Continued Uncertainty
Summer is here, so I hope you are out and about and enjoying activities with family and friends.
During the second quarter of 2026, the major indexes gained and recouped their first quarter
losses. The S&P 500 Index gained 14.9%, the NASDAQ Index gained 21.4%, the Russell 2000 Growth
Index gained 25.6%, and the iShares Barclays 7-10 yr. Treasury Bond ETF (IEF) was down 0.9%.1
Currently the markets continue to be volatile due to many market participants speculating rather
than applying traditional investing methods. Even though the stock market is back to near all-time
highs, three major uncertainties remain. Any of which could initiate a risk-off drop in prices.
The uncertainties are whether AI spending will generate expected earnings, the war in Iran, and
ambiguity of the outcome of the mid-term elections. As we get closer to answering these questions,
the headline news releases will continue to increase, and I expect the volatility in the markets to
do the same.
The stock market has “climbed the wall of worry” and is at historically high levels even though so
much uncertainty exists. The high stock market levels, in addition to extreme levels of margin debt
around the globe put markets at risk. Margin debt is created by aggressive investors borrowing on
their current investment positions to purchase additional investments. This is called buying on
margin.
Korea’s margin loans recently hit a record 38 trillion Won and their KOSPI stock market index is
experiencing the negative effects of high margin levels and especially AI uncertainty. U.S. margin
debt at the end of the second quarter was quoted at $1.4 trillion, surging leveraged ETF assets
under management was $198 billion, and the return of SPACs signals speculation to me.
The risk is that a sudden drop in the market may cause rampant margin calls, in which case
borrowers must add funds to their account or liquidate their position(s). During market routs, many
margin buyers may be forced to sell their positions at already lower prices causing further
selling, which is bad for all.
In addition to the uncertainties previously mentioned, we can also add in the uncertain interest
rate policy of the Federal Reserve. Changes in Fed policy have a significant impact on markets, and
it appears more than likely that the administration’s desire for lower rates will not materialize.
I remain cautious about adding too much capital to the markets until the stock market has retraced
to more reasonable levels. Once the speculators get washed out of the market, I believe there will
be an opportunity for well positioned investors with a cash balance to become more aggressive.
Again, I believe today that the market will be higher for the year, but there may be near-term
weakness. The investing landscape is changing, and I am excited about the upcoming earnings
reporting season for confirmation of revenue and earnings growth by owned companies and for new
opportunities.
Very truly yours,
Martin L. Yokosawa
Torii® Asset Management, Inc. Landolt Securities, Inc.
9S040 Stearman Drive, Naperville, IL. 60564
Copyright Martin L. Yokosawa. All Rights Reserved
Securities processed by and investment advice provided through Landolt Securities, Inc. Member:
FINRA/SIPC Torii Asset Management, Inc. and Landolt Securities, Inc. are not affiliated companies.
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