July continued the trend from June, with increased volatility across asset classes. The benchmark S&P 500 eked out a slight +0.08% gain at the very end of the month. The Dow Jones Industrial Average was also slightly higher, up +0.34%, while the technology-heavy NASDAQ Composite index lost 2.55%. Both the S&P 500 and the Nasdaq Composite are down over the last two months as market participants continue to fade AI-related names. Precious metal gold continues to come under pressure as the market projects a near-term rate hike.
Following the FOMC’s July 29 rate hold, Fed Chairman Kevin Warsh adopted a distinctly hawkish stance. Sentiment-tracking models indicated this marked a further shift toward a more hawkish position, extending a trend observed since the beginning of the year. Warsh characterized the Fed as being “in the performance business,” emphasized that there is “no soft inflation target,” and asserted that “this Fed will not waver,” signaling officials’ readiness to act if necessary. However, the significant increase in long-term yields indicates that, although investors acknowledged this resolve, they remained unconvinced that the Fed would implement sufficient policy tightening to control inflation. This response highlights a disconnect between the Fed’s communications and market expectations.
This skepticism appears warranted based on recent data. Several trimmed-mean inflation indicators, which Warsh references as benchmarks, reflected reduced price pressures in June. Core PCE inflation declined to 3.3% year-over-year from 3.4% in May. The Dallas Fed’s trimmed mean PCE decreased to 2.2% from 2.4%, while a bias-adjusted trimmed mean fell to 2.5% from 2.8%. The Cleveland Fed’s median PCE, median CPI, and trimmed-mean CPI also declined. Part of this decrease results from excluding a strong June 2025 reading from the year-over-year calculation. Although none of these measures have reached the Fed’s 2% target, the widespread deceleration indicates that underlying inflation did not accelerate in June. These findings support the FOMC’s patient stance, even as Warsh maintains a firm rhetorical position without immediate policy action.
Employment costs remained elevated in the second quarter of 2026; however, the year-over-year trend continues to indicate moderating wage growth. This development is likely to reassure policymakers that the labor market is not contributing significantly to inflationary pressures. The Employment Cost Index increased by 0.9% for the quarter, consistent with the first quarter’s pace and exceeding both the earlier forecast and the 0.8% consensus. The annual growth rate remained at 3.4%. In contrast to the previous quarter, wages were the primary factor behind the increase, whereas benefits had been the main contributor in the first quarter.
Private wages and salaries, which more accurately reflect labor market wage pressures than benefits, increased by 0.9% in the second quarter. This represents an acceleration from 0.7% in the first quarter and is the fastest pace since the second quarter of 2025, indicating an annualized rate near 3.5%. Year-over-year growth slowed to 3.1% from 3.4%, primarily because the strong reading from the second quarter of 2025 is no longer included in the comparison. Private benefit costs also rose by 0.9% this quarter, a decrease from 1.3% in the first quarter. Nevertheless, benefit growth outpaced wage growth over the year, at 3.8% versus 3.1%, and health insurance costs increased by 6.0%, up from 5.7% in the first quarter.
The deceleration in annual growth aligns with other reported wage measures. Average hourly earnings increased by 3.5% year-over-year in the second quarter, compared to 3.6% in the first quarter. Additionally, a regional wage tracker declined to 3.6% from 3.9%. Overall, the quarterly increase in private wages indicates that labor costs strengthened in the second quarter. While this development may attract policymakers’ attention, the downward trend in the annual rate supports the view that the labor market is not a primary driver of inflation. Please see the following updates on existing positions held at the firm:
Private Bancorp of America (Ticker: PBAM)— Private Bancorp of America delivered strong Q2 2026 results, with net income of $2.27 per diluted share, up from $1.77/share a year earlier. Profitability metrics remained robust, with return on average assets of 1.99% and return on average tangible common equity of 18.90%, supported by a net interest margin holding above 5% at 5.18% and improving credit quality as nonperforming assets fell to 1.50% of total assets. Alongside earnings, the company announced its intent to uplist to the NASDAQ Global Select Market, as part of its transition to becoming a public reporting company. We believe this event will be well received by the markets and will force passive investment vehicles like ETFs to buy shares of our bank. We will look to use this forced buying as our exit capital for a successful investment.
TransUnion (Ticker: TRU)—TransUnion delivered a strong Q2 2026, with organic constant currency revenue up 10% and Adjusted Diluted EPS growth of 13%. Growth was broad-based, led by U.S. Financial Services up 18% (10% ex-FICO royalties), Emerging Verticals up 9%, and International accelerating to 6% organically with standout results in Canada, India, and the newly acquired Mexico bureau, which is outperforming its acquisition case. On the back of this outperformance, management raised full-year 2026 guidance to 8-9% organic constant currency revenue growth and 11-12% Adjusted Diluted EPS growth, while continuing share repurchases and reducing leverage to 2.6x. We continue to believe that this company will not be impaired by developments in A.I. and that the sell-off that occurred earlier this year (before we invested) will rectify itself in coming quarters.
Star Bulk Carriers (Ticker: SBLK)— Star Bulk Carriers posted solid Q1 2026 earnings of $0.52 per share, driven by a fleetwide TCE of $18,493 per vessel. The company maintained disciplined capital returns, declaring a $0.50 per share dividend under its policy of distributing 100% of free cash flow, while also repurchasing about 1.9 million shares and ending the period with roughly $432 million in cash against $874 million of debt. Management struck an optimistic tone on the dry bulk market outlook, citing favorable supply dynamics, growing long-distance Atlantic trade, and tightening environmental regulations.
Best Regards,
Stash J. Graham