What the wise man does in the beginning, the fool does in the end.
Warren Buffett
The first half of 2026 rewarded almost everyone, but it did not reward everyone equally, and the pattern of who won is worth studying. Emerging markets rose 23.8%. Small-cap U.S. stocks rose 22.6%, their best first half since 1991. Value stocks in the Russell 1000 gained 16.2%. International developed markets, measured by the MSCI ACWI ex-US index, gained 13.7%. The S&P 500 returned 10.2%, and the growth end of the large-cap market, the very corner most associated with artificial intelligence, returned 5.3%. Bonds were roughly flat, with the U.S. Aggregate up 0.6%.
We begin with that scoreboard because it complicates the story most investors are telling themselves. The headline says American technology leads and everything else follows. This year’s data says the opposite. And underneath both stories sit fundamentals that are genuinely strong: S&P 500 earnings rose 19% in the first quarter, and analysts expect the next twelve months to be better still. This is not a market resting on nothing, which is exactly why the risk is behavioral rather than fundamental. When the underlying business is good, the mistake is rarely doubting the business. The mistake is paying any price to own it.
When Optimism Turns into Euphoria
There is a difference between optimism and euphoria, and it is not a matter of degree. Optimism pays a full price for prospective growth. Euphoria pays a price that no growth can justify, and then goes searching for reasons. The line between the two is usually visible only in hindsight, but occasionally the market leaves fingerprints.
The clearest set of fingerprints this year is in the options market. For most of financial history, put options have cost more than calls, for a sensible reason: large institutions buy puts as insurance against a crash, and markets tend to fall faster than they rise. Today, the average call option on the Nasdaq costs nearly as much as the average put. That inversion means the buying is no longer coming from institutions protecting themselves. It is coming from speculators betting on the upside, and there are now enough of them, trading furiously enough, to outweigh the insurers. Options that expire the same day they are bought, useless for hedging and useful only for gambling, now account for nearly half of all retail options volume, up from 13% in 2021. Leveraged and inverse exchange-traded funds, products designed to multiply a single day’s move, now outnumber the companies in the S&P 500, and their assets have grown more than fourfold since 2020. The casino has moved to the center of the floor.
The emblem of the moment is SpaceX, which listed in June at a valuation near $1.8 trillion, more than 90 times its annual revenue, while losing roughly $5 billion last year. Within four trading days the stock was up more than 40%, and shortly after, the company agreed to pay $60 billion in shares for an AI-coding firm. Whether 90 times revenue is a great price is a question with a long and instructive history, which we turn to next.
SpaceX, Anthropic, OpenAI: Base Rates Beat Hot Takes
Many of our clients have asked how to gain exposure to the marquee names going public this year. SpaceX has listed. Anthropic and OpenAI are expected to follow. The enthusiasm is understandable. We want to give you something more useful than enthusiasm: a framework.
The framework is called base rate analysis, and it is the single most powerful tool available to an investor who does not have inside information, which is to say, almost everyone. The idea is simple. Before you ask whether a particular investment is special, ask what has historically happened to investments with similar characteristics. The specific story is always vivid: rockets, satellite data centers, artificial general intelligence. The base rate is boring by comparison, which is exactly why most people ignore it, and exactly why it offers an edge. You do not need to know anything about SpaceX’s satellite ambitions to know how stocks priced like SpaceX have historically performed. The reference class does the work.
Consider first the two ways an individual investor can gain access, because both carry the odds against them. The first is buying in before the offering, typically through a special purpose vehicle assembled by a third party. These vehicles are marketed as privileged early access, and they carry fees to match. The trouble is that early access is not the same as good access. In 2016, Morgan Stanley offered its wealth clients a fund called New Riders LP that provided pre-IPO exposure to Uber at roughly $48.77 per share, with a minimum investment of $250,000 and fees of up to 2% of committed capital. The 290-page offering document listed risk factors but included no basic financial statements; clients were asked to take the $62.5 billion valuation largely on faith. When Uber finally went public in 2019, it priced at $45 and fell below $27 within six months. The clients who paid for early access had lost money before the public was even allowed to buy. Morgan Stanley ran similar vehicles for other private darlings that fared far worse. The reason you rarely hear about those is the halo effect: the handful of pre-IPO winners are advertised endlessly, and the losers quietly disappear from the story. Enthusiasm for pre-IPO access is a recurring feature of late-stage bull markets, and the arithmetic rarely changes: the individual investor pays premium fees for the privilege of unfavorable odds.
The second way in is to buy on the day of the offering. Here the disadvantage is subtler. The first-day pop that everyone covets is real, but it accrues almost entirely to those who receive an allocation at the offer price, and allocations flow first to large institutions and the underwriters’ most valuable relationships. Roughly 90% of a typical U.S. offering goes to institutions; retail investors share what is left. SpaceX, unusually, reserved a larger slice for individuals. Even so, when one of our custodians made shares available to clients, the allocation came to 55 shares per account, an amount immaterial to any real portfolio. By the time an ordinary investor can buy a meaningful position in the open market, the pop has already happened, and the base rate has already turned against them.
That base rate for IPOs is concerning. Professor Jay Ritter of the University of Florida has tracked more than 9,000 IPOs from 1980 through 2024. Measured from the first-day closing price and held for three years, the average IPO underperformed the overall market by roughly 20%. Unprofitable companies fared worse than profitable ones. Companies that went public during high-volume, enthusiastic years, years like this one, fared worst of all. And most relevant to today, of the fourteen IPOs in Ritter’s data with over $100 million in sales that went public at more than 40 times revenue, twelve underperformed the market over the following three years. SpaceX went public at more than double that multiple.
We want to be precise about what this does and does not say. It is not a prediction that SpaceX, or Anthropic, or OpenAI, will decline. Any one of them may prove to be the exception, and revolutionary companies do occasionally justify extraordinary prices. What the base rate says is that a stock priced for extraordinary outcomes is a stock where those outcomes have already been priced in. The buyer is no longer betting that the company succeeds. The buyer is betting that the company exceeds the market’s exuberant expectations. A narrative can be entirely correct and still produce a poor investment, because the price paid, not the quality of the story, determines the return.
What If You Knew the Future?
Suppose we removed all the uncertainty. Suppose you were handed tomorrow’s newspaper today and allowed to trade ahead of the news. How would you do?
A group of researchers at Elm Wealth ran precisely this experiment, using old newspapers. Participants were shown real Wall Street Journal front pages from years past, with the market data blacked out, and could bet on stocks and bonds at the prices that prevailed before that day's news hit. In effect, each player held tomorrow's paper. The results were humbling. Roughly half of the participants lost money, and about one in six went bust. When the researchers gave the same advantage to the leading artificial-intelligence models, most over-leveraged their positions and some were wiped out entirely. Only a small group of professional macro traders reliably made money, and their edge had little to do with foresight. What set them apart was how they sized their bets.
The lesson is one we return to often. Foresight is not an edge. Even perfect foresight, it turns out, is not an edge. Behavior is the edge, and specifically the discipline of position sizing and the patience to sit still when the situation does not warrant action. Even if you knew with certainty how the AI story ends, an undisciplined approach to sizing and timing could still ruin you. The correct response to a market that has turned manic is therefore not a dramatic countermove. It is not to abandon equities, and it is certainly not to bet against the mania, because in the famous words widely attributed to John Maynard Keynes, “markets can remain irrational longer than you can remain solvent”. The correct response is to lean toward the parts of the world where prices still make sense.
The Unloved: Where Capital Is Priced More Sensibly
We closed last year by noting that the unloved corners of the market had started to win, and that global diversification had reasserted itself as a practical tool rather than an academic one. The first half of 2026 extended the lesson.
The most sensibly priced opportunities begin at home, in the parts of the U.S. market that the AI trade left behind. Small-cap stocks returned 22.6% in the first half, their best first half since 1991. After years in the shadow of the mega-caps, small companies entered the year cheap. Small companies also earn more of their revenue domestically, which makes them less exposed to the trade frictions that have unsettled multinationals. For now, small caps are where reasonable prices live.
The more telling story is abroad, and it is telling precisely because of what did not happen. International markets have historically depended on two conditions that were both absent this year. A weakening dollar normally flatters foreign returns, and a calm geopolitical backdrop normally invites capital abroad. This year delivered neither. The dollar strengthened and the geopolitical environment deteriorated, with the conflict between the United States and Iran escalating back into active hostilities after a brief truce. Historically, that combination would have punished international equities severely. Instead, international markets, as measured by the MSCI ACWI ex US index, outperformed the S&P 500. When an asset class stops responding to the forces that used to move it, something structural has changed. Part of the explanation is valuation: international and emerging equities remain meaningfully cheaper than their U.S. counterparts, and a decade of global underallocation is slowly reversing. Part of it, we suspect, is the gradual erosion of American financial dominance that we have written about in prior letters, a shift that happens not in a single dramatic moment but at the margins, until it becomes impossible to ignore.
Closing Thoughts
The fundamentals underpinning this market are real, and the euphoria layered on top of them is also real. Both can be true at once. The edge available to us is not a forecast about how the AI era resolves, and it is not a coveted allocation to the next hot offering. Those are the things the market is most eager to sell and least able to deliver. The edge is duller and more durable: knowing the base rate before you act, sizing your commitments with discipline, and leaning steadily toward the places where capital is still priced with some humility. Our work has never been to tell you what the future holds. It is to build portfolios that are honest about the odds, and to keep our heads while the crowd, in Buffett’s phrase, does at the end what the wise did at the beginning.
Thank you for your continued trust and partnership.
Razmig Der-Tavitian, CFA, CAIA
Chief Investment Officer & Managing Partner
Evolve Private Wealth
Please let your financial advisor know if there have been any changes to your financial situation.
Evolve Private Wealth Management, LLC (“Evolve”) is a Registered Investment Adviser. The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon. This content is intended to provide general information about Evolve. It is not intended to offer or deliver investment advice in any way. Advisory services are only offered to clients or prospective clients where Evolve and its representatives are properly licensed or exempt from licensure. Information regarding investment services are provided solely to gain an understanding of our investment philosophy, our strategies and to be able to contact us for further information. All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such. The views expressed in this commentary are subject to change based on market and other conditions. These documents may contain certain statements that may be deemed forward‐looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur. Indices are unmanaged, not available for direct investment, and do not reflect the deduction of fees, transaction costs, or other expenses. Past performance is not a guarantee of future results. Any discussion of prospective investment strategies, opportunities, or potential fund launches is provided for informational purposes only and does not constitute an offer or solicitation to invest in any security. Any such offering would be made only pursuant to formal offering documents, which would include additional information regarding risks, fees, and investment objectives.
