THE GILDED PILGRIM

For the first time in history, the S&P 500 breached the 7,000 level this week — a psychological milestone that seemed distant just two years ago when the index bottomed near 3,500 during the 2022 bear market.

The index couldn't hold that level, closing Wednesday at 6,978 after the Federal Reserve announced its widely expected decision to keep interest rates unchanged at 3.5%–3.75%. But the message was clear: American equities continue to defy skeptics.

The Fed Stays the Course

The Federal Open Market Committee voted 10-2 to maintain current rates, citing "somewhat elevated" inflation alongside a "solid pace" of economic expansion. Gone from the statement was previous language about downside risks to the labor market — a sign the Fed sees employment stabilizing.

At his press conference, outgoing Chair Jerome Powell struck a measured tone, noting "some tension between employment and inflation, but less than it was." When asked what advice he'd give his successor, Powell delivered a pointed message that will resonate beyond monetary policy: "Stay out of elected politics."

Gold's Historic Run

Perhaps the week's most striking move came from precious metals. Gold futures surged past $5,300 an ounce — a level that would have seemed fantastical just a few years ago. Silver joined the party, jumping 10% to $117 per ounce.

The catalyst? A U.S. dollar index hitting four-year lows at 96.39, combined with persistent global uncertainty. For investors, this raises an important question: Is gold telling us something that equity markets aren't?

Mega-Cap Earnings: The Tale of Three Giants

The week's earnings parade brought clarity — and divergence — to the AI investment thesis:

Microsoft's stumble is instructive. The company beat analyst estimates on both revenue and earnings — yet shares fell 7% as cloud growth decelerated. In this market, meeting expectations isn't enough. Investors want acceleration, particularly in AI-related segments.

As Deepwater Asset Management's Gene Munster observed: "For someone who is positive on AI, this is like an all-you-can-eat buffet of good news." The capital expenditure increases across these companies signal that the AI buildout is accelerating, not slowing.

Healthcare Under Pressure

Not all sectors shared in the optimism. UnitedHealth and Humana both plunged more than 20% earlier this week after the Centers for Medicare and Medicaid Services proposed raising insurer payments less than expected for 2027. This is a reminder that policy risk hasn't disappeared — it's just hiding in different corners of the market.

The New Interest Rate Reality: What "Higher for Longer" Actually Means for Your Portfolio

Remember when markets were pricing in six rate cuts for 2024? Then four? Now, as we settle into 2026 with rates at 3.5%–3.75%, we've arrived at a fundamentally different interest rate regime than the one that shaped the previous decade of investing.

Understanding this shift isn't academic — it has practical implications for how you should think about your portfolio.

The Old World vs. The New

From 2009 to 2021, investors operated under an implicit assumption: rates would stay near zero, and any economic weakness would be met with aggressive Fed easing. This created a "buy the dip" mentality and pushed investors further out on the risk spectrum in search of yield.

That world is gone. Today's Fed has made clear that their inflation-fighting credibility matters more than short-term market comfort. Even with Powell departing, this institutional shift appears durable.

What This Means in Practice

1. Cash and short-term bonds are now real investments.

With the 10-year Treasury yielding 4.25%, fixed income actually provides meaningful income for the first time in over a decade. This isn't just about safety — it's about opportunity cost. Every dollar you put into speculative investments now competes against a guaranteed 4%+ return.

2. Valuation matters again.

When money was free, investors could justify almost any price for growth stocks. Now, the cost of capital is real. Companies need to demonstrate not just growth potential, but a clear path to generating returns that exceed their cost of capital. Microsoft's post-earnings decline — despite beating estimates — illustrates this new scrutiny.

3. Quality over speculation.

In a zero-rate world, the penalty for holding speculative positions was minimal. Today, unprofitable companies face real financing costs. This favors businesses with strong balance sheets, consistent cash flows, and proven competitive advantages. The 32 stocks hitting 52-week highs this week tell the story: Johnson & Johnson, Chevron, Northrop Grumman, Micron — established companies with tangible moats.

4. The bar for "alternative" investments is higher.

With 4%+ available from Treasury bonds, anything marketed as an alternative needs to clear a much higher hurdle. If a strategy can't demonstrate consistent returns meaningfully above the risk-free rate, what exactly is the investor being compensated for?

The Contrarian Case for Equities

This might sound like a bearish case for stocks. It isn't.

UBS maintains their 7,700 target for the S&P 500, and the reasoning is sound: corporate earnings continue growing (S&P 500 earnings are tracking 8.9% above last year), the economy remains resilient, and AI-driven productivity gains are beginning to materialize in company financials.

The key insight is this: higher rates don't make equities unattractive — they make equity selection more important. In a world where mediocre companies can't be saved by cheap financing, the gap between winners and losers will widen.

Positioning for This Environment

Consider these principles:

• Hold meaningful cash or short-term fixed income — not as a timing call, but as a permanent allocation that provides optionality
• Favor companies with pricing power, strong balance sheets, and proven ability to generate free cash flow
• Be skeptical of narratives that require "rates coming down" to work
• Think longer-term — short-term volatility creates opportunities for patient investors

The S&P 500 hitting 7,000 in this environment isn't a fluke. It's evidence that quality companies can thrive regardless of where rates settle. Your job is to own them.

In eight words, the outgoing Fed Chair delivered a masterclass in institutional thinking.

Powell's tenure was marked by unprecedented challenges: a global pandemic, the fastest rate-hiking cycle in decades, and persistent political pressure from both parties. Through it all, he maintained a consistent message: the Fed's job is to pursue its dual mandate of price stability and maximum employment, not to optimize for election cycles or market sentiment.

For investors, this principle translates directly: your investment decisions should be independent of your political preferences.

Studies consistently show that investors who adjust portfolios based on which party holds power underperform those who stay the course. Markets have risen and fallen under both parties, often in ways that confound partisan expectations.

The S&P 500 hitting 7,000 this week isn't a Republican achievement or a Democratic one. It's the result of American companies innovating, competing, and compounding — activities that transcend electoral politics.

As you evaluate your portfolio in the weeks and months ahead, ask yourself: Am I making this decision based on fundamentals, or am I letting political sentiment cloud my judgment? Powell's parting wisdom applies to all of us.