At our May 5th By Your Side Chat, William J. Urbanik welcomed special guest Dan Braz from State Street Global Advisors for an in-depth discussion on one of the defining themes shaping today’s markets: rotation.
As Bill explained early in the conversation, this is not a market defined by a single direction. Instead, leadership is shifting across sectors, industries, and themes — creating both challenges and opportunities for investors. Beneath the surface of headline volatility, a more important story is unfolding: a broader expansion of market participation and earnings growth.
The discussion focused on what is driving these shifts, how SHC Wealth Management is responding through active portfolio positioning, and why disciplined diversification continues to matter in today’s environment.
A Resilient Economy Continues to Defy Expectations
One of the dominant themes of the conversation was the remarkable resilience of the U.S. economy.
Dan Braz noted that over the last several years, investors have navigated COVID disruptions, inflation spikes, aggressive interest rate hikes, geopolitical conflicts, tariff concerns, and volatility in oil markets — yet the economy has continued to grow steadily.
Despite concerns surrounding recent tensions in the Middle East and spikes in oil prices, markets recovered quickly from the spring pullback. According to the discussion, that resilience reflects several important structural strengths:
- Strong corporate earnings
- A more service-oriented economy
- Increased energy independence
- More normalized monetary policy
- Continued innovation across industries
Importantly, both Bill and Dan emphasized that corporate earnings — not speculation alone — continue to support market growth. While the “Magnificent Seven” technology companies remain influential, earnings growth is now broadening across additional sectors and smaller companies, creating what Dan referred to as healthier “market breadth.”
That shift matters because sustainable bull markets historically rely on broad participation rather than a narrow concentration of leadership.
Inflation and Interest Rates Remain Key Drivers
Another major focus of the conversation centered around inflation and Federal Reserve policy.
While inflation has fallen significantly from its post-pandemic peak near 9%, Dan explained that inflation appears to have stabilized closer to 3% rather than the Federal Reserve’s preferred 2% target. That distinction matters because additional progress toward lower inflation could pave the way for future rate cuts.
Bill highlighted an important point many investors may overlook: the economy and markets have remained strong even without a return to ultra-low interest rates.
Rather than viewing higher rates entirely negatively, Bill discussed how maintaining more normal interest rate levels gives the Federal Reserve greater flexibility in the future should economic conditions weaken. In other words, the Fed still has meaningful tools available if additional stimulus becomes necessary later.
Dan also noted that today’s interest rate environment is far more historically normal than the near-zero-rate environment investors experienced for much of the past decade.
Why Sector Rotation Matters
A core part of SHC Wealth Management’s investment philosophy involves identifying areas of stronger market leadership and intentionally allocating additional exposure toward those themes.
Bill explained that SHC’s approach is not about abandoning diversification. Instead, it is about enhancing diversification through tactical overweighting in sectors demonstrating stronger momentum, earnings trends, and long-term opportunity.
That philosophy has played an important role in portfolio positioning throughout 2026.
During the discussion, Bill shared that:
- The S&P 500 was up roughly 5% year-to-date
- SHC’s equity model had modestly outperformed the broader market
- Thematic catalyst models focused on sectors and themes were significantly outperforming the S&P 500
- The individual stock model had generated particularly strong relative returns
Bill emphasized that these results reflect a deliberate process of combining broad asset allocation with targeted exposure to sectors and industries showing stronger leadership.
Artificial Intelligence Is Impacting More Than Technology
One of the most insightful portions of the discussion centered around artificial intelligence and the industries benefiting beyond traditional technology companies.
Dan cautioned investors against focusing solely on the most obvious AI-related names. Instead, he discussed the importance of looking “downstream” at the broader ecosystem supporting AI growth.
Two areas highlighted were particularly notable:
Real Estate and Data Infrastructure
AI requires massive computing power, which in turn requires enormous data centers and server farms. Many of these facilities are owned through real estate investment structures such as REITs.
As demand for computing infrastructure expands, certain real estate segments may benefit indirectly from the continued growth of artificial intelligence.
Utilities and Power Generation
Another surprising beneficiary has been the utilities sector.
AI data centers consume tremendous amounts of electricity, creating rising demand for energy infrastructure and power generation capacity. Dan noted that utilities — traditionally viewed as slower-growth investments — have become increasingly important participants in the AI buildout due to this growing demand for electricity.
This broader perspective reinforces an important investment principle: major innovation trends often create opportunity far beyond the most obvious headline companies.
Defense and Aerospace Continue to Gain Momentum
The conversation also explored growing opportunities within aerospace and defense.
Dan discussed how increased global defense spending — particularly across Europe — is creating a long-term investment theme rather than a short-term trend. Several European nations are significantly increasing military investment, and many of those expenditures ultimately benefit U.S.-based aerospace and defense companies.
Bill noted that SHC Wealth Management has maintained meaningful conviction in this area and has positioned client portfolios accordingly as the theme has strengthened.
The team believes these developments represent part of a broader structural shift likely to unfold over many years.
Active Management in a Rotating Market
As the discussion concluded, Bill reinforced the importance of remaining proactive in today’s environment.
Markets are evolving. Leadership is shifting. New opportunities are emerging across sectors and industries that many investors may not initially recognize.
That is why SHC Wealth Management continues to actively review portfolio positioning, meet regularly with institutional partners like State Street, and make tactical adjustments where appropriate.
Bill also shared that the firm is currently evaluating additional commodity exposure and making updates within certain portfolio models to reflect evolving market conditions.
Above all, the conversation reinforced a consistent theme that has defined these By Your Side Chats: successful long-term investing requires discipline, perspective, collaboration, and adaptability.
In markets defined by rotation rather than uniform growth, understanding what is happening beneath the surface matters more than ever.
*Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.
Asset allocation does not ensure a profit or protect against a loss.