Wright Cove Capital: July 2026
The AI Trade Is Still Being Written
The question markets are wrestling with right now is not whether AI is transformative. It is who captures the value, and that is a very different, and much harder, question. You could see it play out this past month: some of the most prominent AI-related stocks sold off sharply, while several of the largest technology companies hit new all-time highs. Money didn’t leave the AI trade; it moved within it.
That kind of rotation, out of chipmakers and into other technology names in a matter of days, is a symptom of something broader: markets increasingly driven by speculation rather than fundamentals, not just in AI stocks, but across the index most of our clients own. It is the opposite of how we manage money, and the distinction matters more now than ever.
Consider where things stand: the ten largest stocks in the S&P 500 now account for roughly 40% of the entire index, nearly double their weight a decade ago and well above the peak reached at the height of the dot-com bubble. In one stretch this spring, a handful of mega-cap names accounted for the majority of the index’s gains while most of its 500 constituents contributed comparatively little.
For now, we don’t see that concentration as cause for alarm. Real earnings growth, not speculation alone, is what’s supporting those valuations, and as long as that holds, it’s a reflection of dominance more than mispricing. Still, it’s worth sitting with, because it echoes something we’ve seen before.
In the late 1990s, the internet was, correctly, understood to be transformative. Investors poured capital into the obvious leaders of the moment: AOL, Netscape, Yahoo, companies that were, in a real sense, the infrastructure of the early internet. Nearly all of them are gone or irrelevant today.
Being right about a technology and being right about which company wins from it are two different bets. Markets are still working out who wins, and this month’s rotation is one small piece of that process.
This is precisely why our approach has been to broaden equity exposure into international markets, financials, industrials, energy, infrastructure, and small-cap names, rather than concentrate further into this year’s most obvious winners. Not because we think today’s AI leaders are wrong, but because history suggests the eventual winners are rarely the obvious candidates and often include names not yet on anyone’s list at all. After all, Amazon started out as an online bookstore.
Why We Don’t Try to Pick the Winner
We described our core-satellite approach in our last note, and it’s worth revisiting here, because this is exactly the environment it’s built for.
The core of a portfolio, broad, low-cost, diversified index and sector exposure, doesn’t require us to know in advance which company, sector, or corner of the market ends up defining this era. It owns the market’s progress broadly, whoever the winners turn out to be. That’s not a failure of conviction. It’s a recognition that conviction about a technology and conviction about a specific company carry very different odds of being right, and we’d rather not stake client outcomes on the second one.
The satellite is where more deliberate decisions happen. The broadening we described above is a satellite-level decision, made because valuations and positioning support it, not because we’re confident which of those areas produces the next great winner. In fact, we’ve been adding to several of those satellite positions in recent weeks, taking advantage of the volatility rather than reacting to it. It’s a bet on breadth, not on any single name or sector emerging victorious.
The same discipline carries over to the rest of the portfolio. We’re not trying to time the next winning stock, and we’re not trying to time the Fed either.
Fixed Income: Revisiting the Belly of the Curve
A brief word on fixed income, our first since December. With a new Fed chair now in place, we expect the rhetoric to sound hawkish, but the actual policy path to stay largely on hold, limited movement in either direction, rather than a resumption of cuts or a pivot toward hikes. That’s a favorable backdrop for where we’ve been positioned all along: the 2–5 year portion of the curve, where attractive yields don’t require stretching out on duration. For conservative investors, it means real income, in the 5–6% range, without reaching further out on the credit curve either. No stretching required, in either direction.
Closing Thoughts
Markets will keep giving us headlines that feel urgent in the moment and matter less in hindsight. What actually compounds over time is unglamorous: staying invested, keeping costs low, and making smart tax decisions. We said last month that it’s the little things that make the biggest difference; these are the three that matter most. It is also the same principle this firm was built on: independent, institutional-grade financial advice at a cost well below the industry average.
As always, if you have any questions or would like to discuss anything in this note further, please don’t hesitate to reach out.
Regards,
Eric and Cass
Eric Leinwand, Principal – Eric@wrightcovecapital.com
Cass Tokarski, Principal – Cass@wrightcovecapital.com
The themes and strategies that we speak about and the positioning we take in portfolios are all customizable to best reflect each of our clients’ own unique goals and should not be interpreted as general investment advice.