Quarterly Investment Update Q2 2026
We here at Pacific Leader hope your summer is oƯ to a good start. This is typically our slow season as vacations are taken and people embrace the ‘Summer Vibe’. It’s also a good time to review 2025 in light of your tax returns. Good or bad isn’t necessarily in the size of your refund or payment but rather how much eƯort was made to give you the best possible outcome. To this, we’ll discuss two common tax issues we see all the time. We’re sure you’ll find them useful. As always, we’ll cover the important events of the past three months.
Perhaps the most impactful development from last quarter’s commentary is the positioning of the new Fed Chair, Kevin Warsh. Politics, being the second oldest profession, may prove a headwind for Mr. Warsh’s intentions. We’ll see how he fares as fiscal policy becomes more of a political football the closer we come to the midterm elections.
Finally, we’ll cover some interesting facts about market volatility and a few thoughts regarding the recent SpaceX (SPCX) IPO.
Q2 Market Recap
Major U.S. stock market indices rose dramatically, marking some of the best quarterly performances in years. This was attributable to a strong rebound from flat Q1 performance due in part to major geopolitical tensions.
S&P 500 rose by an impressive 14.87% representing the best quarterly gain since Q2 2020, the Covid rebound.
Nasdaq Composite, typically tech heavy rose by 21.41%. Like the S&P, this was the best quarterly performance since Q2 2020.
The Dow Jones Industrial Average rose approximately by 12.90% representing the strongest quarter since Q4 2022.
The Russell 2000, a small-cap index rose by 21.5%.
It’s hard to bet against the US markets. International indices were up for many of the same reasons but still fell short of domestic gains.
The U.S. saw strong gains in blue-collar job opportunities, specifically in manufacturing and construction. The largest vacancies, however, were in mining and logging. That category includes oil and natural gas extraction which rose by 2 million to 29 million positions available. Interestingly enough, the unemployment rate remained virtually unchanged for the first quarter at 4.3%, again. The skills gap seems to be getting wider as there are more opportunities in the trades yet there seems to be not enough qualified workers to fill them.
Post Tax-Time Headaches - The NII Tax Trap & Charitable Donations Hack
Whether you’ve filed your taxes already or if you’re on extension, now is a good time to review the year prior and see if there was anything you could’ve done to reduce or defer income taxes. Below are just a couple of ideas that you might find useful.
One of those tax pitfalls that is becoming more common is the 3.8% NII (Net Investment Income) surcharge (tax). Enacted as part of Obamacare, the NII applies to Single filers with MAGIs over $200k and Joint filers with MAGIs over $250k. It’s becoming more common because the surcharge (tax) hasn’t been adjusted for inflation since it was enacted back in 2013 despite rapid growth in wages, income, and unprecedented market growth. It surcharges (taxes) income on dividends, capital gains, taxable interest, annuities (only if you’re taking income), and certain income from passive activities like investment real estate.
The number of tax filers subject to the NII back in 2013 was 3 million. That number grew to 7 million back in 2022, the latest year we have data for. There’s no reason it hasn’t gotten worse in the last three years. Perhaps 10 million? Given the market gains we’ve enjoyed recently, it could be higher. It could be you.
What’s to do? Plenty. If your investment portfolio is generating a large amount of capital gains during the year, it might pay to look at ‘Tax Aware’ funds. These are funds that reduce or limit the number of trades during the year that trigger those capital gains. These types of funds also look for ‘Tax Loss Harvesting’ opportunities when they make those trades. Every properly diversified portfolio will have some losing positions. Tax Loss Harvesting is selling portions of the portfolio that are down from their purchase price to oƯset the gains from ‘up’ stocks, thus reducing total capital gains and the taxes that come with them. Let’s face it, everyone likes a growing portfolio till tax time but there are ways of managing taxable events. Keep in mind, there are no free lunches and your situation is unique. Always talk to your tax advisor before making any decisions.
Also, if you give to charitable organizations and you’re withdrawing money from your IRA or 401(k), consider making a Qualified Charitable Distribution (QCD) directly from your qualified account. Why? When you’ve made charitable contributions while you’re working, it’s typically in cash. You write a check, get a receipt, and it’s reported on your 1040 as part of your itemized deductions. But what if the total of your itemized deductions isn’t larger than your Standard Deduction? You choose the standard deduction, naturally, but you lose the tax benefit of the contribution. By making a QCD, you reduce the amount of income that is reported to the IRS (and typically State) and the resulting taxes are reduced whether you itemize or take the standard deduction. Virtually every investment company has a mechanism to make the proper QCD. If your financial advisor or tax advisor hasn’t noticed your charitable contributions and you might qualify to make QCDs, give us a call, we can help.
BUT WAIT! What if you’re still working and not withdrawing from your retirement funds yet? Consider skipping a year of contributions and then doubling the amount you contribute every other year. That might get you over that itemized threshold if the contribution is large enough. The charity gets the same amount of money, albeit delayed, and you get some tax benefit as long as your total itemized deductions exceed your standard deduction.
In our humble opinion, a good tax advisor should call you before December 31st and produce an estimated return to see if there’s any money moves that will benefit you. There are many more strategies than the ones listed above but if you have any questions about this or any other topic, we’d love to hear from you.
New Federal Reserve Chair
As we mentioned earlier, the Federal Reserve has a new captain at the helm. Chairman Kevin Warsch was seen as more hawkish with regard to interest rates and openly hostile toward his predecessor Jerome Powell. He was an ardent critic of the Quantitative Easing regime that came about after the 2008 Financial Crisis. Now that he’s at the helm, we’re going to see if he turns his previous critical positions into policy. A recent polling of the Fed’s policymaking committee saw half of its members wanting at least one rate hike this year. Chairman Warsh commented earlier that an increase in productivity growth will lower inflation without raising interest rates. He may just give in to that half that is looking for rate hikes. As of this writing, the Department of Labor reported CPI fell by 0.4% for the month of June. We’ll see what direction this unexpected wind blows the reserve board at its next.
Market Volatility = Fear?
Market volatility continues to be concerning investors and advisors alike. But disciplined investors tend to look past the daily hype and hyperbole. In the early 1990’s, the CBOE (Chicago Board Options Exchange) invented VIX as a way to gauge market volatility in real time and has become one of the most watched indicators on Wall Street. Often called the “fear index” or “fear gauge”, it tracks risk sentiment through the options exchanges and claims to measure the expected volatility over the next 30 days. VIX, for the first two quarters of 2026, averaged around 18%. To give that some context, it averaged over 32% for all of 2008 during the Global Financial Crisis and spiked over 50% during the Covid months of 2020. As we’ve mentioned before, don’t confuse volatility with risk. Real financial planning spans many, many years, not just 30 days into the future and volatility also creates opportunities. This is why we here at Pacific Leader monitors and reviews our client’s portfolios on a regular basis and communicate each client’s progress. We’re also here whenever they have a question. If you haven’t heard from your advisor in a while, it might be a good time to make a change.
SpaceX IPO (We’ve seen this movie before)
We don’t typically talk about specific stocks, but after a few calls from our clients, we thought we’d give our perspective on these types of issuances.
First, IPOs are highly speculative. Yes, it’s Elon Musk and he’s probably our greatest living industrialist… but, SpaceX is still an impressive set of promises and not an impressive set of profitable quarters. As of this writing, SpaceX is trading below its oƯering price. This isn’t to say that SpaceX won’t be a success. Many of the largest tech companies followed a common trajectory (see what we did there?) where the elevated expectations and hype inflate the stock price post IPO but as the hype wears oƯ and a lack of solid profitable reporting in quarters, for perhaps years to come, pulls it back down. And that’s where it typically stays till the business model shows that it can be profitable in the long term. Companies like Meta (Facebook), Apple, Alphabet (Google), have similar charts in this respect. Again, we’re not predicting the future here, just to say that there’s a place for speculation and a place for caution.
Wrap-Up
‘Cautious Positivity’ is a good phrase here at Pacific Leader. We think that we’ll continue this market upswing into the 3rd Quarter but most likely not as dramatic as the last few months. Sectors like Semiconductors & Tech may see more than a little pull back as the market takes a breath from the sharp increases in the 2nd quarter along with a growing distaste for data centers by local groups nationwide. Fiscal policy under the new regime and investor sentiment regarding inflation and geopolitical events are still grey areas. We’ll talk more about the possible impact of the mid-term elections in our next commentary, so stay tuned.
We hope your summer is full of adventure or relaxation, whatever your pleasure is. If you have any questions or comments about this or any of our other recent commentaries, we’d love to hear from you.
You can always view this and our previous commentaries via our new website at: www.pacificleaderfinancial.com
Feel free to call our office at: (888) 797-5881 x7720
You can also call or text me directly at: (408) 471-4081
Sincerely,
Matthew Dennis, CPA, AIF
Matthew Dennis is a registered representative with, and securities and advisory services oƯered through, LPL Financial, Member FINRA/SIPC.
These views are those of the author, not of the broker-dealer or its affiliates. This material contains an assessment of the market and economic environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. All investments involve risk, including loss of principal. Forward-looking statements are subject to certain risks and uncertainties. Actual results, performance, or achievements may differ materially from those expressed or implied. Information is based on data gathered from what we believe are reliable sources.
No investment strategy can guarantee a profit or protect against loss in periods of declining values. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
The Consumer Price Indexes (CPI) program produces monthly data on changes in the prices paid by urban consumers for a representative basket of goods and services (Source: U.S. Department of Labor).
The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
The Russell 2000 Index is an unmanaged index generally representative of the 2,000 smallest companies in the Russell 3000 index, which represents approximately 10% of the total market capitalization of the Russell 3000 Index.
The NASDAQ Composite Index measures all NASDAQ domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index.
The Dow Jones Industrial Average is comprised of 30 stocks that are major factors in their industries and widely held by individuals and institutional investors.
All indexes referenced are unmanaged. The volatility of indexes could be materially diƯerent from that of a client’s portfolio. Unmanaged index returns do not reflect fees, expenses, or sales charges. You cannot invest directly in an index. Consult your financial professional before making any investment decision.