The stretch since we last wrote is unusually good raw material, because the same set of facts supports two of the most powerful and opposed ways of thinking about markets. One is the efficient-markets tradition that underpins how we build portfolios: prices aggregate information, you can’t reliably time them, and discipline beats prediction. The other is the behavioral tradition associated with Robert Shiller: valuations can detach from fundamentals on the back of a compelling story, and starting prices shape long-run returns. The honest read of this market is that both lenses are describing something real right now. Here is the tape through each.
Lens One: Prices as Information (the Efficient-Markets View)
Strip away the drama and the spring was a near-perfect demonstration of markets doing their job. The Iran conflict was a genuine shock; prices fell hard and fast as oil ran from roughly $57 to a peak above $110. Then, crucially, the market processed the information rather than panicking on it. The shape of the inflation-swap curve showed traders reading the energy spike as a one-off level shift, not the birth of a new inflation regime. As that judgment set in, equities looked through the shock and began recovering well before any deal was signed. The S&P bottomed at 6,316 on March 30 and has since made fresh record highs above 7,600.
The timing lesson is the uncomfortable one. The recovery didn’t wait for clarity; it began on an offhand remark that the war might end “in two or three weeks,” and the gains arrived in a handful of unpredictable jumps tied to de-escalation headlines. An investor who tried to wait for the all-clear missed the move. The blunt version, as the financial press has noted: an investor who ignored every dramatic moment since early 2025 and simply held the index is up roughly 30%. You cannot reliably step out and back in around events whose resolution is, by definition, news.
The bond market makes the same point in a subtler register. Through mid-May, short Treasury yields tracked inflation expectations almost exactly. Then they decoupled: inflation expectations eased while yields stayed up, and through June they rose further. A hot May inflation reading (4.2% year over year, a three-year high, reported in June), a strong jobs report, and a hawkish first meeting from the Warsh Fed pushed the two-year Treasury to 4.24% and the ten-year to 4.51% (the thirty-year sits near 4.95%), with the two-year now at its highest of the year. Nothing irrational happened. The market simply absorbed a new and more important piece of information: a Warsh-led Fed that won’t ease, and may tighten. Yields are high now because of the Fed’s reaction function, not the war. That is prices efficiently repricing the thing that actually matters.
And the cleanest illustration of all is inside the value portfolio. A systematic value process holds whatever is cheap relative to fundamentals. It doesn’t forecast winners. Last year that meant owning beaten-down, low-price-to-book memory and storage names. This year those names delivered some of the largest earnings surprises in the market and re-rated violently. The process didn’t predict the AI memory cycle; it simply owned the cheap basket and let prices do the work. Now, as those names turn expensive, the same discipline rotates out of them. Several are literally migrating from value into growth indexes at this month’s reconstitution. Note, too, what the multiples say: even after enormous runs, some of these names trade at single-digit or low-teens earnings multiples, below the market. In the efficient-markets reading, that is not a missed bargain. It is the market pricing in, correctly or not, that the earnings won’t last. No free lunch; just information.
The throughline is dispersion. Leadership rotated in ways no one sequenced in advance, and the same value discipline that paid handsomely in one corner this year lagged in another at the very same time. It delivered its strongest results in emerging markets, contributed solidly among large US value names, and was roughly a wash in small caps, where simply being small mattered more than being cheap. In developed international it was a mild drag. An investor watching only the corner that lagged would conclude the approach had stopped working; an investor watching only the corner that led would call it the trade of the decade. Both would be looking at the identical strategy in the identical year. That is the case for holding the tilt across all of these markets rather than chasing whichever one just worked: breadth across outcomes, not a bet on the next turn, is the only robust response to a process that prices new information faster than any of us can react to it.
Lens Two: Stories and Stretched Prices (the Behavioral View)
Now run the identical tape through Shiller’s framework and a different picture sharpens. By several measures this is a market priced for a great deal to go right. The gap between the S&P’s earnings yield and the 10-year Treasury, known as the equity risk premium, has compressed toward zero, a level not seen since just after the dot-com peak. Technology, broadly defined to include the megacap platforms, now accounts for more than half the index’s weight. Hedge-fund short positioning sits at a decade high.
The clearest behavioral artifact is the IPO. SpaceX came public as the largest offering in history at a valuation above $2 trillion, on a price-to-sales ratio near 94 times, against roughly 3.4 for the index, for a company that lost billions last year. Its trading is a textbook feedback loop: a deliberately scarce float, heavy call-option activity that forces hedging purchases, leveraged-ETF flows, and forced index buying on inclusion. The prospectus invokes a “space-faring civilization” dozens of times. This is precisely the “new era” narrative Shiller documented: a story so expansive it appears to justify any price, propagating through prices themselves. OpenAI and Anthropic are reportedly next.
Even the leadership rhymes with history in a way a behavioral observer can’t ignore. The year’s top performers are a cluster of 1990s-era memory and chip names: SanDisk, Intel, Seagate, Western Digital, and Micron, each up triple digits. These are the ghosts of the last technology run, the ones that soared and then crashed a quarter-century ago. Their margins today are at cyclical extremes that the industry’s own history says revert: memory pricing has swung from +200% to −75% in the span of months before. Respected long-horizon investors have published explicit bubble checklists; others argue the only prudent response is name-specific selection rather than broad market exposure. The behavioral lens does not say when. Shiller’s own record is that overvaluation can persist for years. But it insists that the price you pay sets the return you earn.
The Synthesis, and Why It Doesn’t Resolve Into a Market Call
The temptation is to pick a side. The more useful move is to notice that the two lenses point at the same conclusion from opposite directions.
The efficient-markets view says you cannot time the rotation, the recovery, or the bursting of any bubble, so don’t try; hold breadth and let prices work. The behavioral view says starting valuations are the best available guide to long-run returns, so where you sit within that breadth matters: leaning toward the cheaper, higher-yielding segments means less has to go right. Put together, they describe a single posture, and it is the one from the April letter: own the whole market, tilt toward where valuations and yields are more favorable, refuse to predict the next turn, and build the portfolio to absorb volatility rather than to forecast it.
That last point has new and specific force, for reasons that sit beneath both lenses. For most of the past three decades investors operated under an implicit “policy put,” the belief that central banks and governments would step in to arrest not just systemic crises but ordinary sell-offs. That belief is precisely what trained the buy-the-dip reflex on display all spring, when stocks went from record to record straight through a war. The relevant question now is not whether policymakers remain willing to cushion markets but whether they remain able to. With inflation stuck near a percentage point above target, debt high, and bond vigilantes stirring in the more vulnerable sovereign markets, the capacity to backstop has narrowed even where the willingness has not. A Warsh Fed that communicates less is only the visible edge of a deeper shift: the safety net is thinner than the muscle memory assumes.
There is a flow-of-funds version of the same story, and it is the one most likely to be underappreciated. Demand for capital is surging on several fronts at once: the SpaceX, OpenAI, and Anthropic mega-raises, an AI build-out pulling even non-tech firms into heavy spending out of fear of missing out, and governments funding large deficits and refinancing maturing debt at higher rates. The supply side is more constrained: limited government headroom, Gulf sovereign capital with shifting near-term priorities, finite institutional dry powder. When the demand for capital outruns its supply, the price of capital, the real interest rate, tends to rise structurally rather than cyclically. That is a second, independent reason yields may stay elevated regardless of the war, and it recasts the IPO frenzy: the reach for retail money in a deal like SpaceX, and the speed of its index inclusion, is partly the supply side straining to meet the demand, with the attendant worry about who is left holding the most expensive paper.
Neither Fama nor Shiller would tell you what the market does next. Both, read honestly, and against a backdrop of a thinner policy put and a structurally higher price of capital, point to the same conclusion: stop needing to know, and build for the volatility you cannot forecast.
If you have questions about how any of this maps to your own allocation, or whether a sleeve has drifted far enough from target to act on, reach out. That is the conversation worth having now, not a prediction about the next turn.
Regards,
John Gorlow
President
Cardiff Park Advisors
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Past performance is no guarantee of future results. Index returns are for illustrative purposes and do not reflect actual fund performance. You cannot invest directly in an index. The opinions expressed are those of Cardiff Park Advisors and are subject to change without notice. This material is for informational purposes only and should not be considered investment advice.
Sources: U.S. Department of the Treasury daily par yield curve (June 22, 2026), U.S. Bureau of Labor Statistics, Dimensional. Market data as of June 21, 2026.