I am proud and humbled as the new Chairman and Chief Investment Strategist for Costal Bridge Advisors. I commit to remaining tireless, curious and courageous as an investor on your behalf. Furthermore, I revel in the experience and dedication of our expanded investment team and look forward to promoting them and their ideas within your inboxes. It’s a joy to work with such talented individuals. I could not be more excited. Lastly, earnings season begins next week. The AI providers and suppliers have much to prove. While everyone looks there, we will focus more on the overlooked for indications of where this market may move next.
I am proud to write to you today as the new Chief Investment Strategist for Coastal Bridge Advisors. Over the last 25 years I have been writing as the Chief Investment Strategist for Waddell & Associates. Those who have journeyed with me at Waddell & Associates will recognize the voice but not the graphics (let me know what you think!). Those who have not journeyed with me will recognize the graphics but not the voice (let me know what you think!). So, before introducing the newest cohort to my market perspectives, perhaps I should introduce myself.
Like nearly all Generation X money managers, my investment career began with the Beckett Baseball Card monthly. The profound value movements in my Don Mattingly and Darryl Strawberry cards fascinated me, and opened conversations with my financial father about risk, reward, momentum, value, and quality (he used his favorite player Willie Stargell to explain quality). After realizing I didn’t have the talent to be a pro football player or a studio guitar player, I graduated from Sewanee with a degree in economics and went to work for Charles Schwab. Over my brief career at Schwab, I rose from answering the phone in Phoenix to working within the strategy group in San Francisco. Recognizing more education was needed, I graduated with an MBA in finance from Babson in 2000 after building a team to manage a portion of the school’s endowment. Like all twenty-somethings at the time, I levered the tech bubble to turn $5,000 in my IRA into $100,000 and back into $2,500—a useful lesson for today. Upon graduation, I reconnected with my father to help build a $200 million asset management business into a $3 billion wealth management business. Core to that process was constructing outlooks and portfolios to help clients achieve the rate of returns called for by their financial plans. While I am proud of the investment results we achieved over the last 25 years, real client success also requires dynamic financial plans and compelling communication. To punctuate with the latter point, I created a weekly email cadence sharing our macro-economic and macro-market observations to instill accountability and provide clarity. That’s the purpose and spirit of what you will now receive.
Markets change dramatically over time. By this, I am not referring to volatility but structural evolutions that require observation and dynamic response. When my career began, the markets functioned on fundamental rigor and individual stock research. I began as a stock picker. By 2000, Wall Street seemed to have figured out how to improve return probabilities by packaging stock pickers into mutual funds. I became a picker of stock pickers. Wall Street improved return possibilities further through the proliferation of low-cost passive funds and factor-based investments. I became more macro-oriented positioning portfolios for investable trends and oncoming themes. Wall Street has recently turned its attention to improving after-tax returns. We have begun incorporating these strategies. Point is, it’s not enough to analyze trends in the economy and securities, strategists also must analyze trends within the industry and their reflexive properties. The key to my role isn’t having the answers, it’s knowing which questions to ask to support the pursuit of compounding rates called for by our client’s financial plans. Remaining open, curious and nimble anchors my philosophy and has improved outcomes and lifestyle durability for our family of clients. Lastly, predicting the future is a messy, messy business. In this work, the goal is simply to be right more than you are wrong. Ego is what kills all great investors. Complex markets require honest humility.
If you have come this far, you may not have much capacity left, so I will make this brief and preview content we will share with you in our 2026 Halftime Report. DISCLAIMER: I had a business mentor who said “cite your source” after every declaration I made, hence my long-run obsession with charts and PowerPoints. Expect many!
The US is experiencing a technological revolution on an historic scale:
Five dollars of every $100 dollars generated within this economy goes to fund additional AI capacity. This historic capital investment cycle has produced historic returns for investors. Over the past one-, three-, and five-year periods the S&P 500 has returned 22%, 21%, and 13% respectively, on an annualized basis. On a trailing 10-year basis, the returns rank in the 84th percentile of all 10-year US stock returns chronicled since recordkeeping began:
If the economy continues to grow, and corporations continue to translate that growth into earnings, this bull market’s continuance has a chance. The good news is that analysts have upgraded their earnings growth expectations for Q3 to well above 20%:
The bad news is that high expectations lower the bar for disappointments. But even if earnings growth disappoints (which we suspect it may), markets should remain supported by above average earnings overall. Furthermore, earnings breadth has spread well beyond AI providers and suppliers. Consider the percentage of S&P 500 companies with positive 12-month changes in forward earnings estimates:
In this environment of high expectations and high earnings participation, investors could benefit by rotating into sectors with lower expectations. Consider the following return comparison between the Magnificent 7, the Superlative Semi’s, Hated Healthcare and Boring Banks over the past month:
While all four have risen, the high expectations Magnificents and Semis have handily trailed the low expectations of Banking and Healthcare. This does not suggest that the run in AI providers and suppliers is over, only that in earnings environments this diversified investors should consider… the overlooked.
Enjoy the rest of your weekend!
-David
Sources: Ycharts, Yardeni Research, Reuters, LSEG, Barry Ritholtz, BEA, Federal Reserve Bank of St. Louis
This communication and its contents are for informational and educational purposes only and should not be used as the sole basis for any investment decision. The information contained herein is based on publicly available sources believed to be reliable but is not a representation, expressed or implied, as to the accuracy, completeness, or correctness of said information which may include data, opinions, or commentary obtained from third-party sources believed to be reliable; Third-party sources are not affiliated with, and do not endorse, this material. Forward-looking statements, forecasts, and estimates reflect current views and expectations and are subject to change. Actual results may differ materially from those expressed or implied. References to political figures or policies are for informational purposes only and do not represent an endorsement by Coastal Bridge Advisors. Any forward-looking statements reflect current opinions and assumptions and are subject to change without notice; actual results may differ materially. Any references to market indices, benchmarks, sectors, or economic data are provided for illustrative purposes only and are not intended to imply that any client account or investment strategy will achieve similar results. Indices are unmanaged and cannot be invested in directly. Comparisons to indices or benchmarks may not reflect the fees, expenses, investment objectives, or risk characteristics of actual portfolios. Past performance does not guarantee future results. Coastal Bridge Advisors may use artificial intelligence tools to help generate or summarize content; all outputs are reviewed by our team for accuracy and relevance.