&D into the Starship project. In 2011, it cost $54,500/kilogram to transport anything into Low-Earth Orbit. Today, using the SpaceX Falcon 9, the cost is $2,720/kg. Starship in the near-term would cut that to $100-200/kg. This is an astronomical cost savings. This is where things get interesting. A large part of this is the development of reusable rockets.  One of the most remarkable things that I have ever watched is the clip below of SpaceX “catching” a rocket for the first time, a revolutionary feat for the future of the business of space.

xAI—The project. xAI which is composed of Grok, the Colossus Data Centers, and X (Formerly twitter.) Currently in a period of Cash burn, SpaceX notes this as their largest available market long-term. While AI lags behind some of the larger LLM’s (Anthropic’s Claude, OpenAI’s ChatGPT, and Google’s Gemini) Grok is the only major LLM with real-time, native access to the world’s largest public conversation platform — X. While rivals train on static web snapshots, Grok sees live news, trending discourse, and social signals the moment they happen. That’s not a feature. Musk calls it a structural moat.

The Future

The Future marketable opportunities are centered on the Starship program’s success. Further reductions in the cost of rocket travel open up a world of opportunity, as Elon has noted. First and foremost, Orbital Data Centers, whether driven by environmental concerns or concerns over the increasing cost of power at home, individuals in the U.S. have begun to push back against data centers. If SpaceX is able to execute its vision of orbital data centers, powered 24/7/365 by solar power, it would own a market that could scale over time significantly more efficiently than traditional data centers. To put this in perspective, the S-1 argues Earth’s AI power demand is already unsustainable — U.S. electricity grew less than 3% annually 2023–2025 while AI demand explodes. Space solar arrays generate 5× more energy per unit area (continuous illumination, no atmosphere). SpaceX frames this as the only truly scalable energy solution for the AI era.

Some other interesting opportunities that are noted in the S1 include, Orbital Manufacturing, Point-To-Point Earth travel (New York to Tokyo in an estimated 30-40 minutes) Passenger and cargo to the Moon, and Mars, space tourism, and Asteroid Mining for Rare-Earth-Minerals. These are all incredibly interesting opportunities but a bit longer term in scope, and less impactful to the immediate financial future of the firm.

The Structure

Only 5% of SpaceX will be available to trade on Friday, and in the Dual-Share-Class Structure, these will all be Class A shares, with 1 vote associated with each share. Class B shares will carry 10 votes per share, and with his holdings, Elon will control 85% of the voting power, effectively giving him total control. While this is generally not great for corporate governance, if you are investing in SpaceX you are to an extent investing in Elon and his vision, this is something you should be comfortable with prior to making an investment decision. Musk’s control can be viewed as a positive though, his vision would drive significant synergy over the long term, with total voting control he is able to work towards that rather than being concerned about quarterly earnings and proxy battles.

Valuation

The IPO comes at a unique time; Starship project success is not guaranteed, and the AI vertical is still burning cash at roughly $2.5 Billion a quarter. With roughly $18 Billion in revenue in 2025, and a valuation at IPO expected to be 1.77 trillion, putting its Price/Revenue at roughly 94x, that is an aggressive price that one would assume prices in many of the short to medium-term goals being accomplished on schedule and in line with budget. The IPO is projected to be oversubscribed, so trading should be expected to start above the $135/share. Expectations of its entrance into the Nasdaq 100 Index 15 days after the offering are also expected to push values higher, as many index-linked ETFs will be required to include SPCX in their Funds (per their Investment Mandates). This may be countered when insiders are able to start selling shares under the following schedule:

-First Tranche: Up to 20% of locked shares can be sold on the second full day of trading after the Q2 earnings release. An additional 10% unlocks if the stock trades 30% above the IPO price for five of the first 10 trading days after earnings.

-Rolling Tranches: An additional 7% of shares unlocks at 70, 90, 105, 120, and 135 days post-IPO.

-Post-Q3 Earnings: Another 28% of eligible pre-IPO shares become available to sell after the Q3 earnings report.

-Full Unlock: Any remaining restricted shares are completely released at the standard 180-day mark

Between hype and corporate finances, I’d expect volatility in the first few quarters of trading. This is a tremendous risk-reward balance, and I recommend conducting thorough research and evaluating how the risk profile would fit with your individual portfolio before making an investment decision. As noted we will have a more formal breakdown of the offering Wednesday, check back in if you are interested.

— John McKay, CFA

This material is provided for informational and educational purposes only and does not constitute investment advice, a recommendation, or an offer or solicitation to buy or sell any security or investment strategy. The views expressed are those of the author as of the date of publication and are subject to change without notice. The author is a financial professional and may hold positions in, or manage client accounts that hold positions in, the securities discussed. Such holdings are subject to change at any time without notice. While the author strives to present information in a fair and balanced manner, no representation is made that this commentary is free from bias, and readers should be aware of potential conflicts of interest. The information presented is derived from publicly available sources believed to be reliable, but accuracy and completeness are not guaranteed. Past performance is not indicative of future results. All investing involves risk, including the possible loss of principal. This commentary does not take into account the investment objectives, financial situation, or particular needs of any specific person. No advisor-client relationship is created by the receipt or review of this material. Readers should consult with a qualified financial, legal, or tax professional before making any financial decisions. Reading this material does not create an advisor-client relationship.

Markets entered this week on edge — a familiar posture in 2026 — as investors balanced a steady stream of earnings reports against the backdrop of persistent macro noise, ongoing trade policy uncertainty, and a Fed still in a holding pattern. On balance, the prints were constructive, with more beats than misses and a handful of guidance raises that suggest corporate America is navigating the environment with more confidence than the indices might imply. As always, I want to stress that these quarterly data points are most useful as context — not catalysts. Think of earnings as periodic health checks that reveal whether a company’s competitive position and structural growth story remain intact, not as triggers for immediate portfolio action.

JPMorgan Chase delivered another strong quarter, beating on both earnings per share ($5.94 vs. $5.49 expected) and revenue ($50.5B vs. $45.9B expected) by a wide margin. The size of the revenue beat was notable and reflects the breadth of JPMorgan’s business mix — investment banking, markets, and asset management all appear to have contributed. The one item worth watching is the trimmed net interest income guidance, which signals that management sees some pressure on the spread between what the bank earns on loans and what it pays on deposits. This is a well-understood dynamic given the rate environment, but it bears monitoring as a potential headwind into the second half of the year. American Express similarly impressed, posting earnings of $4.28 per share against a $4.06 estimate and revenue of $13.6B against a $12.4B expectation — confirming that the high-spending consumer segment remains remarkably resilient.

UnitedHealth Group had a standout quarter across the board. Earnings came in at $7.23 versus a $6.59 estimate, revenue reached $111.7B against an expectation of $109.4B, and management raised full-year adjusted EPS guidance to above $18.25. For long-term holders, the guidance raise is the most meaningful data point — it signals that management sees the current trajectory as sustainable, not a one-quarter anomaly. In a healthcare landscape where medical cost trends have been a persistent concern industrywide, UNH’s ability to beat and raise is a differentiator worth noting.

Boeing remained the most closely watched turnaround story on the industrial side. The company reported a loss of $0.20 per share, well above the $0.75 loss the street was bracing for, and revenue of $22.2B beat the $21.8B estimate. It would be easy to headline this as a “beat,” but the more important frame is whether cash flow recovery remains on track toward the $1–3B full-year target that management reaffirmed. Boeing’s challenge has never been demand — commercial aviation demand is intact — it has been execution, quality control, and the pace at which the production system can be stabilized. This week’s print suggests incremental progress, but this remains a story measured in years, not quarters.

Intel’s quarter demands a closer look before reading too much into the headline beat. The company reported $0.29 in earnings per share against a $0.02 estimate — an enormous percentage beat — but revenue of $920.7M came in slightly below the $945.9M expectation. Beats of this magnitude against a very low baseline can reflect cost actions and accounting items as much as fundamental recovery. Guidance was raised, with second-quarter revenue expected in the range of $13.8–14.8B, which was encouraging. Intel remains in a multiyear restructuring, and the path to relevance in leading-edge logic and AI accelerators is long. This quarter is a step forward, not a finish line.

Texas Instruments posted an impressive quarter as well, earning $1.68 per share against a $1.40 estimate and growing revenue to $4.83B versus the $4.60B expected. Critically, management raised guidance for the fiscal second quarter, with an earnings range of $1.77–2.05 that sits above street estimates. For a company as cyclically sensitive as TI, a beat-and-raise suggests that the industrial and automotive semiconductor markets — the backbone of TI’s revenue base — may be stabilizing after an extended inventory correction. This is an early but constructive signal worth tracking across the broader chip supply chain.

Industrials and Defense

The group was broadly solid. GE Aerospace delivered earnings of $1.86 versus $1.60 expected and revenue of $11.6B versus $10.6B, reaffirming guidance while noting results are trending toward the high end of the range — a subtle but meaningful signal of confidence. RTX Corporation topped estimates on both lines and raised full-year adjusted EPS guidance to $6.70–6.90, reinforcing the durability of defense and aerospace demand. Northrop Grumman and Honeywell posted modest beats, consistent with their steady-execution reputations, though Honeywell’s revenue came in slightly below expectations — a detail to watch given ongoing business portfolio restructuring. Lockheed Martin was the outlier in the group, missing on both EPS ($6.44 vs. $6.79 expected) and revenue ($18.0B vs. $18.2B), while reaffirming full-year GAAP EPS guidance around the $29.80 midpoint. Union Pacific held its own with a small beat, reaffirming mid-single-digit EPS growth for the year. Vertiv Holdings rounded out the group on a strong note, matching revenue estimates and raising full-year adjusted EPS guidance to $6.30–6.40 — a continued endorsement of data center infrastructure demand. GE Vernova beat modestly on both lines and raised its full-year EBITDA margin outlook to 12–14%, a positive development for those watching the electrification and grid investment thesis.

Financials

Beyond JPMorgan and American Express, the financial sector produced a clean set of results. Goldman Sachs earned $17.55 per share against a $16.37 estimate, with revenue of $17.2B modestly ahead of the $17.0B expectation. Goldman reaffirmed guidance, consistent with the firm’s practice of not providing formal EPS targets. Northern Trust posted a strong beat as well, earning $2.71 versus a $2.37 estimate on revenue of $2.21B. Blackstone was the one mild miss, with earnings of $1.36 slightly below the $1.38 estimate, though revenue of $3.62B came in well ahead of the $3.42B expectation — and management provided no formal guidance, consistent with prior practice. The overall picture across financials is one of underlying strength, with the NII trimming at JPMorgan the main item to monitor going forward.

Healthcare

UnitedHealth’s strong quarter was the headline, but Thermo Fisher Scientific and Danaher also contributed positively. Thermo Fisher earned $5.44 versus $5.24 expected, beat on revenue, and raised full-year revenue and EPS guidance — a well-rounded beat for a company viewed as a bellwether for life sciences capital spending. Danaher beat on earnings ($2.06 vs. $1.94 expected) but revenue came in just shy of the $6.0B estimate at $5.95B, and guidance was raised modestly. Taken together, healthcare is not without pockets of softness, but the large-cap diversified names are executing well.

Technology

Outside of Intel and Texas Instruments, the technology group was mixed. IBM delivered a modest earnings and revenue beat, reaffirming full-year constant-currency revenue growth of more than 5% — a sign that its software and consulting pivot continues to produce results. Lam Research beat on both lines and raised its fourth-quarter fiscal 2026 guidance above street estimates, consistent with a gradual semiconductor equipment recovery. Pegasystems was the notable disappointment, missing earnings by a wide margin ($0.46 vs. $0.68 expected) and coming in below revenue estimates as well, though management noted cloud annual contract value momentum remains intact. SAP reported revenue of $18.9B against an $18.8B estimate, with EPS and guidance pending following its late-April release. Nokia posted a small earnings beat but light revenue, reaffirming full-year operating profit guidance.

Energy, Utilities, and Materials

Halliburton beat on both earnings ($0.55 vs. $0.50 expected) and revenue ($5.4B vs. $5.3B expected), with no formal guidance change — a stable result consistent with steady oilfield services demand even as energy prices remain volatile. NextEra Energy posted earnings of $1.09 against a $0.94 estimate but revenue came in at $6.7B, below the $7.3B expectation — though the regulated utility’s full-year adjusted EPS guidance of $3.92–4.02 was reaffirmed, suggesting the miss was driven by timing or mix rather than a structural issue. Alcoa missed modestly on both earnings and revenue, with no formal guidance change. Procter & Gamble beat on both lines, though management guided toward the low end of the full-year EPS range of $6.83–7.09 — a modest adjustment that likely reflects input cost and foreign exchange headwinds rather than demand softness. Philip Morris beat on earnings and raised full-year guidance on a foreign-exchange-neutral basis, though reported revenue came in just slightly below estimates.

United Airlines was the one travel name in the mix, beating on both earnings and revenue while lowering full-year adjusted EPS guidance to $7–11 from a prior range of $12–14 — a significant reduction that reflects margin pressure and demand uncertainty in the second half of the year. It is a useful reminder that consumer-facing travel businesses, while operationally recovering, remain sensitive to macro confidence in a way that defense or utilities do not.

On balance, this was a week that reinforced a familiar theme: the fundamentals of most large-cap businesses remain intact, but the dispersion in outcomes — and particularly in forward guidance — is widening. Companies with structural demand drivers, pricing power, and balance sheet flexibility are executing well. Those with execution challenges, margin pressure, or demand sensitivity are being held to a higher standard by the market. For long-term investors, the key takeaway is not which stocks moved on Friday morning, but whether the companies you own continue to validate the thesis that justified the position in the first place.

Portfolio Topics:

Understanding Guidance: Why It Often Matters More Than the Beat

If there is one lesson embedded in a week like this, it is that the market frequently cares more about guidance than it does about the reported quarter. A company can beat earnings by 15% and still see shares fall — as we have seen in prior periods with high-multiple technology names — if the forward outlook disappoints. Conversely, a company can miss a quarter and trade higher if management communicates confidence in the trajectory ahead.

For long-term investors, this dynamic creates both opportunity and noise. In the short term, guidance-driven reactions can push high-quality businesses to prices that are more attractive than the reported results alone would suggest. In the long term, the accumulation of guidance raises from a well-run business is one of the clearest signals that management has earned credibility and that the competitive moat is holding.

When reviewing earnings with your advisor, it is worth asking not just whether a company beat or missed, but what the guidance implies about the next twelve to twenty-four months — and whether that picture is consistent with the long-term thesis.

Rebalancing in Volatile Markets

Periods of elevated dispersion — where certain sectors or positions move significantly in either direction — create natural rebalancing opportunities that are easy to overlook when markets feel uncertain. When a position grows meaningfully as a percentage of a portfolio due to outperformance, it may be worth trimming back toward the target allocation, even when the underlying business remains compelling. Conversely, when a high-conviction holding pulls back due to a short-term guidance revision rather than a fundamental deterioration, it can present an opportunity to add at improved levels.

Rebalancing is one of the most behavioral disciplines in investing — it requires selling what has recently done well and adding to what has recently lagged, which runs counter to instinct. Approached systematically and in coordination with your advisor, it is one of the more durable ways to manage risk and maintain alignment with your financial plan over time.

Disclosure

This material is provided for informational and educational purposes only and does not constitute investment advice, a recommendation, or an offer or solicitation to buy or sell any security or investment strategy. The views expressed are those of the author as of the date of publication and are subject to change without notice.

The author is a financial professional and may hold positions in, or manage client accounts that hold positions in, the securities discussed. Such holdings are subject to change at any time without notice. While the author strives to present information in a fair and balanced manner, no representation is made that this commentary is free from bias, and readers should be aware of potential conflicts of interest.

The information presented is derived from publicly available sources believed to be reliable, but accuracy and completeness are not guaranteed. Past performance is not indicative of future results. All investing involves risk, including the possible loss of principal.

This commentary does not take into account the investment objectives, financial situation, or particular needs of any specific person. No advisor-client relationship is created by the receipt or review of this material. Readers should consult with a qualified financial, legal, or tax professional before making any investment decisions.

After three consecutive years of double-digit gains, the first quarter of 2026 demonstrated how quickly market conditions can shift. A single geopolitical event—the escalation of the U.S.-Iran conflict and the closure of the Strait of Hormuz in mid-March—transformed a quiet, rotation-driven quarter into the worst three-month period for the S&P 500 since Q3 2022. However, the underlying story is more complex. Diversification proved effective, defensive sectors performed well, and the long-anticipated rotation from mega-cap growth to value took hold.

The Macro Backdrop

The quarter began with stable markets. The S&P 500 posted modest gains in January, remained flat in February, and market leadership started to expand beyond the Magnificent Seven. Two main themes emerged as March approached.

The first theme was manufacturing recovery. In February, the ISM Manufacturing Index rose above 50 for the first time in nearly a year, indicating expansion, and Industrials reached a new all-time high. The second theme was artificial intelligence disruption. New model launches in January and February prompted a reassessment of whether AI was a productivity tool or an outright replacement for large categories of professional services. Software stocks were most affected by this repricing.

Then came March. The U.S.-Iran conflict escalated sharply, triggering the closure of the Strait of Hormuz—a chokepoint for roughly 20% of global crude flows. Crude oil surged nearly +50% in a single month, finishing Q1 up more than 70% from year-end. The inflation implications were immediate: Core PCE was already running near 3% before the spike, and markets rapidly priced out all expected Fed rate cuts. By quarter-end, a rate hike was being openly discussed.

Major Index Performance

All three major U.S. indices ended the quarter lower, with technology-focused benchmarks experiencing the largest declines. The Nasdaq’s sharper drop reflects its concentration in large-cap technology stocks that led in 2024 and 2025. International equities performed better, with MSCI EAFE down 1.1% and Emerging Markets nearly unchanged at −0.1%.

Source: S&P Dow Jones Indices, Coastal Bridge Advisors, Winthrop Wealth. Total return (USD) as of March 31, 2026.

The Rotation That Finally Showed Up

• The most important development of the quarter was not the headline decline—it was what happened beneath it. For investors with diversified portfolios, Q1 looked very different from the S&P 500’s −4.3% headline.
• Value dramatically outpaced Growth: The Russell 1000 Value gained +2.1% while Russell 1000 Growth fell −9.8%—a spread of nearly 12 percentage points. Value outperformed Growth in every single month of the quarter.
• Small caps showed resilience: The Russell 2000 gained approximately +1.0%, outperforming the large-cap S&P 500 by more than 5 percentage points.
• International equities outperformed U.S. stocks: for a second consecutive quarter, with both developed and emerging markets beating domestic large caps by a meaningful margin.
• Bonds were essentially flat: The Bloomberg U.S. Aggregate Bond Index returned −0.1% as rising yields offset coupon income. High yield held up better, returning approximately +0.1%.

S&P 500 Sector Returns

The sector dispersion in Q1 was extraordinary—nearly 48 percentage points separated the best and worst performers. Six of eleven sectors finished positive, a complete reversal of the market’s recent leadership profile.

Source: S&P Dow Jones Indices / Novel Investor. Total return (USD). Ranked by Q1 2026 performance.

Energy’s +38.3% gain is almost entirely attributable to the oil price shock, but the story in defensive sectors is more instructive. Utilities, Consumer Staples, and Materials all delivered meaningful positive returns in a quarter where the S&P 500 fell more than 4%. These are the sectors that hold up when inflation fears rise and growth expectations fall—exactly the environment Q1 delivered. The underperformers tell the flip side: Financials (−9.4%), Consumer Discretionary (−9.2%), Information Technology (−9.1%), and Communication Services (−6.9%) all reversed sharply after leading the market in 2025.

Magnificent 7: A Difficult Quarter

Market Trends to Watch

For the first time since the AI rally began in early 2023, every member of the Magnificent Seven finished a quarter in negative territory. Combined, the group shed over $2 trillion in market capitalization from their all-time highs.

Source: Market commentary and analyst data as of March 31, 2026. Individual stock returns are approximate.

Microsoft’s −23.5% decline was the steepest, weighed down by questions around the return on its aggressive AI capital expenditure. Tesla (−17.3%) and Meta (−13.3%) also saw significant drawdowns. It is worth noting that Alphabet, despite a −8.1% quarter, remains one of the most attractively valued names in the group at roughly 17x forward earnings. Nvidia, despite its decline, retains 41 of 42 analyst Buy ratings heading into Q2, with the consensus view that AI infrastructure spending remains structurally intact.

Looking Ahead to Q2

Key factors for Q2 include inflation, oil prices, and geopolitical developments. At quarter-end, the Strait of Hormuz remains closed and crude oil is near $100 per barrel. The April and May CPI and PCE data will reflect the full impact of higher energy prices and will significantly influence Federal Reserve policy expectations.

A two-week ceasefire between the U.S. and Iran has triggered a broad relief rally, with oil pulling back below $100 per barrel — but the Strait of Hormuz remains largely blocked, with only a handful of ships transiting versus the normal 135 per day, and 800+ vessels still waiting to clear. The ceasefire is fragile, Israeli strikes on Lebanon are continuing, and Iran has halted oil tanker traffic in response.

The ceasefire provides enough optimism to explain today’s risk-on move, but it doesn’t resolve the supply disruption. Energy and commodity prices are likely to remain on a structurally higher floor regardless of the outcome — governments are already hoarding and restocking in anticipation of renewed conflict, and IATA has noted it could take months for jet fuel supply and pricing to normalize even if the strait fully reopens.

The case for a Fed cut re-emerges on the ceasefire headline, but resurfaces in a more complicated form — oil near $100 keeps inflation pressure alive, limiting the Fed’s flexibility even as growth concerns mount. Value, energy, and defensive positioning should continue to carry a risk premium until the strait is demonstrably clear and shipping resumes at scale. Growth stocks may bounce on the ceasefire relief, but a sustained recovery likely requires both a durable peace agreement and a functioning strait — neither of which is confirmed today.

The underlying earnings picture remains solid—S&P 500 earnings are projected to grow approximately 13% year-over-year in Q1, marking the sixth consecutive quarter of double-digit earnings growth. This was a macro and sentiment-driven correction, not an earnings-driven one. That distinction matters for how you think about the second half of the year.

— John McKay, CFA

This material is provided for informational and educational purposes only and does not constitute investment advice, a recommendation, or an offer or solicitation to buy or sell any security or investment strategy. The views expressed are those of the author as of the date of publication and are subject to change without notice. The author is a financial professional and may hold positions in, or manage client accounts that hold positions in, the securities discussed. Such holdings are subject to change at any time without notice. While the author strives to present information in a fair and balanced manner, no representation is made that this commentary is free from bias, and readers should be aware of potential conflicts of interest. The information presented is derived from publicly available sources believed to be reliable, but accuracy and completeness are not guaranteed. Past performance is not indicative of future results. All investing involves risk, including the possible loss of principal. This commentary does not take into account the investment objectives, financial situation, or particular needs of any specific person. No advisor-client relationship is created by the receipt or review of this material. Readers should consult with a qualified financial, legal, or tax professional before making any financial decisions. Reading this material does not create an advisor-client relationship.

Why Asset Ownership Is No Longer Optional

March 2026~12 min read

The post-pandemic economy did not recover evenly. It split. Those who owned assets — equities, real estate, businesses — watched their net worth accelerate. Those who depended primarily on labor income fell further behind, not in absolute terms, but relative to the asset-owning class. This is the K-shaped economy: two trajectories diverging from the same event, and the variable that determines which path you’re on is not income. It is ownership.

I

What the K-Shape Actually Means

The letter K describes what a standard economic recovery does not: instead of a broad-based rebound where most participants return to their prior trajectory, the economy splits into two distinct paths. The upper arm rises — asset prices recover, equity portfolios expand, real estate appreciates. The lower arm declines or stagnates — wage growth lags inflation, job quality deteriorates, debt burdens persist. The shape is not symmetrical and it does not self-correct. Once the paths diverge, the mechanisms that produce divergence continue operating.

The COVID-19 recession made the K-shape visible in a way that previous cycles had obscured. The S&P 500 recovered its pre-pandemic highs within five months — one of the fastest recoveries on record. U.S. home prices rose over 40% between 2020 and 2023. Meanwhile, inflation — itself partly a consequence of the monetary response — eroded real wages for the bottom half of earners for three consecutive years. The headline unemployment number recovered. The underlying wealth distribution did not.

What makes the K-shape structurally significant is that it is not primarily a product of income inequality. Two households with identical salaries — one owning assets and one renting and holding cash — will end up in dramatically different financial positions after a decade of the conditions described above. The variable that determines divergence is not what you earn. It is what you own.

The K-shape is not primarily a story about income inequality. It is a story about ownership. Two people earning the same salary will end up in entirely different financial positions over a decade if one owns assets and the other does not.

II

How Monetary Policy Became a Wealth Transfer

To understand the K-shape, you have to understand what modern monetary policy actually does to asset prices — because the relationship is direct, mechanical, and largely independent of broader economic conditions.

When the Federal Reserve lowers interest rates or purchases assets through quantitative easing, it does several things simultaneously. It reduces the yield on cash and bonds, making equities more attractive on a relative basis. It lowers the discount rate used to value future corporate cash flows, which mechanically increases the present value of stocks. It reduces mortgage rates, which increases housing affordability and drives up home prices. And it reduces the cost of borrowing for businesses, enabling share buybacks and expansion that further support equity prices.

The transmission mechanism for all of this is asset ownership. If you own equities, your portfolio appreciates. If you own real estate, your equity grows. If you own a business, your valuation expands. If you hold cash or depend on wage income, the policy does relatively little for you in terms of wealth accumulation — and the inflation that often follows erodes your purchasing power in real terms.

Between 2008 and 2022, the Federal Reserve held interest rates near zero for the better part of a decade, with significant rounds of quantitative easing and a massive balance sheet expansion following the pandemic. The S&P 500 rose approximately 600% over that period. Median household net worth increased, but the gains were distributed almost entirely to the top two wealth quintiles — those who entered the period with the most assets to appreciate.

S&P 500

Rose approximately 600% from 2009 to 2022. The primary beneficiaries were equity holders.

U.S. Housing

Median home prices rose over 40% between Q1 2020 and Q4 2022 — the fastest appreciation in modern history.

Real Wages

Inflation-adjusted wages for the bottom quartile declined in 2021, 2022, and 2023 despite record low unemployment.

Wealth Share

The top 10% of households own approximately 67% of all U.S. wealth. The bottom 50% own roughly 3%.

Central bank policy does not distribute its benefits equally. It distributes them to whoever owns the assets that policy makes more valuable. This is not a political statement. It is a description of the mechanism.

III

Labor Income Alone Cannot Build Wealth

This is the central structural problem that the K-shaped economy makes impossible to ignore: in an environment where asset prices are appreciating faster than wages — which has been true for most of the past 40 years — labor income alone is insufficient to close the wealth gap. You can earn well and still fall behind in relative terms if your earnings are not being converted into ownership.

Consider the arithmetic. The S&P 500 has compounded at approximately 10% annually over the past century. Real wage growth has averaged roughly 1–2% annually over the same period. A household that saves 20% of a $150,000 salary — an aggressive savings rate by most standards — and holds that savings in cash will accumulate roughly $30,000 per year in nominal terms. A household with $500,000 in invested assets will accumulate $50,000 in a median market year without working an additional hour. At $1,000,000 in assets, that figure approaches $100,000. The crossover point — where asset returns begin to exceed labor income — arrives faster than most people expect, and once crossed, the dynamics shift permanently.

The wage-to-wealth conversion problem is compounded by inflation. A salary that doesn’t grow faster than inflation is a salary that is declining in real purchasing power. Meanwhile, real assets — equities, real estate, commodities — have historically served as inflation hedges, maintaining or growing their value in purchasing power terms during inflationary periods. Cash does not. A savings account earning 1% during a 4% inflation environment is generating a guaranteed real loss.

None of this is an argument against earning more or building a career. It is an argument that the career exists to fund the asset base — and that treating labor income as the end goal rather than the means to build ownership is the most consequential financial mistake a high earner can make.

You can earn well and still fall behind. In an economy where asset prices compound faster than wages, labor income is the means — not the destination. The destination is ownership.

IV

The Four Assets That Drive Divergence

Not all assets are equal in their wealth-building properties, their accessibility, or their relationship to the K-shaped dynamic. The four that matter most — and that account for the bulk of wealth divergence in the data — are equities, real estate, business ownership, and human capital that converts to ownership. Each operates differently and serves a distinct role in a complete strategy.

Equities are the most accessible and the most liquid. Through low-cost index funds, a young professional can own a fractional share of the earnings of the largest companies in the world for the cost of a monthly subscription service. The compounding mechanism is straightforward and well-documented. The behavioral challenge — staying invested through volatility — is the primary obstacle, not access. The difference between a 40-year equity investor and a 30-year equity investor is not 25% more time — it is often 100% or more in terminal portfolio value, due to the exponential nature of compounding.

Real estate provides a different set of advantages: leverage, inflation protection, and a tangible asset that generates income. A primary residence purchased with a 30-year fixed mortgage is, among other things, a leveraged long position on local real estate financed at a fixed nominal rate — meaning inflation works in the borrower’s favor by reducing the real cost of debt over time. Investment property extends this further by generating cash flow that can compound independently of the underlying appreciation.

Business ownership — whether founding a company, acquiring one, or accumulating meaningful equity in a private enterprise — represents the highest-risk, highest-potential-return category. Most of the ultra-wealthy did not get there through salary or even through index funds. They got there through concentrated ownership of businesses that scaled. This path is not accessible to everyone, but for professionals with relevant expertise and appetite for concentrated risk, it remains the most powerful wealth-creation mechanism available.

Human capital — the skills, credentials, and relationships that determine earning capacity — is itself an asset, though an intangible one. Its value lies not in the income it generates today but in its conversion rate into financial assets over time. A professional who treats their earnings as a resource to be deployed into ownership is building compounding wealth. One who treats them as income to be consumed is not.

Equities

~10% annualized over 100 years. $10,000 invested at 25 becomes ~$452,000 by 65 without adding a dollar.

Real Estate

~4–5% annual appreciation historically, with leverage amplifying effective returns and rental income adding additional compounding.

Business

Median return on a successfully scaled private business far exceeds public market returns — at the cost of concentration and illiquidity.

Cash

The purchasing power of $1 in 1990 equals approximately $0.44 today. Holding cash is not neutral — it is a slow, guaranteed loss in real terms.

V

The Psychological Barriers to Ownership

The case for asset ownership is not new. The data supporting it is not obscure. And yet most people with the income to act on it delay, underinvest, or never start at all. The barriers are not primarily informational — they are psychological, structural, and in some cases, culturally reinforced.

Loss aversion is the most documented. The pain of a financial loss registers approximately twice as powerfully as the pleasure of an equivalent gain. In practical terms, this means that watching a portfolio drop 20% feels catastrophic enough to trigger selling — even when the rational move is to hold or buy more. Investors who sold during the March 2020 COVID crash locked in losses at the bottom of the fastest bear market in history, just before one of the fastest recoveries on record. The behavioral error was not in owning equities. It was in being positioned in a way that made panic-selling feel rational under pressure.

Present bias — the tendency to overweight immediate costs relative to future benefits — is equally corrosive. Investing $500 this month produces a tangible, immediate reduction in available spending. The compounded value of that $500 in 30 years is abstract and distant. The brain is not wired to weight these equally, which is why automation is not merely a convenience — it is a cognitive override that removes the decision from the domain where present bias operates.

There is also a cultural dimension worth acknowledging. In most professional environments, spending is visible and socially legible. Wealth accumulation through ownership is private and unremarkable. The behaviors that build the asset side of the balance sheet are, almost by definition, the opposite of conspicuous — and that social invisibility makes them harder to sustain without a deliberate framework.

The barriers to asset ownership are not primarily informational. The case is well-made and the data is accessible. The barriers are psychological — and understanding them is the first step to building systems that work around them.

VI

A Framework for Building the Asset Side

The framework I’d suggest is not complicated, but it requires sequencing, consistency, and a clear-eyed view of what each tool is for. The goal is to systematically convert labor income into owned assets across a career — building the upper arm of the K rather than remaining on the lower one.

The starting point is always the same: capture all available tax advantages before investing in taxable accounts. The employer 401(k) match is a guaranteed 50–100% return on the matched portion — nothing in the market competes with it. The HSA, used as an investment vehicle rather than a spending account, provides triple tax advantages unavailable anywhere else in the tax code. The Backdoor Roth IRA creates a pool of permanently tax-free capital that compounds without future tax drag. These are administrative decisions, not investment decisions, and they have outsized impact relative to their complexity.

Once tax-advantaged capacity is maximized, a taxable brokerage account becomes the primary vehicle for accumulation beyond retirement accounts. For most investors, a low-cost, diversified equity index strategy — total market or S&P 500 exposure through ETFs — is the appropriate default. The evidence against active management is overwhelming: after fees, the majority of actively managed funds underperform their benchmark over any 10-year period. Low cost and broad diversification are not settling for average — they are the rational response to that evidence.

Real estate enters the picture differently for different people, but the primary residence deserves explicit strategic attention. Where the financial analysis points toward ownership, the leverage and inflation-hedge properties of a fixed-rate mortgage make it one of the most powerful wealth-building instruments available. The key variable is not whether to own, but how much house to buy: over-leveraging into a property that strains cash flow removes flexibility and can prevent other wealth-building activity for years.

Step 1

401(k) to full employer match — guaranteed return, compounding from day one.

Step 2

Max the HSA — triple tax advantage; invest the balance, pay medical costs out of pocket.

Step 3

Backdoor Roth IRA — $7,000/year of permanently tax-free compounding, available at any income level.

Step 4

Remaining 401(k) capacity — up to $23,000 annually in pre-tax or Roth deferrals.

Step 5

Taxable brokerage — broad equity index exposure; the primary vehicle for wealth beyond retirement accounts.

Step 6

Real estate and alternatives — once liquidity needs are met and tax-advantaged capacity is exhausted.

VII

The Compounding Gap Is Already Open

The most important thing to understand about the K-shaped economy is that it is not a future risk to prepare for — it is a present condition to respond to. The divergence is already underway. The gap between asset owners and non-owners has been widening for decades, and the monetary and fiscal policy environment of the past 15 years has accelerated it substantially.

Every year of delay in beginning to own assets is a year of compounding that does not happen — and in an environment where asset prices are appreciating faster than wages, delay is not neutral. It is a choice to remain on the lower arm of the K while the upper arm extends further away. The gap between a 25-year-old who begins building an asset base and a 35-year-old who starts the same process is not recoverable at any contribution rate, because the lost years of compounding cannot be replaced with additional capital — only with more time, which has already passed.

The counterintuitive implication is that the urgency of ownership increases, not decreases, with income. High earners who delay building an asset base are not merely leaving money on the table — they are allowing the window of maximum leverage to close. The combination of time, compounding, and tax-advantaged infrastructure available to a 27-year-old high earner is a set of conditions that will never be more favorable.

The K-shaped economy does not require a particular political view. It does not require agreement on its causes or its remedies at the policy level. It requires only a clear-eyed recognition that the rules of the game have changed — and that ownership, not income, is now the primary determinant of long-term financial trajectory. The families and individuals who internalize that shift earliest will accumulate the most time on the right side of it.

The urgency of ownership increases with income, not decreases. The window of maximum leverage — time, compounding, and tax infrastructure — is open right now. It will not be more favorable than this.

The K-shaped economy is not a trend that will reverse on its own. The mechanisms that produce divergence — asset price appreciation driven by monetary policy, the compounding advantage of early ownership, the inflation drag on cash and wages — are structural features of the current environment, not temporary distortions.

The response is not complex. It is consistent, early, systematic ownership of assets that compound — and a clear understanding that labor income is the raw material for that ownership, not the destination. If any of the areas above are conversations worth having, I’m happy to work through them.

— John McKay, CFA

This material is provided for informational and educational purposes only and does not constitute investment advice, a recommendation, or an offer or solicitation to buy or sell any security or investment strategy. The views expressed are those of the author as of the date of publication and are subject to change without notice. The author is a financial professional and may hold positions in, or manage client accounts that hold positions in, the securities discussed. The information presented is derived from publicly available sources believed to be reliable, but accuracy and completeness are not guaranteed. Past performance is not indicative of future results. All investing involves risk, including the possible loss of principal. No advisor-client relationship is created by the receipt or review of this material. Readers should consult with a qualified financial, legal, or tax professional before making any financial decisions.

In This Article

The early years of building a family are busy — and financial planning is typically the first thing to get deferred. This post covers seven decisions that young families most commonly overlook, and why the cost of waiting on each one is higher than it appears.

• Starting to invest
• Investing for your children
• Education planning: 529s & Trump Accounts
• Delaying retirement savings
• HSA & end-of-life healthcare costs
• Life insurance: protection vs. product
• Trusts aren’t just for the wealthy

This post makes no promises about returns or outcomes. It attempts something more practical: to organize the financial decisions that carry the most long-term weight for young families into a coherent framework, and to make the case that the gap between acting early and waiting — across all of these areas — is measurable in real dollars.

For most young families, financial complexity arrives faster than financial literacy. The mortgage, the childcare costs, the career still developing — all of it creates a reasonable-sounding basis for deferring the harder planning decisions. The problem is that the tools that benefit young families most are also the ones that require time to work. Every year of delay is a year of compounding that doesn’t happen, and most of it cannot be recovered later.

I. THE CASE FOR STARTING NOW

There is a persistent belief that investing is something you do once the rest of your financial life is in order — once the debt is manageable, the emergency fund is full, the schedule feels less overwhelming. The math does not support that sequence. A family that begins investing $400 per month at 25, assuming a 7% average annual return, builds nearly twice the portfolio by 65 as one that starts the same contribution at 35. Not because they invested more total dollars — because time compounded what they had.

The goal in year one is not optimization. It is participation. A low-cost index fund strategy — broad exposure through ETFs tracking the total U.S. market or S&P 500 — gives most young families a sensible starting point without requiring significant capital or market expertise. Automation matters more than amount: a recurring transfer scheduled on payday removes the decision friction that causes most people to delay indefinitely.

You cannot recover the years you didn’t invest. You can always adjust the amount. Start small, start automated, and let time do the work.

The families who build meaningful wealth are not, as a rule, the ones who made the best individual investment decisions. They are the ones who started earliest and stayed consistent through the periods when it felt least intuitive to do so.

II. INVESTING FOR YOUR CHILDREN — AND THE TOOLS NOW AVAILABLE

Most parents understand that investing early matters for themselves. Fewer apply that same logic to their children. A child with an invested account opened at birth has 18 years of compounding before they make a single financial decision. That runway is one of the most meaningful things a parent can provide — and the vehicle landscape for doing it has recently expanded in ways worth understanding in detail.

The 529 plan remains the most widely used tool. Contributions grow tax-deferred and are withdrawn tax-free for qualified education expenses, including tuition, room and board, books, and — through SECURE 2.0 — student loan repayment up to $10,000 per beneficiary. Many states offer a deduction or credit on state income taxes for contributions, meaning the tax benefit begins immediately. The superfunding provision allows a contributor to front-load five years of the annual gift exclusion — up to $90,000 per child — in a single deposit without gift tax consequences. And beginning in 2024, up to $35,000 in unused 529 funds can roll into a Roth IRA in the beneficiary’s name after a 15-year holding period, removing the largest historical objection to the account.

The Coverdell ESA (governed under IRC Section 530) accepts up to $2,000 per year per child in after-tax contributions, with tax-free growth and tax-free withdrawals for qualified expenses that include K–12 private school tuition — a flexibility the 529 does not fully replicate. UGMA/UTMA custodial accounts go further: no contribution limits, no restrictions on how funds are eventually used, and no penalties. The money becomes the child’s outright at legal adulthood, usable for anything.

Most recently, the One Big Beautiful Bill Act established a new vehicle: the Trump Account. These are tax-deferred investment accounts for any U.S. child under 18 with a Social Security number. After-tax contributions of up to $5,000 per year are allowed, and employers may contribute up to $2,500 annually on a pre-tax basis. Funds must be invested in low-cost U.S. stock index funds during the growth period, and the account converts to a traditional IRA at age 18. For children born between January 1, 2025, and December 31, 2028, the federal government seeds each account with a one-time $1,000 contribution — and a growing number of major employers and philanthropists are pledging to match or supplement that amount. The accounts launch July 5, 2026, accessible via IRS Form 4547 or trumpaccounts.gov.

Two things worth noting about the Trump Account: unlike a 529, withdrawals are not tax-free — they’ll be taxed as ordinary income under traditional IRA rules once the child is an adult. And investments are restricted to domestic stock index funds during the growth period, which limits diversification. It complements the 529 rather than replacing it, particularly for families prioritizing tax-free education withdrawals.

With a strategy: A parent opens a 529 at birth and contributes consistently, files for a Trump Account to claim the $1,000 federal seed, and opens a UGMA as a general-purpose vehicle. Each account serves a different window of the child’s financial life: tax-free education funding, long-term IRA compounding, and unrestricted capital at adulthood.

Without a strategy: The same family waits until high school to open a 529. Fourteen years of compounding have not occurred. The federal Trump Account window for the seed contribution has closed. College is funded primarily out of current income and loans.

III. THE HSA — AND WHAT HEALTHCARE ACTUALLY COSTS AT THE END OF LIFE

No account in the U.S. tax code offers what the Health Savings Account offers. Contributions go in pre-tax. The balance grows tax-free. Withdrawals for qualified medical expenses are tax-free. That triple advantage is unique — and for young families, almost entirely misunderstood.

The conventional use of the HSA is transactional: contribute, pay a medical bill, deplete the balance, repeat. That approach is fine as a short-term reimbursement tool. As a long-term strategy, it wastes the account’s most powerful feature. For a young family in reasonable health with the budget flexibility to cover near-term medical expenses out of pocket, the HSA functions as a second retirement account. Contribute the annual maximum, invest the balance in low-cost index funds, and leave it untouched. Every dollar compounds tax-free for decades.

The reason this matters is where healthcare costs actually land across a life. The average American will spend between $300,000 and $400,000 on healthcare after age 65 — and that figure excludes long-term care, which can run $5,000 to $10,000 per month in a residential facility. Medicare covers far less than most people expect. Out-of-pocket prescription costs, supplemental premiums, dental and vision expenses, and eventual custodial care represent a genuine and underplanned financial exposure for most families. The HSA, built systematically over a working career, can absorb a meaningful portion of those costs entirely tax-free.

Healthcare is the largest unplanned financial exposure most families face in retirement. The HSA, used as an investment vehicle rather than a spending account, is the most tax-efficient tool available to address it.

The 2024 contribution limit is $4,150 for individual coverage and $8,300 for family coverage. At a 7% average annual return, $8,300 invested annually for 30 years approaches $800,000 — all of it available for qualified healthcare expenses without federal income tax. That’s not a planning exercise in abstraction. It’s a direct response to one of the most concrete and quantifiable risks young families face in the second half of their lives.

One practical note: The IRS imposes no deadline on HSA reimbursements. You can pay qualified medical expenses out of pocket today, keep the receipts, and reimburse yourself from the HSA years or even decades later — tax-free. This “receipt banking” strategy allows the HSA balance to compound for as long as possible while still preserving the option to access it without restriction.

IV. DELAYING RETIREMENT SAVINGS — THE MATH IS UNFORGIVING

This may be the single most expensive mistake young families make. The reasoning is genuinely understandable — childcare is costly, the mortgage is new, retirement feels decades away. But delaying even five years of contributions in your 30s can cost six figures by retirement, and unlike most financial mistakes, those years cannot be corrected later. The compounding that didn’t happen cannot be recreated at a higher contribution rate.

The employer match compounds the mistake. A typical 3–4% match left unclaimed because contributions are paused is not a deferral — it is a permanent loss. It is, in the most literal sense, turning down a raise.

With a strategy: A 29-year-old with a tight household budget contributes 4% of salary to their 401(k) — just enough to capture the full employer match — and increases contributions by 1% per year, timed to salary increases. By 40, they’re contributing 14% without ever experiencing a reduction in take-home pay.

Without a strategy: The same person pauses contributions for two years during a financially pressured period with a new child, intending to restart when things stabilize. The employer match goes unclaimed. The compounding clock stops. The gap created is permanent.

The floor is non-negotiable: contribute at least enough to capture the full employer match, regardless of what else is competing for the budget. From there, increase the contribution rate by 1% annually. Over a decade, this produces meaningful progress without requiring a meaningful sacrifice in any given year.

V. THE TAX-ADVANTAGED ECOSYSTEM — SEQUENCING MATTERS

Most people know the 401(k) exists. Far fewer understand the full range of tools available, or why the order in which they’re used matters. The difference between an optimized sequencing strategy and the default can amount to tens of thousands of dollars over a career — not from investment decisions, but from administrative ones.

The Roth IRA is chronically underutilized by young families for the wrong reasons. Most in their 20s and 30s qualify, and contributions made during lower-earning years are made at the lowest tax cost of a career — locking in tax-free retirement assets at the cheapest possible moment. The $7,000 annual limit (2024) is modest, but 30 years of compounding on after-tax contributions that will never be taxed again is a structural advantage that matters significantly over time.

A sensible sequencing framework for most young families: 401(k) contributions to the full employer match first, then max the HSA, then max the Roth IRA, then return to the 401(k) with any remaining capacity. This order isn’t universal — individual tax situations vary — but it reflects the core logic: capture free money first, then the most tax-efficient growth, then continued deferral.

VI. LIFE INSURANCE — PROTECTION VS. PRODUCT

There is something the financial services industry does not advertise clearly: life insurance, when sold as an investment vehicle, is almost always a poor deal. The returns are weak relative to alternatives, the fees are layered and frequently opaque, and the flexibility cannot compete with what you’d build by investing in the market through the accounts we’ve already covered. That critique applies specifically to the product being missold — whole life and universal life policies marketed as wealth-building vehicles — not to life insurance as a category.

As protection against a family financial catastrophe, life insurance is a genuinely valuable tool. If a primary earner dies and dependents are left without their income, the financial consequences are severe. A properly sized term policy addresses that risk directly, simply, and affordably. The problem is not the product in its purest form. The problem is how it is frequently sold.

Life insurance as protection is a sound decision. Life insurance sold as an investment vehicle is rarely a good deal — and the person selling it has every financial incentive to blur that line.

This is a textbook principal-agent problem. The person advising you on coverage is compensated based on what they sell — and policies with investment components carry substantially higher commissions than term. Their financial interest and yours diverge precisely at the moment they appear aligned. Policies are routinely oversized, overpriced, and bundled with riders that sound compelling in a meeting but rarely deliver proportionate value.

The recommendation I’d make is straightforward: get your life insurance guidance from a fee-only financial advisor who does not sell insurance products. When there is no commission on the table, you get an independent assessment of what you actually need — not what generates the largest premium. For most young families, that assessment points to a simple term life policy: 10–12 times annual income, held for 20–30 years. A healthy 30-year-old can secure $1 million in term coverage for well under $50 per month. The cost is low precisely because the product is uncomplicated.

One question worth asking before any insurance conversation: “Are you compensated in any way by the policy I purchase?” If the answer is yes, seek a second opinion from an advisor with no commission at stake. The right coverage at the right price — nothing more — is the goal.

VII. TRUSTS — NOT JUST FOR THE WEALTHY

The most common misconception about trusts is that they are instruments for inherited estates and multigenerational wealth. That perception is both widespread and incorrect — and it costs ordinary families real money and real complications every year.

A trust is a legal structure that holds assets on behalf of named beneficiaries under rules you define. You don’t need a seven-figure net worth to benefit from one. You need a home, a retirement account, minor children — or simply a preference that your family not spend months in probate court after you’re gone.

Probate is the court-supervised process through which an estate is distributed without a trust in place. It is public record. It is slow — often 12 to 18 months in complex or contested cases. And it can consume 3–9% of estate value in legal and administrative fees before a single asset reaches the people you intended to receive it. A properly structured trust bypasses it entirely: assets transfer immediately, privately, and on the terms you established while your judgment was intact.

For families with minor children, trusts accomplish something a will cannot: they control when and how children receive assets. A will can name a guardian. It cannot determine whether an 18-year-old inherits a lump sum with the maturity to manage it. A trust can. You can specify distributions at 25, 30, and 35. You can earmark funds for education, a first home, or a business. You write the rules while your thinking is clear and your options are still open.

With a structure: A family with a $400,000 home, brokerage accounts, and two minor children establishes a Revocable Living Trust. At death, assets transfer immediately without court involvement. Their children receive distributions under conditions their parents set — at 25, 30, and 35, with funds earmarked for education and a first home purchase.

Without a structure: The same family leaves everything to pass through probate. The process takes 14 months, costs a meaningful share of the estate in fees, and their children — now technically adults — receive an undifferentiated inheritance at 18 with no conditions on its use.

The most common starting point for young families is a Revocable Living Trust. You retain full control during your lifetime and can amend it at any time. It becomes irrevocable at death. Paired with a pour-over will — which captures any assets not yet titled in the trust — it forms a clean and comprehensive estate structure. The one-time cost to establish it, typically $1,500 to $3,000 depending on complexity, is modest relative to the probate costs, family conflict, and delays it prevents. This is not a document for the end of your life. It is a document for right now, while you have assets that matter to the people you love.

The step most families miss: A trust is only as useful as the assets titled inside it. Many families establish a trust and then fail to retitle their home, brokerage accounts, and property in the trust’s name — leaving those assets exposed to probate anyway. Creating the document is step one. Funding it is step two, and it’s equally important.

None of this requires a finance degree or a seven-figure net worth to act on. It requires awareness, a framework, and the willingness to begin before circumstances feel perfectly aligned — because they rarely do. The families who build lasting financial health are the ones who start early and surround themselves with advisors whose interests are genuinely aligned with their own.

If any of the areas above are conversations worth having, I’m happy to work through them. These are not abstract planning concepts — they are decisions with measurable consequences, and most of them are best made earlier than feels necessary.

— John McKay, CFA

This material is provided for informational and educational purposes only and does not constitute investment advice, a recommendation, or an offer or solicitation to buy or sell any security or investment strategy. The views expressed are those of the author as of the date of publication and are subject to change without notice. The author is a financial professional and may hold positions in, or manage client accounts that hold positions in, the securities discussed. Such holdings are subject to change at any time without notice. While the author strives to present information in a fair and balanced manner, no representation is made that this commentary is free from bias, and readers should be aware of potential conflicts of interest. The information presented is derived from publicly available sources believed to be reliable, but accuracy and completeness are not guaranteed. Past performance is not indicative of future results. All investing involves risk, including the possible loss of principal. This commentary does not take into account the investment objectives, financial situation, or particular needs of any specific person. No advisor-client relationship is created by the receipt or review of this material. Readers should consult with a qualified financial, legal, or tax professional before making any financial decisions. Reading this material does not create an advisor-client relationship.

Intro

This post makes no promises about stock prices. It attempts something more practical: to organize the most consequential features of equity compensation into a coherent framework, and to make the case that the difference between a thoughtful strategy and the absence of one can be measured in real dollars and real taxes.

For millions of employees, equity compensation has quietly become one of the most significant components of total pay — and one of the least understood. RSUs vest on calendars that don’t align with tax deadlines. Options expire. ESPP enrollment windows open and close with little fanfare. The gap between what these benefits offer and what most employees actually capture is, in many cases, substantial.

I. THE LANDSCAPE: KNOW WHAT YOU HOLD

Equity compensation covers several distinct instruments — Restricted Stock Units (RSUs), Incentive Stock Options (ISOs), Non-Qualified Stock Options (NQSOs), and Employee Stock Purchase Plans (ESPPs). Each carries different tax treatment, different decision points, and different risks. Conflating them is the first mistake, and it tends to be an expensive one.

RSUs vest over time and are taxed as ordinary income at vesting — the decision isn’t at grant, it’s what you do with the shares once they arrive. Stock options give you the right to buy shares at a fixed price; the value is in the spread. The tax treatment between ISOs and NQSOs diverges sharply, with real consequences for high earners subject to the Alternative Minimum Tax. Both expire — a deadline many employees encounter too late.

With a strategy: An employee granted ISOs maps their AMT exposure at various exercise scenarios with their advisor and calendars the expiration date. When a favorable window opens three years later, they act with intention.

Without a strategy: The same employee exercises a large ISO block in a high-income year without modeling the AMT consequence. The tax bill arrives the following April. The liquidity to pay it does not.

II. THE ESPP: THE MOST UNDERUTILIZED BENEFIT IN CORPORATE AMERICA

A qualified ESPP allows employees to contribute up to 15% of their salary over a six-month offering period, then purchase company stock at a 15% discount off the lower of the price at the start or end of the period — a feature called the lookback provision. In a flat market, that’s a 15% return before the stock moves an inch. In a rising market, the lookback amplifies it further. These are not projections — they are mechanical features of the plan.

Failing to participate at the maximum allowable level is one of the most common planning oversights in the benefits space. But participation is only the first decision. What you do with the shares — and when — determines whether you capture the full tax advantage the plan offers.

With a strategy: An employee contributes the full 15% over a period in which the stock rises 20%. The lookback provision anchors the purchase price to the start of the period, producing an effective return of roughly 41% on dollars contributed. Their advisor maps the required holding period for long-term capital gains treatment, and they plan accordingly.

Without a strategy: A colleague skips enrollment, citing cash flow concerns — unaware that contributions can be withdrawn before the period closes. They leave a near-guaranteed return on the table that is difficult to replicate anywhere else in their financial picture.

III. THE IMPORTANCE OF A PROPER STRATEGY

Equity compensation decisions don’t occur in isolation. They intersect with income levels, tax filing status, existing portfolio concentration, liquidity needs, and long-term goals. Two employees at the same company, on the same grant schedule, can face meaningfully different outcomes based entirely on how well those decisions are coordinated with the rest of their financial picture.

The key insight: equity compensation decisions are tax events first and investment decisions second. The order matters. An ESPP participant who sells immediately after purchase captures the discount but forfeits favorable long-term capital gains treatment. An employee holding concentrated RSUs through a prolonged downturn, waiting on a recovery that doesn’t come, has taken on investment risk without ever intending to.

With a strategy: A senior engineer with $180,000 in annual RSU vesting works with an advisor who maps each vesting event against projected total income. In a year when a bonus is also expected, they defer one tranche until January — shifting income into the next tax year. The adjustment costs nothing beyond the discipline to plan it.

Without a strategy: A peer on the same grant schedule sells every lot the day it vests, every year. Over four years, they routinely push into the next marginal bracket on vesting income alone. The cumulative additional tax paid runs to five figures — not from bad market timing, but from timing that simply wasn’t considered.

IV. THE COST OF NO STRATEGY

The absence of a strategy is not a neutral position. It is a choice, with consequences that compound quietly and rarely surface until a triggering event — a job change, a tax bill, a market decline — forces a reckoning.

Concentration risk is the most underappreciated consequence. An employee receiving RSUs year after year and holding each tranche may unknowingly build a portfolio where a single company represents the majority of their investable assets — the same company that already determines their income. Tax inefficiency follows; the spread between ordinary income and long-term capital gains rates can represent tens of thousands of dollars on the same transaction. Inaction at key decision points is the third failure mode. The Section 83(b) election — which allows early-stage employees to recognize income at grant rather than at vesting — must be filed within 30 days. Options expire. These windows don’t reopen.

With a strategy: A product manager joins a pre-IPO startup and files an 83(b) election within days of receiving restricted stock priced at $0.10 per share. When the company goes public two years later at $22, the full appreciation is taxed at long-term capital gains rates — roughly 20% — rather than as ordinary income approaching 37%.

Without a strategy: A colleague misses the 30-day window. Each tranche vests over four years as the company’s value climbs, triggering a taxable event at ordinary income rates every time. The tax bill at IPO is far larger than it needed to be, and there is no path back.

V. WHY THESE DECISIONS WARRANT PROFESSIONAL GUIDANCE

The case for working with a financial advisor on equity compensation isn’t just about complexity — it’s about coordination. These decisions sit at the intersection of tax law, investment planning, and behavioral finance, three disciplines that don’t always point in the same direction.

A qualified advisor can model the tax consequences of multiple decision paths before a choice is made. They can assess whether concentrated employer stock is consistent with a household’s broader risk profile. They can align equity decisions with other planning levers — retirement contributions, charitable giving, tax-loss harvesting — in ways that produce meaningfully better outcomes than addressing each in isolation. Perhaps most importantly, they provide a counterweight to the very human tendency to hold employer stock long past the point where it makes financial sense, simply because selling feels disloyal.

With a strategy: A mid-career employee has accumulated $400,000 in company stock — nearly 60% of their investable assets. Their advisor builds a systematic plan: sell a fixed percentage at each vesting event, reinvest into a diversified portfolio, and commit to the schedule regardless of near-term price movement. When the stock drops 35% the following year, their overall financial picture is largely insulated.

Without a strategy: A colleague in an identical position holds everything, reasoning they know the company better than the market does. When the same correction arrives, 60% of their net worth moves with the stock. Plans made in a declining market are rarely the ones you would have made in advance.

VI. QUESTIONS WORTH BRINGING TO YOUR ADVISOR

These aren’t a checklist — they’re an invitation to a conversation that too few employees have had.

What types of equity compensation do I hold, and what are the tax rules governing each? What is my concentration in employer stock relative to my total investable assets — and is that intentional? Have I modeled the tax impact of my options at various price scenarios? Am I enrolled in the ESPP at the maximum allowable level? Do I have a plan for each RSU vesting event? What happens to my equity if I leave?

The gap between employees who capture the full value of their compensation and those who don’t is rarely information. It’s structure.

With a strategy: An employee who has worked through these questions arrives at every vesting event, ESPP purchase, and option expiration with a decision already made — executing a plan built when their thinking was clear and their options were still open.

Without a strategy: The same employee makes decisions reactively — selling during a downturn because a liquidity need emerged, holding at the top because optimism obscured the concentration risk, and learning the rules of their options in the same conversation where they discover those options expired last quarter.

CLOSING THOUGHT

Equity compensation is, at its best, one of the most effective wealth-building tools available to working professionals. For those who approach it with the same rigor they’d apply to any significant financial decision, it can deliver on its promise.

But ownership requires strategy. The tax code doesn’t reward passivity. Concentration is a risk whether it’s recognized as one or not. And the windows within which certain decisions must be made don’t stay open.

The employee’s task isn’t to predict what the stock will do next. It’s to understand the rules clearly enough to make the decisions within their control, at the moments when those decisions actually matter.

DISCLOSURE:

This material is provided for informational and educational purposes only and does not constitute investment advice, a recommendation, or an offer or solicitation to buy or sell any security or investment strategy. The views expressed are those of the author as of the date of publication and are subject to change without notice. The author is a financial professional and may hold positions in, or manage client accounts that hold positions in, the securities discussed. Such holdings are subject to change at any time without notice. While the author strives to present information in a fair and balanced manner, no representation is made that this commentary is free from bias, and readers should be aware of potential conflicts of interest. The information presented is derived from publicly available sources believed to be reliable, but accuracy and completeness are not guaranteed. Past performance is not indicative of future results. All investing involves risk, including the possible loss of principal. This commentary does not take into account the investment objectives, financial situation, or particular needs of any specific person. No advisor-client relationship is created by the receipt or review of this material. Readers should consult with a qualified financial, legal, or tax professional before making any investment decisions. Reading this material does not create an advisor-client relationship.

-John McKay, CFA

Intro

This post makes no forecasts. It attempts to do something more modest, and arguably more useful: to organize the week’s most consequential developments in financial markets into a coherent narrative, and to leave space for the reader to draw his or her own conclusions. Markets rarely reward those who are certain. They tend to reward those who are right about what matters.

The week of February 23–27 was one of those weeks that reminded investors how many crosscurrents are capable of moving prices simultaneously. Tariff policy, the Federal judiciary, artificial intelligence economics, corporate earnings, and the behavior of gold as a reserve of value — all arrived at the table at once.

I. THE TARIFF ARCHITECTURE SHIFTS — AGAIN

The most structurally significant development of the week had nothing to do with earnings and everything to do with the rule of law. The U.S. Supreme Court struck down the administration’s broad use of the International Emergency Economic Powers Act (IEEPA) as a mechanism for imposing reciprocal tariffs across virtually the entire globe. The Court ruled that the president had exceeded statutory authority — a decision with implications that extend well beyond any individual trade relationship.

The administration’s response was immediate. Within hours of the ruling, a 10% tariff was reimposed under Section 122 of the Trade Act of 1974 — a narrower legal authority — and took effect Tuesday. The President simultaneously announced his intention to raise a separate worldwide tariff to 15%, citing what he described as decades of inequitable trade arrangements. By Tuesday evening, a State of the Union address was being delivered to a joint session of Congress, with the tariff agenda prominently defended.

The European Commission issued a statement calling the situation ‘not conducive to delivering fair, balanced, and mutually beneficial transatlantic trade,’ referencing the joint U.S.-EU statement of August 2025.

What changed this week was not the existence of tariffs — it was the legal framework beneath them. The Court’s ruling narrows the administration’s room to maneuver via executive declaration, requiring trade actions to find footing in established statutory authority. Whether this produces greater stability or simply a different form of unpredictability is an open question.

Markets on Monday opened lower across all three major averages as investors absorbed the twin forces of fresh tariff announcements and the legal transition underway. The Dow declined roughly 400 points; the S&P 500 and Nasdaq both shed between 0.3% and 0.5%. Tariff uncertainty has become a persistent condition, and one that is proving difficult to price.

II. NVIDIA AND THE “PROVE IT” PROBLEM

Few events in the quarter were more anticipated than Nvidia’s fourth-quarter earnings, and few reactions were more instructive about the current psychology of the market. The company delivered a beat on both earnings and revenue. The stock fell more than 5% on Thursday — its worst single-day decline since April — and continued lower into Friday.

There is a useful way to think about what happened. When expectations are high and priced in, a beat is not a positive surprise. It is a confirmation of what was already assumed. The market’s response to Nvidia’s report was not irrational. It was, arguably, the rational consequence of a stock that had traveled an extraordinary distance in anticipation of results that were, however impressive in absolute terms, not meaningfully above what had been expected.

“The market is very much in ‘prove it’ mode, and Nvidia just didn’t quite ‘prove it’ with these earnings.” — Tom Graff, CIO, Facet

Nvidia CEO Jensen Huang offered an interesting counterpoint in his CNBC interview. Asked about the sharp decline in software stocks — the iShares Expanded Tech-Software ETF (IGV) has lost more than 10% in February alone — Huang said he believed the markets had misread the AI dynamic. He argued that software companies like ServiceNow are not threatened by AI but enhanced by it, and that fine-tuned agents built on proprietary platforms will be the dominant form of enterprise AI deployment. The market has not yet converged on this view.

The ripple was broad. Broadcom, Oracle, Microsoft, Lam Research, Applied Materials, and Western Digital all declined meaningfully in sympathy. The question now circulating is whether the extraordinary capital investment flowing into AI infrastructure can be justified by the returns it will ultimately generate — or whether we are watching the early stages of over-investment in a technology cycle that will prove uneven in its rewards.

III. THE ROTATION: VALUE’S STRONGEST START IN MEMORY

One of the more notable structural observations of 2026 is the performance divergence between value and growth. By the close of trading this week, value had registered what J.P. Morgan Asset Management described as its strongest start against growth in recorded history. Of the seven mega-cap technology and consumer companies that dominated 2023, 2024, and much of 2025, only one remained in positive territory year-to-date.

The sectors leading this rotation are instructive. Small caps, energy, industrials, and materials have all contributed to the move. Part of this reflects genuine economic optimism — growth is expected to accelerate in 2026. Part of it reflects something more structural: commodities are running, gold is elevated by fiscal deficit concerns and questions about the independence of monetary policy institutions, and the infrastructure required for AI deployment — copper, rare earths, data center construction — is pulling industrial names higher.

Manufacturing PMI registered at 51.2; Services PMI at 52.3. Expansion continues. The question is whether it is durable or cyclically front-loaded.

A question worth sitting with: rotations driven by macroeconomic optimism and commodity momentum have a history of overextending. When economic expectations normalize, these sectors tend to give back gains that were built on assumptions of sustained acceleration. That does not make the current move wrong. It does make it worth monitoring carefully.

IV. INDIVIDUAL NAMES OF NOTE

Dell Technologies reported results that the market received enthusiastically. Shares surged roughly 16% after the company forecast that revenue from its AI-optimized server division would double in fiscal 2027. Dell also announced a 20% dividend increase and $10 billion in additional share repurchases — a combination that signals management confidence and creates near-term capital return visibility. This stands in notable contrast to the narrative of indiscriminate AI infrastructure spending; Dell appears to be converting AI demand into tangible near-term cash flows.

Netflix rose approximately 9% after withdrawing from bidding on Warner Bros. Discovery’s studio assets. The market interpreted the withdrawal as capital discipline — an acknowledgment that the economics of content acquisition at elevated prices are difficult to justify. Separately, Paramount raised its all-cash bid for WBD to $31 per share, and WBD CEO David Zaslav expressed enthusiasm for the combination. The media consolidation narrative continues to play out, with content libraries and distribution scale as the underlying logic.

CoreWeave, the AI cloud infrastructure company, sank sharply after missing profit expectations — a meaningful data point for those watching whether the AI buildout is generating returns in line with the capital being deployed. Palantir, which has retreated 33% from its highs, attracted upgraded ratings from both Rosenblatt and UBS, with analysts pointing to the stock’s valuation reset as an attractive entry into what they view as a durable AI software franchise.

V. GOLD, INFLATION, AND THE BOND MARKET

Gold traded at approximately $5,167 per ounce by Thursday’s close. The move in gold this year has multiple explanations, and it is worth separating them. Concerns about U.S. fiscal deficits and the long-term independence of the Federal Reserve have pushed institutional capital toward gold as a store of value outside the dollar system. Separately, the AI infrastructure buildout requires significant quantities of copper and other industrial metals, lifting commodity indices broadly. Gold is benefiting from both a macro concern narrative and a coincident commodity cycle.

On the inflation front, the January Producer Price Index data released Friday offered a mixed signal. The headline number came in below expectations, but the core gauge — which strips out food and energy — surprised to the upside. For a Federal Reserve that has been waiting for confidence that inflation is durably declining, an unexpected move in core PPI is not irrelevant. Equity markets responded by moving lower Friday, with defensive investors pivoting toward longer-duration Treasuries despite the sticky inflation signal — a tension that will likely persist.

The VIX closed Thursday at 18.63, up nearly 4% on the session — elevated but not at crisis levels. A market that is uncertain, but not yet afraid.

VI. GEOPOLITICAL NOTES

U.S.-Iran nuclear discussions convened in Geneva this week. The talks concluded without a formal agreement, but both parties agreed to resume negotiations in Vienna. The conversations are centered on the familiar axes of sanctions relief and nuclear program limitations. Oil prices responded to the geopolitical backdrop: WTI crude traded near $65 per barrel, Brent near $70. The market’s reaction to Iran-related headlines has been modest relative to earlier cycles, suggesting either habituation or an assessment that the tail risks remain contained for now.

The trade in goods deficit for December was released during the period, showing a 32.6% expansion to $70.3 billion. The deficit was shaped in part by the familiar dynamic of elevated imports preceding anticipated tariff actions. For the full year 2025, the goods and services deficit was approximately flat with 2024, a somewhat counterintuitive outcome given the volume of trade policy activity over the period.

CLOSING THOUGHT

Markets this week were asked to process a Supreme Court ruling on executive tariff authority, the most-anticipated earnings report of the quarter, a State of the Union address, geopolitical uncertainty in the Middle East, and a series of individual corporate stories ranging from AI server demand to media consolidation. That is not unusual for 2026. The density of consequential information arriving simultaneously has become a defining feature of this environment.

What this memo does not contain is a recommendation. Each of the developments above creates questions more than it resolves them. The legal framework for tariffs has changed — but the policy direction has not. Nvidia beat — and the stock fell. Gold is at all-time highs — but so is the case for holding equities in an expanding economy. These are not contradictions to be resolved quickly. They are conditions to be understood carefully.

The investor’s task is not to predict what will happen next. It is to understand what is already priced in, and to distinguish between risk that is compensated and risk that is not.

More to follow as the picture develops.

DISCLOSURE:

This material is provided for informational and educational purposes only and does not constitute investment advice, a recommendation, or an offer or solicitation to buy or sell any security or investment strategy. The views expressed are those of the author as of the date of publication and are subject to change without notice. The author is a financial professional and may hold positions in, or manage client accounts that hold positions in, the securities discussed. Such holdings are subject to change at any time without notice. While the author strives to present information in a fair and balanced manner, no representation is made that this commentary is free from bias, and readers should be aware of potential conflicts of interest. The information presented is derived from publicly available sources believed to be reliable, but accuracy and completeness are not guaranteed. Past performance is not indicative of future results. All investing involves risk, including the possible loss of principal. This commentary does not take into account the investment objectives, financial situation, or particular needs of any specific person. No advisor-client relationship is created by the receipt or review of this material. Readers should consult with a qualified financial, legal, or tax professional before making any investment decisions. The views expressed do not take into account the specific financial situation, risk tolerance, or investment objectives of any individual reader. Reading this material does not create an advisor-client relationship. Investors should conduct their own research or consult with a qualified financial professional before making investment decisions.

-John McKay, CFA