The Future is Priced In
By Crest Capital Advisors on June 22, 2026
Dow: 0.71% to 51,564.70
S&P 500: 0.93% to 7,500.58
Nasdaq: 2.43% to 26,517.93
Russell 2000:1.22% to 2,979.77
Bitcoin: 63,100
10 Year Yield: 4.45%
Outperformers: Tech 3.06%, Industrials 2.64%
Underperformers: Energy (6.57%), Real Estate (3.45%), Healthcare (2.95%), Consumer Staples (2.86%)
Despite Wednesday’s hawkish FOMC takeaways, major market indices were able to notch modest gains in the holiday-shortened week. The AI demand narrative returned to the front and center, with another rally in semiconductors and memory driving the indices higher. Additionally, the US and Iran have signed their initial memorandum of understanding, paving the way for final deal talks to be ironed out as the US blockade has been removed and the Strait of Hormuz starts to reopen. Consumers will notice a slight ease at the pump as crude oil trades down with continued peace talks, with gas prices dipping back to levels last seen at the beginning of the war. As geopolitical tensions shift to the back burner, the market can resume focusing on the impending Q2 earnings season, with Wall Street looking for S&P 500 earnings growth to come in near 22%.
One of the defining characteristics of this market has been investors’ willingness to look far beyond the present and focus almost exclusively on what the future might look like. Artificial intelligence remains the clearest example. Capital continues pouring into companies tied to AI infrastructure, autonomous agents, robotics, and next-generation computing, often on the assumption that today’s innovations will reshape entire industries tomorrow. The excitement surrounding SpaceX’s debut this week fits neatly into that narrative. Investors are no longer paying for what a business earns today. They are paying for what they believe it could become years from now. Maybe those expectations will prove justified. Maybe they won’t. But as our meme of the week humorously suggests, anyone still insisting that valuation should begin with discounted cash flows and current fundamentals is increasingly being treated like the person who showed up to a rocket launch carrying an accounting textbook.
Market Observations Post SpaceX
What’s the most important observation we can lead with this week? Well, for all the excitement that the SpaceX IPO brought to the market last week, we find it notable that the two indices to actually make new highs were the equal-weight S&P 500 (RSP) and the small-cap Russell 2000 (IWM). The rotational spirit that has driven this market remains alive and well, as the expansion in 20-day highs over recent days for sectors like Financials, Consumer Discretionary, Healthcare, and Materials reveals.
Peak Passive
When three passive funds essentially become the market, it is reasonable to ask whether prices are still being set by investors evaluating businesses or by flows chasing benchmarks. With the three largest S&P 500 ETFs now controlling more than $2.6 trillion combined and Vanguard’s VOO recently surpassing $1 trillion in assets, passive investing has become one of the most powerful forces in financial markets. The original promise was simple: lower fees, broad diversification, and efficient exposure to the market.
The irony is that the success of passive investing may be creating the very concentration risk it was designed to avoid.
Unlike active managers, passive funds do not ask whether a stock is cheap or expensive. They simply buy more of whatever has already become larger. As a company’s market capitalization increases, its weight in the index rises. As its weight rises, passive funds buy more shares. That additional buying pressure can push prices even higher, resulting in yet another increase in index weight.
The process becomes self-reinforcing.
In moderation, this is not a problem. But when trillions of dollars are linked to capitalization-weighted benchmarks, the feedback loop becomes increasingly powerful. Performance attracts flows. Flows increase weights. Higher weights attract more flows. At some point, price itself becomes a source of demand.
This helps explain why the largest companies continue getting larger and why market leadership has become increasingly concentrated in a relatively small group of technology and AI-related stocks. The market is not necessarily voting that these companies are worth more. In many cases, it is simply allocating more capital to them because they have already become larger.
The efficient market crowd will undoubtedly object here, but there is a growing distinction between price discovery and price following.
Historically, diversification meant spreading risk across many businesses, sectors, and economic drivers. Today, many investors believe they own a diversified index fund when, in reality, a significant portion of their portfolio is increasingly tied to a handful of technology companies. As concentration rises, the index itself becomes less diversified, even while maintaining hundreds of constituent holdings.
The paradox is that passive investing reduces individual security risk while potentially increasing systemic risk. When everyone owns the same stocks for the same reason, diversification can become more fragile than it appears.
None of this suggests passive investing is broken. It remains one of the most effective wealth-building tools ever created. But like most successful innovations, its widespread adoption is beginning to create second-order effects that deserve attention.
After all, if passive investing continues to concentrate capital into the same handful of companies, investors may eventually discover that owning “the market” and owning a few very large stocks have become nearly the same thing.
Welcome Warsh
The first FOMC meeting under Chairman Kevin Warsh produced exactly what investors expected and almost exactly what they did not.
As anticipated, the Fed left rates unchanged and delivered a much shorter policy statement, consistent with Warsh’s long-standing preference for simpler communication and less forward guidance.
The surprise came from the updated “dot plot,” where the median projection shifted modestly higher and now implies slightly tighter policy than markets were expecting just a few months ago. Investors interpreted the change as hawkish, helping push the dollar to new highs and further flattening the yield curve. We remain unconvinced.
The Fed appears far more concerned about energy-driven inflation than the underlying inflation trend actually warrants. Core CPI continues to run near levels consistent with the Fed’s target, while much of the recent inflation pressure can be traced directly to higher oil prices and geopolitical developments. Chairman Warsh himself has repeatedly argued that one-time geopolitical shocks are not the same thing as sustained inflation.
For that reason, we continue to believe there will be no rate hikes this year. In fact, current market pricing suggests investors are assigning meaningful odds to additional tightening. We believe that creates an attractive opportunity for those willing to take the other side of the trade. If inflation continues to moderate and energy prices stabilize, today’s hawkish interpretation could look very different by year’s end.
The market may have heard “hawk”. We heard “wait and see.”
Economic Funnies
Crazy Stat(s) of the Week
- Household cash as a percentage of total financial assets continues to climb, despite the booming stock market and enthusiasm around artificial intelligence.
- In June, a record 80% of investors responding to the BofA Fund Manager Survey think “long global semiconductors” is the most crowded trade.
Quote of the Week
“What we’ve given markets is a new chapter for the central bank, some fresh thinking, we’ve given a commitment to ask ourselves hard questions so that we can deliver on the promises we have made before.”
– Kevin Warsh, Federal Reserve Chair
Calendar of Events to Watch for the Week of June 22nd
As markets approach quarter end, the lack of corporate news events tends to lend itself to ‘other’ factors influencing markets. From geo-politics, to month and quarter-end fund flows, we anticipate an elevated level of volatility across asset categories as large institutions re-position portfolio’s ahead of quarter end. There isn’t much surprising expected in the way of economic data, and while pundits will continue to try to de-construct this week’s Fed meeting outcome, we continue to suggest there is very little there to change the path of markets.
Monday 6/22 – No major US economic reports due out today.
Tuesday 6/23 – S&P Global PMIs for June are expected to be roughly in line with the prior month, with Manufacturing at 54.5 v. 55.1 and Services at 51.2 v. 50.7.
Wednesday 6/24 – May New Home Sales are expected to post a 5.6% increase, albeit off of a fairly low base rate of sales.
Thursday 6/25– The main event of the week will be the release of the May Personal Consumption Expenditure (PCE), the Fed’s favored indicator of inflation. Economists are expecting a 0.37% monthly increase in the Core (Ex-Food/Energy). May Durable Goods are expected to post a 0.8% monthly increase. The final reading of Q1 GDP is expected to remain unchanged at 3.5% quarter-over-quarter.
Friday 6/26 – US Wholesale Inventories for May are expected to increase by 0.6%, the same rate as last month.
Source: MarketWatch / FactSet (June 2026)
