Economy and Investments: June 2026
Last month was on fire – despite the war in Iran.
On the month, the benchmark S&P 500 gained an impressive 5.0%, while my two portfolios gained 10.1% in the “Adrenaline” growth portfolio, and 5.8% in the “Market Neutral” portfolio.
This brings year to date returns to 10.1% on the S&P 500, 22.7% on the “Adrenaline” growth portfolio, and 19.4% on “Market Neutral.”
In dollars, $100,000 invested in the S&P 500 at the start of the year would now be worth $110,112. That same money would be $122,745 in the Adrenaline portfolio and $119,428 in the Neutral portfolio.
So the alpha — additional gains vs the market — is about $2,000 per month.
Economy Update
The biggest surprise this month is oil prices bouncing off the economy, with the Atlanta Fed’s GDPNow currently running 3.8%. That’s about twice the 21st century level.
This is very impressive given a near-doubling of oil prices. And I talked about it in this week’s free article.
Jobs are sitting pretty with unemployment at 4.3% and quit rates tame – meaning people feel like jobs are available.
Mass layoffs are at historic lows – so much for the AI jobs Armageddon.
Payrolls rose 115,000 in April, almost double expectations. March was revised up to 185,000. Private payrolls added 124,000.
Finally, inflation. It’s rising now as energy bleeds into food and services. But outside energy inflation’s tame thanks to solid fundamentals of slower growth federal spending and faster private-sector GDP growth.
For perspective, on the eve of Iran, real-time price aggregator Truflation had us at 0.7% inflation -- about as low as inflation gets with a central bank. Once the war ends, I suspect we’ll get back to that.
What’s Driving Growth
The growth story, as always, is an investment story. Gross private domestic investment rose a blistering 8.7% annualized in Q1. Some of that’s factory onshoring, with tariffs so far inducing nearly $3 trillion of investment according to Kearney.
Reshoring hasn’t shown up in manufacturing output or jobs yet because it takes time to build a factory – Taiwan Semiconductor’s Arizona factory is on a 6-year timeline. But they’re on the way.
Another hunk of growth is deregulation and tax changes — namely bonus depreciation in the Big, Beautiful bill, where you can write off 100% of your investment. This is cocaine for investment.
The AI Explosion
And the other driver is, of course, AI. Information-processing equipment alone added 0.83 percentage points to GDP last quarter. Equipment spending jumped 17.2%. Software and computing investment rose 24% year-over-year.
Data centers are the new interstate highway system. Steel, concrete, electricians, HVAC, transformers, turbines, substations, fiber, chips, cooling towers, backup generators, and enough copper to buy every Chilean miner a mistress.
That matters because the AI boom is not just teenagers asking a chatbot to write their sociology paper. AI already solved one Holy Grail, the protein-folding problem – winning the 2024 Nobel in chemistry for what’s basically a Google maps for drug development.
AI is accelerating drug development by years, compressing target discovery from years to months and potentially shaving 5 to 7 years off new drug development.
Like the reshoring boom, we haven’t seen the benefits of drug development in lives saved since regulatory approvals take years even if development goes fast. But they’re coming for every major disease, potentially for aging itself.
AI has discovered new antibiotics, including halicin, which MIT found could kill drug-resistant bacteria. Later MIT researchers used deep learning to find compounds against MRSA, a bacteria that kills more than 10,000 Americans a year.
AI weather models are now beating traditional systems on huge chunks of medium-range forecasting. Google’s GraphCast could produce global forecasts in under a minute and beat ECMWF’s gold-standard system on most tested variables. Microsoft’s Aurora later beat traditional models on more than 90% of tested variables and produced 10-day forecasts in less than a minute. That is hurricanes, crops, energy grids, insurance, shipping, and whether your flight gets turned into an overnight at the airport.
Google is using AI to design chip floorplans in under six hours, with results comparable or superior to human designs on power, performance, and area. AI is already doing industrial-grade coding, customer service, translation, fraud detection, logistics routing, medical imaging, legal search, drug discovery. AI already outperforms doctors on diagnosis and therapists on treatment, meaning Americans now have a free doctor and qualified therapist in their pocket.
In sum, the joke version is “ChatGPT writes your kid’s essay.” The real version is AI is already delivering more value than the internet did in its first decade. The early internet gave us dancing baby memes and shopping carts while early AI is delivering Nobel prizes and drug-resistant antibiotics.
AI and Jobs
And then there’s the jobs. AI doomers in media are panicking at useless sociology majors getting automated but ignoring tens of thousands of electricians getting hired.
Yes, AI will hammer entry-level white-collar make-work. It will absolutely eat the bottom tier of admin work, Indian call centers, compliance slop, HR boilerplate, junior copy, and people who write emails that “circle back.” As well as the journalists who write AI doom porn.
But they are ignoring the other side: the buildout. PwC estimates U.S. data-centers are already supporting 5 million overwhelmingly blue-collar jobs, of which roughly a million remain permanent for maintenance. Men in trucks, crews in hard hats. Welders, linemen, pipefitters, engineers to build it then keep it all running.
Summing it Up
Put it together and the economy is rotating from federal to private and from pretend cubicle jobs to roll-up-your-sleeves jobs, this time the jobs going to Americans instad of illegals.
The war is the final overhang. Once it ends — which Kalshi says is a coin-flip by September — oil comes down, inflation cools, rates can fall, and the investment boom goes into turbo.
With all that, on to the portfolios performance and picks!
