We always regret bidding farewell to summer’s sunny days, but this one was truly unforgettable, especially for the markets. The S&P 500 delivered impressive gains of at least 1.9% each month from May through August, marking only the sixth time in history the index has risen over 1% for all four of those months. Overall, stocks surged more than 10%, shaking off any lingering worries from spring like sand from a beach towel. Yet, as September kicks off with its characteristically weak tone, we’re eyeing the fall ahead, curious if the summer’s momentum can last.
Investors have largely brushed aside worries about sky-high valuations, thanks to resilient earnings that keep delivering the goods. So far this year, the market’s heavyweights have churned out profits that match their premium price tags. The million-dollar question? Whether this winning streak can keep rolling. Amid the patchwork of valuations across stocks and sectors, there are still plenty of exciting opportunities to be found, while remembering that, after several strong years, valuations play a crucial role in long-term success.
In today’s market, the S&P 500—intended to provide robust diversification through its 500 constituent stocks—has grown alarmingly concentrated, with just a handful of mega-cap tech giants fueling the lion’s share of returns, now representing a staggering 34% of the index’s total weight. This level of dominance surpasses even the extremes of the dot-com bubble in 1998-1999, where overdependence on a select few favorites exposed many investors to corrections and volatility surges. We’re mindful of the potential risks this creates should these titans stumble in delivering on earnings expectations amid rising valuations; broad indices could deliver lackluster or bumpier results. This could leave passive index fund investors susceptible to sharp downturns in those few names, without the full diversification protection the index is supposed to deliver.
That’s why we’re optimistic about steering through these choppy waters with our valuation-driven approach. We focus on high-quality companies at fair valuations that can deliver consistent growth and dependable earnings across a broad spectrum of sectors—while remaining disciplined and sidestepping over-weighted names that may not meet our criteria. By zeroing in on valuation, history affirms that selecting companies with reasonable valuations tends to outshine both overhyped high-valuation plays and lower-quality peers over the long term, offering the security of genuine diversification and superior risk-adjusted returns over the long run.
Our goal is to provide you with greater diversification opportunities through exposure to high-quality companies. We define high-quality by evaluating a company’s historical operating record—typically 10+ years of steady growth and stability in earnings and free cash flow. We believe that this patient, long-term approach is key to generating alpha or extra value for our clients over time.
We’re excited to announce that our U.S. Small-Mid Cap Core Portfolio has earned recognition for the second consecutive period on the PSN Top Guns List, spotlighting it among the best-performing strategies for one-year returns through June 30, 2025. This recognition highlights the power of our valuation-focused method, which aims to deliver steady, long-term returns that balance risk and reward, even through market changes.
Finally, we’d like to extend our heartfelt thanks to our long-time team member, Sharon Sowell, for her 14 years of dedicated service and invaluable contributions to Cardinal Capital. She has chosen to pursue new opportunities, and we wish her all the best in her future endeavors. As our firm keeps growing, we’re actively hiring for her role plus even more positions to increase our team size and provide broader support for you. In the meantime, please feel free to reach out to any of us to help with your needs— we remain committed to our long-term partnership and truly appreciate your continued confidence in us.
