11 Aug 11th August 2026

Markets Year to Date

Let’s start with the war. Because I am over it.

Who does it feel like is winning this war? Does it sound like Iran are defeated?

Last week Trump said a deal would be signed on Tuesday or Wednesday. The S&P500 index jumped almost 6% in just four days around this news.

But Tuesday and Wednesday came and went with no sign of a deal. The market did not care though. Up 120 points when Trump says a deal is near. Down 10 points when no deal appears. This lopsided action tells you all you need to know.

The war is of no concern. Markets are not worried at all.

Trump needs it over quickly because the mid-terms are coming in a couple of months. I can’t see how the US extricates itself from the Strait other than Trump saying they have done what they need and just leaving.

They have achieved nothing. There already was an agreement in place that Iran would not pursue Nuclear armament. They ignored it anyway. They will continue to ignore it.

But it has given Iran the idea to charge a fee for tankers going through the Strait. They say a deal with Oman to make this happen is close.

At this stage I believe them more than Trump.

Anyway, the whole point here is – do not concern yourself with headlines about the war. It is all over and done and the market is only reacting positively anyway.

I can’t say for certain why the market decided last week was the time to add 6%. But I can tell you why.

Stock prices go up because predictions of future earnings increase or because investors have more confidence in the future.

Because Q2 earnings have been so strong, analysts have increased the next 12 months expectations by 14% more than they were at the start of the year.

The S&P500 is now up 13.3% for the year.

Any co-incidence there? No. 12 month forward earnings up 14%. Index up 13.3%.

Therefore, to see further gains from here, we either need investors to gain more confidence and be willing to pay higher multiples, or predicted earnings to continue to increase.

Confidence might be hard to achieve with the new, uncertain, Fed Policy, higher long-term rates, the continuing war and the fact inflation has been persistently higher than 3% since the pandemic in 2020.

Therefore, I would expect to see more moderate gains over the next few weeks. I doubt we will get any kind of serious dip but any dip is a buy and I remain confident of US stocks at this point.

Thinking about inflation. It will not come down. Take a look at this

M2 money supply is a broad measure of the total money circulating in an economy.

If you keep adding money to an economy it devalues the money that is already there and then you need to use more money to buy the same thing. Otherwise known as inflation.

New Fed Chair Warsh says he will get inflation down. The Fed has two jobs. Maximum employment and stable inflation (widely understood to mean 2%). Warsh has the luxury of a strong economy so he will increase rates to try and control inflation. My bet is at the September meeting. It won’t make a difference though. Inflation will not come down.

It isn’t only the US with this problem. Australia is in the same boat.

When you see this is it any wonder our house prices have gone up so much and we have an affordability problem? Or why inflation is at 3.8%?

Until the government stops printing money nothing will change. They won’t do that though as they want to stay in power so Albo can receive his (highest in the world) salary.

All of which means – you absolutely must be invested. Either in hard assets or in growing companies. If not, you are guaranteed to be going backwards.

So where do you put it?

AI or anything related to AI.

I have just finished an excellent book. The Infinity Machine. It is about the guy who started AI, Demiss Hassabis. I read it to try and learn how AI does what it does and I feel I have a much better understanding now. It is an excellent read and I can highly recommend it to anyone interested.

It got me thinking about what type of company will be the long-term winner.

I don’t think it will be the chip-makers like NVidia. In fact, I believe their run is just about over. They have seen tremendous gains because of the demand for their chips. But this will peter out.

There is a finite number of data centres and chips needed. Once they are built then we are just going to enter a replacement cycle.

In addition, there is a physical limitation on how thin and powerful they can make these chips. At some point the latest chips will not be that much better than the current ones.

This is why NVidia only trades on a PE of 19. The market is saying, future growth will not be different to the average company in the index. Therefore, future share prices will not be any different either.

Consider IBM as a comparable example. It made computer hardware at the start of computers. NVidia makes AI hardware at the start of AI.

In 1985 IBM was the most valuable company on the market. The share price was about $35. Then it started to fall as increased competition reduced its market dominance. The stock price did not exceed that $35 again until 1997. 12 years later.

Nvidia’s stock price has not really changed for 9 months.

Hardware companies are never the ones to truly benefit from new technology, long-term.

The real long-term beneficiaries of AI will be all the other companies. All the Industrials and Health-Care and Financials. These companies will use AI to increase productivity, increase profits and do more.

It is already happening. This is from my favourite FactSet earnings report

Just look at the speed of that increase. 15% is basically the same as the post-pandemic era with its massive fiscal and monetary stimulus. It is truly outstanding. It is difficult to overstate just how unusual 15% is.

A new Accenture report reveals that more than two-thirds of C-suite executives say agentic AI has delivered greater-than-expected productivity gains for their employees. Roughly the same proportion of workers say they are more satisfied with their jobs as a result.

At the same time, 82% of C-suite leaders told Accenture they plan to increase their AI investments. And 78% of corporate leaders say they expect their employees’ jobs to change dramatically in the next year, in part because of AI agents

So maybe I was wrong earlier. Maybe analysts can continue to increase earnings because AI improvements are coming fast.

Maybe we are just at the start of another leg higher.

To put it another way, I certainly would not want to be short in this environment.

Warning

Stock values can go down as well as up. It is possible to lose 100% of your investment in a stock. Any advice given by Capital 19 is general advice only and does not take your personal circumstances into account and might not be suitable for you.