Freedom
Last month this commentary discussed a dystopian world where the Germans and Japanese won World War II. While the show didn’t necessarily expound on the economic realities of what that world might look like, it was clear that it wasn’t as open of an economy or society as we enjoy today. In the real world, our economy is the envy of the world, and it is due to the freedoms we enjoy as Americans. We cherish the Declaration of Independence and the Constitution because they proclaim and uphold that “all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty, and the pursuit of Happiness.” For 250 years, with some bumps along the way, to be sure, we have enjoyed these rights, and they have opened the door for all to seek and work towards achieving their hopes and dreams. Certainly not a guarantee of success, but there is nowhere else, or any other economic system, in the world that offers the opportunities that Americans are afforded. Our markets continue to reach new heights, and that has helped millions of Americans’ savings and retirement accounts. Yes, problems remain (there will always be some), such as housing costs, but the American dream is not dead, especially if one is willing to work towards it. As many presidents have proclaimed, our best days are ahead of us! Happy Birthday, America – here’s to the next 250 years!
Financial Markets
As Americans, we have the freedom to seek our own destiny, and that includes how we invest. The U.S. is almost always the best place to invest in equities, especially for long-term investors, as Eye on the Market (produced by Michael Cembalest of J.P. Morgan) notes, since at least 1984, U.S. stocks have significantly outperformed the rest of the world, no matter what your time horizon has been, even including a rebound in international equities in 2025. That is a testament to the innovation, stability, and quality of the companies here. After a brief respite in 2025, U.S. stocks have once again reclaimed their lead in terms of performance, as can be seen by the returns so far in 2026, and in June specifically. Yes, in June, the top-heavy S&P 500 lost 0.95%, the EAFE lost 0.03%, and the NASDAQ lost 2.75%, but the Dow 30 gained 2.71% for the month, while the S&P 400 and 600 added 3.59% and 7.29%, respectively, in June. Even the broader based Equal Weighted S&P 500 gained 2.38% in June. It is interesting to note that all domestic equity indexes lead the EAFE on a year-to-date basis. On the bond side, the Bloomberg U.S. Aggregate Bond index gained 0.24% in June. American dominance in the markets continues!
Market valuation data as of June 30th, 2026 (Buffet Indicator as of July 7th, 2026), however, continues to show markets as strongly overvalued, although some have dropped slightly as strong earnings data has helped offset market gains.
| Valuation Metric | Description | Latest | 30-year Avg. | Signal |
| P/E | Forward P/E | 20.4x | 17.2x | Strongly Overvalued |
| CAPE | Shiller’s P/E | 40.7x | 28.8x | Strongly Overvalued |
| Dividend Yield | Dividend Yield | 1.4% | 2.0% | Strongly Overvalued |
| Buffett Indicator | Ratio of market cap to GDP | 214.08% | 111% to 135% | Strongly Overvalued |
The Economy
The freedoms we enjoy as Americans have led to economic prosperity that is the envy of the world. In recent days, there have been many articles written about how World Cup fans from other nations have been surprised, envious, and amazed by everyday Americans, our economy, and the love everyday Americans have for their country. It seems that the press has tried its best to convince the rest of the world (and many Americans) that things are not good here. From ranch dressing to stocked shelves, to enormous quantities of food and other items, the U.S. is the economic envy of these fans, and by extension, the rest of the world. And this isn’t a recent phenomenon, as noted recently in the Wall Street Journal that Alexis de Tocqueville, a French diplomat, political philosopher, historian, and author, recalled in his book Democracy in America that he “marveled at Americans’ boundless appetite for commerce, industry, and wealth,” because he noted “I have no doubt that the democratic institutions of the United States…are the cause…of the prodigious commercial activity of the inhabitants.” He wrote this after touring the United States in 1831! The roots of that appetite are found in both Declaration of Independence and our Constitution.
Our economy continues to evolve, which is nothing new. As the most innovative nation on earth, we are constantly striving to invent new things, make old things better, and come up with solutions no one could imagine just a few years ago. AI is the latest craze and, like many innovations in the past, has its good points and bad points, but over time will lead to things we can’t think of today, and will ultimately lead our economy to new heights. The war with Iran is certainly having an impact, but that should be short-lived, and inflation should then resume its slow decline. The employment picture continues to be one of stability, even assuaging some of the fears of AI related job losses.
As we enter our 251st year as a nation, we should celebrate the strength of our economy, which is due to what the Founding Fathers put in place in the Declaration of Independence and the Constitution, and the amazing ability of our people!
GDP (Gross Domestic Product) – Our GDP, especially when measured per capita, is something the rest of the world can only wish for. It might not be growing at the rate we would like (and there are a variety of reasons for that), but it is still growing. First quarter GDP grew at a rate of 2.1%, according to the recently released third estimate. Although second quarter data have not yet been released, GDPNow is forecasting a rate of 1.4% as of July 7th. Undoubtedly, the number is being held back because of the war in Iran. Should the so-called ceasefire hold, and oil prices remain at current levels (around $72 a barrel), inflation should begin to slide and economic activity pick back up, allowing GDP to tick higher as well. Spending by all those World Cup fans won’t hurt either!
Inflation – A free economy (albeit one with too many regulations) means that prices are (generally) free to float based on supply and demand (although those regulations add to the cost of most goods and services). A generic statement, yes, but one that tends to hold true as well. Unfortunately, that means that at times, prices will rise faster and/or higher than desired in a shorter than desired time period. There is no better evidence of that than what has happened with gas prices since the war with Iran started. Nationally, the price of gas was below $3.00 per gallon prior to the war, but spiked as high $4.50 a gallon. This has certainly had a negative impact on the rate of inflation, but it should also reverse itself as the war winds down and oil flows freely through the Strait of Hormuz again. In fact, the price per barrel has dropped back to the $70.00 level, which should help prices at the pump soon. Other costs, many of which are impacted by the price of oil, have pushed higher as well (housing, food, and apparel, among others), but all should benefit from falling energy prices over time.
The May CPI reading increased by 0.50% to an annualized rate of 4.20%, while Truflation reported a rate of 1.79% as of July 7th.
Employment – The pursuit of happiness is a key component of the Declaration of Independence, and it is one that all Americans are allowed to engage in. Part of that pursuit is the freedom to pursue an education and employment (including starting your own business) where and how one wants to. Of course, it will require diligence (hard work) and sacrifice along the way, but the freedom to do what it takes, or not, is up to each individual. Some of the best stories of our shared history as Americans are those rags to riches testimonies that show what one can achieve here in the U.S. This month’s employment data reflects a stable environment with the unemployment rate falling to 4.2% in June, as 57,000 new jobs were created during the month. Both Madison’s and Wisconsin’s unemployment rate dipped slightly in May, according to preliminary data, to 2.50% and 3.40%, respectively. From an economic perspective, the Sahm Rule sits at 0.07 for June, down from 0.10 in May as it continues to stay well below the recessionary indicator level of 0.50.
The Fed Watch
Freedom to set policy for the Federal Reserve is something every Fed Chair desires but doesn’t always happen, and when it does, the results haven’t always fulfilled expectations. New Fed Chairman Kevin Warsh is finding it difficult to fully implement his ideas and plans for the Federal Reserve due to economic data, a split of loyalties in the Board of Governors due to former Chair Powell not resigning his seat, and institutional complexities. The economic data temperature may have cooled somewhat where the need to raise interest rates this year has been lessened, but that doesn’t mean that the ability to cut rates is there. Employment data is steady, but inflation data is being pressured by the war with Iran. Oil prices have fallen recently, and that should help, although it may not be enough for the Fed to push interest rates lower. Other structural changes that Chairman Warsh would like to see happen will just take time, and perhaps, a different make-up of individuals on the Board of Governors. For the foreseeable future, unless the data changes significantly, expect the Fed to sit tight on interest rates.
Outlook/Summary
As Americans we never want to take our freedoms for granted. Those freedoms came at, and with, a cost, and we are thankful for those who fought to give us our freedom and for those that continue to do so. Their efforts have kept the American dream and spirit alive for 250 years, and will hopefully do so for another 250 years and beyond. As was noted in a recent Monday Morning Outlook from First Trust, “May we continue to honor the legacy of those who came before us by striving to uphold the principles that have made this country a beacon of hope and freedom for the world.”
From an investor’s standpoint, there is no greater place to invest than in the U.S., and the data has proven that over time. One has the freedom to pick investments that meet one’s criteria for risk, income, etc., and is not forced to invest where the government tells you to. Of course, there are risks, but investors are free to choose how they react to economic events. That is why our system has lasted and continues to be the envy of the world, and our future is bright. Having said that, it is important to be mindful of the investment environment we live in. As we look at the landscape today, we do see risks, from the war in Iran, to inflation, to housing issues, and more, but also understand that earnings remain strong, and that new opportunities are being created at breakneck speeds when it comes to AI and technology. That is why we take the approach we take in managing portfolios: diversify and protect against the downside first and then seek upside. It is a slow and steady approach, but also allows us to deal more effectively, we believe, with the world around us.
Should you like to discuss your portfolio or learn if our strategy can work for you, please call the Wealth Management division of Lake Ridge Bank at (608)826-3570. We look forward to speaking with you.
Market/Economic Data
As of June 30th, 2026…. Unemployment data is through June for national, May for Wisconsin (preliminary) and Madison (preliminary); inflation data is through May, Truflation as of 7/7/26:
| Index | Month Return | YTD Return | Index | Month Return | YTD Return or Current |
| DJIA Industrials | 2.71% | 9.76% | EAFE | -0.03% | 7.74% |
| S&P 500 | -0.95% | 10.21% | Blm U.S. Agg Bond | 0.24% | 0.62% |
| S&P 500 Equal Weight | 2.38% | 12.13% | Inflation (CPI All-items) | 0.5% | 4.20% annualized; Truflation 1.79% |
| S&P 400 | 3.59% | 17.34% | U.S. Unemp. | 4.2% | 57,000 new jobs |
| S&P 600 | 7.29% | 23.90% | Wisconsin Unem. | n/a | 3.40% |
| NASDAQ | -2.75% | 13.13% | Madison Unemp. | n/a | 2.50% |
Thank you for your business – we look forward to speaking with you soon. (Note – this commentary used various articles from JP Morgan, Morningstar, the Wall Street Journal, Investor’s Business Daily, Northern Trust, CNNMoney.com, msn.com, Kiplingers.com, nytimes.com, Fidelity Investments, American Funds, LPL Financial and other tools as sources of information.
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