Time is our most precious commodity. We need it, we love it, and we cannot make more of it, yet sometimes, we wish it away. Some wish it away by waiting too long before acting on present opportunities, and others wish it away by wasting the precious time they have worrying about the end of an opportunity they already own.
Like Ace Ventura said, “If I am not back in five minutes, just wait longer…”. That is the current sentiment of Market Bears. They have been calling for a recession, correction, meltdown, debt cycle; you name it, they are waiting for it. But waiting another five minutes on the sidelines for the perfect opportunity is more dangerous than being strategically engaged in the market. Why, you might ask? Because no one can predict the future, and no one can go back in time to make up for missed opportunities. Even in Bear Markets there is opportunity, and even when things seem hopeless, there is opportunity for those who remain optimistic about the future. One day, we will see an end to the running of the Bulls, as time will begin to show a Bear Market pulling back on the gains, but not right now.
The Investment Committee remains optimistic. We touched on four key growth drivers last quarter pertaining to the importance of timing. Not only has the V-shaped recovery from April pushed us to record highs, but all four of our growth engines are now in play:
- Tax Cuts over Tariffs
- U.S. Growth and Lower Inflation
- The Trump “Effect”
- Lower Interest Rates and FED Rate Cuts
Even amidst the government shutdown, the market remains optimistic and focused on growth. The market and the consumer are expecting to feel the positive effects of tax cuts in 2026. Lower inflation coupled with lower energy prices have supported trade growth. The Trump Administration is actively seeking greater foreign investment into the USA, and with deregulation we are seeing major upticks in corporate optimism / market sentiment. And finally, we are seeing rate cuts from the Fed. We can already feel the loosening impact on the monetary system with just one cut. It is speculated that we will see up to two more cuts this year alone.
When we read and look past the barrage of negative news cycles, we can see the following data that supports our bullish sentiment. Over 44% of S&P 500 Index companies have raised their future guidance, marking the highest percentage since 2021.1 Conversely, only 14% provided downgrades, which is the lowest percentage since 2015.2 The question becomes: how can we have such a divergence to the upside, while media sentiment remains so bearish? Currently, the bull / bears survey has bearishness winning at over 43% and bull sentiment at roughly 32%.3 That is a positive market indicator because although markets are up and hitting new highs, we are not seeing pure euphoria. We are in a bull market and yet everyone is calling it a “bear” or the “worst bull since…”
Some have tried to make the case that only the big names are doing the heavy lifting. This has been true year to date, but with broadening optimism and lower interest rates providing greater liquidity flows, we are seeing earnings estimates go up for the index (even when we exclude the Magnificent 7). 4
S&P 493 (excluding Mag 7) Consensus Estimates for Earnings:
Q3 of 2025 4.7%
Q4 of 2025 4.5%
Q1 of 2026 9.9%
Q2 of 2026 10.9%
Q3 of 2026 14.3%
We are also seeing real revenue growth above our current economic growth projections. Excluding energy, we are seeing good growth in other sectors. The DHT Investment Committee and our portfolios remain overweight U.S. growth, favoring technology as a sector, and fully allocated between large growth and small cap. These allocations have benefited from the impact of AI on tech, and with the growing impact of the tax cuts for corporate and small business America.5
As noted above, we have also maintained our small cap positions. The Russell 2000 had remained below its all-time high for over 950 days, but recently posted a new all-time high. This presented a buying opportunity during that almost 3-year period, and we are starting to see a breakout in small caps, something we anticipated in Q1 with the tax cut discussion. 6
We provided a DHT Tax Planning Guide earlier in the quarter, and we have linked it to our website for future reference. But one of the largest tax planning impacts for business owners is the ability to utilize the 100% bonus depreciation. This rule was set to expire and be reduced to 40%. It is now permanent and retroactive to January 19th of 2025. This provision reduces the effective tax rate on corporations from 21% to roughly 12.2%,7 making the US one of the most competitive countries in the world from a corporate tax perspective. As a result, there is greater potential for earnings growth to accelerate into 2026.
Although we remain bullish, we do not ignore the negative data that does continue to create volatility. We monitor consumer spending and personal credit card debt as well. From a macro perspective, the national debt continues to rise. The national debt is over 106% of GDP, a level we have not seen since WWII. Interest payments on the debt are over 1 trillion a year for the first time, and if we do not see real long term economic growth with revenues large enough to pay this down, it will eventually stifle growth. With too much debt we cannot grow, and with too few taxpayers, we cannot afford to make our payments. The market will respond to that fact in the future.
With interest rates coming down, we are expecting pressure in the housing market to abate and inventories to pick up again. Pricing remains unchanged, but the 30-year mortgage is already moving down. With the ability for people to buy/sell and refinance again, we hope to see equity used to reduce debt loads and re-invest into the market.
To help reduce our risk exposure to some of these red flags, we recently traded our portfolios to harvest some gains, rebalance the positions, and refill our income reserves for active income. We also continue to re-invest and deploy investable assets systematically with our dollar cost average strategies as we did in April. When we see major dislocations, we work with you to ensure we maximize those opportunities the best we can.
From a money market savings perspective, the 10 Year Treasury remains at or around 4%. This rate remains relatively sticky. We are still utilizing the Vanguard Treasury Money Market Fund - VUSXX – as it continues to hold above 4%.8 This remains a great tool for cash savings, emergency reserves, corporate reserves, etc. As rates move, we are preparing alternatives to this position to ensure we maintain a positive yield, even in these lower-risk asset classes.
And, for those of you who consistently read to this point, know that your financial plan is the road map for how we invest. As a part of building your personal financial plan, we help you ensure that all the other important life events, variables, opportunities, and dreams are included. Investing blind, even with great growth, is not as meaningful without knowing how we are tracking when it comes to your hopes and dreams!
Together, we plan with purpose, and together, we will continue to navigate the ups and downs of whatever market we face!
John C. Donohue, III CFP ®
Gregory B. Hart
Michael J. Thomson Sr. MBA, CLU, ChFC, RHU, REBC
Brooks D. Shertzer Sr.
Office: 410-803-0160
Fax: 410-803-0167
john@dhtfg.com
greg@dhtfg.com
mike@dhtfg.com
brooks@dhtfg.com
Click Here to visit our New Website: www.dhtfg.com
REFERENCES
1The Compound – Jefferies
2The Compound – Jefferies
3FundStrat– Bull Bear Chart
4S&P 493 (Excluding Mag 7) Consensus Estimates for Earnings
7Institute on Taxation and Economic Policy
8 VUSXX