May 2026: It’s (AI)L For One.
It’s been a tale of two quarters so far in 2026. Only two sectors matter, Energy and Tech. For the first quarter, Energy was the top performer in a declining equity market. I was quite content to have an “up quarter” across client portfolios as the broad US equity market declined steadily for 1Q26.
For 2Q26 however, it’s a record bull market reversal and it’s all about Tech. The semi-conductor group exploded higher as demand for memory chips to support the datacenter buildout ramped all at once. Looking back, 50% Energy, 50% Tech has been the ultimate pair for risk positioning for 2026. It’s difficult to allocate new money to either of these sectors right now.
As a group, the Magnificent Seven have been quite boring; AAPL, GOOG and AMZN are the top performers YTD…but weakness in the other 4 names has diluted results (Ticker MAGS). The MAG7 are spending nearly $1+ Trillion on AI initiatives (2025 and 2026 capex totals)…so the MAG7 cash cows are looking thin, issuing debt and now equity (GOOG) to pay a cool $1T for datacenters, memory chips and anything else related to AI.
Energy is only a 3-4% weight of the SP500 – very small. In contrast, The “AI Winners” basket in the SP500 is estimated to be a 40% weight of SP500 (tech, semis and datacenter related stocks). Hence the “(AI)L For One” title…(pronounced Aaa – eye – LLLLLL).
So we’re touching new highs in the SP500 due to the euphoria of the AI build out and just about every other sector of the market is being left behind.
Traditional bond funds continue to be a trap – rates are up, bond funds are down YTD (Vanguard ticker BND and iShares ticker AGG as examples). Buying bonds direct and actively avoiding duration longer than 5-7+ years continues to be smart.
WLA Positioning:
Silo 1 – Money Market and Short-Term Treasuries
For short-term treasuries, yields have been climbing during the Iran war. I’ve been buying the spike in 2-year treasuries in the 3.9% to 4.10% range. Overall, I’m reducing short-term treasury exposure and allocating to Silo’s 2 and 3 as noted below.
Silo 2 – US Equity
No significant changes, a Large Cap bias, Value bias. Also a mix of market cap and equal weight exposures to reduce risk. WLA established a small cap value position in 1Q26. The mutual fund is actively managed with roughly 50 positions, an excellent team and track record out-performing the Russell 2000.
Silo 3 – Satellite Portfolio
Energy, MLPs, Dividend Equity, Gold and Uranium remain. I added an emerging market position in 1Q26 with substantial exposure to semi’s in S. Korea and Taiwan.
Pro Tip:
The emerging market fund WLA selected is only about 100 underlying stocks…it is not the iShares Emerging Market MSCI Index Fund (ticker EEM). I’ll use EEM as an example of what I typically avoid. EEM is about 1222 positions deep…however, EEM and the 100 position fund I chose ARE BOTH roughly 30% exposure to the top three asian semi-conductor stocks (Taiwan Semi, SK Hynix and Samsung). I'm avoiding 1100 junk EM stocks diluting the exposure, I know what I own. Additionally – what is happening to the SP500 is happening to equity indices across the global market – passive flows boost risk – tech is driving performance for many of the passive equity ETFs. So don't presume 1200+ stock ETFs are diversified.
The Charts:
Record amounts of Leverage in Tech-land…
Up and to the Right.
Yikes.
Boom.
More AI.
SP500 Performance by sector.
Not investment advice. Performance figures are sourced from the following ETF links. Above performance figures are not representative of WLA client results, WLA client performance is based on different time periods among other factors. Actual client performance varies based on multiple factors including risk tolerance, when WLA was hired and when positions were established and the deduction of WLA ‘s management fees. WLA client holding period for the above examples varies, do not assume it’s the year to date period for any of the examples provided, it may be longer or shorter. Do not assume every WLA client holds every ETF example, client risk tolerance and when WLA was hired effects portfolio allocations. Read the disclosures on the ETF links provided. Performance listed is for illustration purposes only, not an endorsement to buy or sell. Do you own research and/or discuss with a professional investment advisor. Read full disclosures located in this email and at www.westernlevel.com.
Tickers referenced and their product links:
BND: https://investor.vanguard.com/investment-products/etfs/profile/bnd
AGG: https://www.ishares.com/us/products/239458/ishares-core-total-us-bond-market-etf