FALL 2026 COMMENTARY

Different Investments, Different Jobs

Looking Back, Looking Around, & Looking Ahead · Third quarter 2026

It has been an interesting year in markets, although maybe not quite as unusual as it has felt.

Stocks have generally rewarded investors in 2026, and leadership has broadened considerably. US value and international markets have done well, emerging markets have been particularly strong, and for clients whose plans include them, alternatives have been a bright spot. Bonds had a tougher third quarter as interest rates moved higher—which, as I’ll explain, also means they now pay considerably more.

That mix is actually a pretty good illustration of why we diversify in the first place. We do not expect every part of a portfolio to work at the same time. We want different investments doing different jobs—and ideally responding differently when the environment changes.

Looking Back

Through September, it has been a pretty good year for investors. The S&P 500 was up roughly 13% year to date, small-company stocks were up nearly 14%, and emerging markets were up more than 23%.

The more interesting story has been beneath the headline indexes. U.S. large-cap value was up approximately 19% through September compared with about 6% for large-cap growth. Large-cap value outside the U.S. was up roughly 16%, while emerging-market large value gained more than 26%.

That does not tell us value will continue to outperform from here. It simply reminds us how quickly the market narrative can change. Areas that looked unnecessary a few years ago can suddenly become meaningful contributors.

Alternatives did their job

Alternatives, which are used in some client portfolios, have been one of the more encouraging parts of the year. The managed futures fund in the chart (AQMIX), which follows price trends across stocks, bonds, currencies and commodities, gained roughly 19% through September, including nearly 9% in the third quarter alone while bonds were falling. The reinsurance fund (EMPIX), which earns its return mainly from premiums paid by insurers to cover catastrophe risk, plus interest on collateral held in Treasury bills, added about 7% with little to no connection to the stock market.

Those strategies are not there because we expect them to outperform stocks every year. Some years they will lag, and both can lose money: trends can reverse, and reinsurance can have down years when catastrophe losses run higher than expected. They are there because we do not want every part of a portfolio relying on exactly the same thing going right—and this year was a good example of why.

Looking Around: Bonds Pay More Than They Have in Years

The bond market has probably generated more questions recently than anything else.

The short version of what happened: renewed conflict involving Iran sent oil prices sharply higher, headline inflation peaked at 4.2% before easing to 3.4% by August, and a market that began the year expecting rate cuts instead got a rate increase from the Federal Reserve in September. The 10-year Treasury yield moved from roughly 4.4% at the end of June to about 5.3% at the end of September.

Because bond prices and yields move in opposite directions, that move created a dip in bond prices. But it also did something more important for long-term investors: it raised the income bonds pay going forward. Starting yields are higher, and shorter-duration bonds can reinvest maturities into those higher yields relatively quickly.

For much of the decade following the financial crisis, investors complained that high-quality bonds did not pay enough. Today they pay considerably more: the yield on the broad U.S. bond market rose from about 4.7% to 5.6% during the third quarter alone. Over longer holding periods, a high-quality bond portfolio’s starting yield has historically been a reasonable guide to what it ultimately earns.

Our fixed-income portfolios are also intentionally different from the broad bond market. They are generally shorter in maturity, broader across fixed-income sectors and hold more short-term Treasury Inflation-Protected Securities, or TIPS. That has made a real difference: ultra-short bonds and short-term TIPS are both up for the year, while the broad bond market slipped and long-term Treasury bonds fell nearly 8%. In September, a new 10-year TIPS auction priced at a real yield of about 2.65%, the highest in nearly 18 years, meaning investors can now lock in a return meaningfully above inflation if held to maturity.

Bonds continue to do what we ask of them: provide income, liquidity and stability. Today they simply do it with a more attractive income profile than they have had in years.

There Isn’t One “Best” Investment Right Now

One of the questions I am asked most often is, “What’s the best investment right now?” My honest answer is that there isn’t a good or bad investment in the abstract. There is only a better or worse investment for your particular situation.

Stocks still make sense for long-term growth. Bonds now provide meaningful income. TIPS protect against inflation. And for clients whose plans include them, alternatives have shown this year why they belong, delivering positive returns from sources that have little to do with stocks or interest rates. A 40-year-old building wealth, a 70-year-old drawing income, and a business owner planning a sale each need something different from the same menu, which is why every Pomona portfolio does not look exactly the same.

Rebalancing: putting this year’s gains to work

A year when stocks have outpaced bonds is exactly when disciplined rebalancing earns its keep. Trimming some of what has done well and adding to bonds lets us realize some of this year’s gains and buy income at today’s higher yields.

We rebalance thoughtfully rather than mechanically, weighing drift, taxes, withdrawals and incoming cash. In taxable accounts, that can also mean harvesting losses on bond funds that are temporarily below their purchase price, replacing them with similar—but not substantially identical—funds so the portfolio keeps its exposure while capturing a loss that can offset gains elsewhere. The goal is not activity. It is keeping each portfolio aligned with what the money is actually supposed to accomplish.

Looking Ahead: The Winners Are Obvious in Hindsight

There has been a lot of discussion about how concentrated the U.S. stock market has become. That concern is legitimate. A relatively small group of enormous companies now represents a significant portion of the market.

But there is an interesting historical side to the concentration discussion. Hendrik Bessembinder’s research at Arizona State (“One Hundred Years in the U.S. Stock Markets”) has found that stock-market wealth creation has always been surprisingly concentrated. His updated study covering 1926 through 2025 found that just 46 companies—roughly 0.16% of those studied—accounted for half of the $91 trillion in net wealth the U.S. stock market created over the century. Nearly 60% of stocks actually earned less than Treasury bills over their lifetimes.

At first glance, that might sound like an argument for owning only a handful of winners. I think it is actually an argument for diversification. The problem is that the winners are obvious after they win.

In August 2011, the five largest U.S. companies were Apple, Exxon Mobil, Microsoft, IBM and Walmart. Today, Nvidia, Apple, Alphabet, Microsoft and Amazon top the list. Some leaders remained. Others disappeared from the top. New companies emerged.

Bessembinder found the same churn in his data: 19 of the 30 biggest wealth creators from 2017 through 2025, including Nvidia, Tesla and Eli Lilly, were not on the top-30 list through 2016.

Some of tomorrow’s winners may not even be public yet. A broadly diversified portfolio can pick up companies like these as they grow into the market’s indexes, without anyone having to guess which ones will matter—although no approach guarantees owning every future winner.

Fifteen years from now, the list will almost certainly look different again. That is why I do not think diversification is about avoiding today’s winners. We own them. It is about making sure we also own tomorrow’s winners before we know who they are.

Big-Firm Resources, Personal Attention

Over my career, I have worked at investment firms of very different sizes, and I have seen firsthand the strengths and the trade-offs that come with each. That experience has shaped a lot of my thinking about what I want Pomona to be.

Larger firms can offer more resources behind the scenes. But in my experience, there is a point where getting bigger starts working against the client experience: more layers, more turnover, more standardized advice, and less of a personal relationship.

I think about it a little like choosing a boat.

A rowboat may be simple, but I probably would not want to take it very far offshore. At the other extreme, a cruise ship has tremendous resources, but you are also one of thousands of passengers.

My goal for Pomona is to take the best of what larger firms provide—institutional investment resources, good technology and strong operating infrastructure—while staying small enough that I know the families I work with, understand what matters to them, and remain directly involved in their decisions.

I do not need Pomona to be the largest wealth-management firm in the region. I want to build the best. Growth is good, but only if it improves—or at least never diminishes—the experience of the families who already trusted us.

What We Don’t Need to Know

I do not know whether the 10-year Treasury is headed back toward 4% or toward 6%. I do not know which country will have the best stock market next year, or whether today’s largest technology companies will still dominate a decade from now.

History offers its own reminder. Since 1945, the S&P 500 has on average been slightly negative through the first three quarters of a midterm election year before rallying in the fourth. This year, the market was up roughly 13% by September. Averages are useful context. They are not forecasts.

Fortunately, I do not think we need to know. Today we have stocks providing long-term growth, bonds paying considerably more income, inflation-protected bonds offering real protection against inflation, and alternatives providing return streams that are not entirely dependent on the same market outcome.

Just as importantly, we continue to pressure-test the portfolio, evaluate new ideas and make sure each piece still earns its place within the broader financial plan. The portfolio is not something we set once and forget. It should continue to evolve as markets change, opportunities change, tax circumstances change and—most importantly—as your life and goals change.

As always, if anything here raises a question about your portfolio or financial plan, just send me an email, give me a call, or pick a time on my calendar when you get a moment. Whether you are a longtime client or just getting to know Pomona, I am always happy to talk it through.

Warmly,

Kevin Floyd CFA®, CFP®, AIF® Founder & Advisor, Pomona Wealth Management 509.643.6028 Kevin@pomonawm.com pomonawm.com

Important information. Pomona Wealth Management, LLC is an investment adviser registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. This newsletter is provided for general informational purposes only and is not personalized investment, tax or legal advice; please consult with us before acting on anything discussed here.

Past performance is not a guarantee of future results. All investing involves risk, including the possible loss of principal. Index returns are unmanaged, do not reflect fees or expenses, and cannot be invested in directly. Yields are not a guarantee of future returns. Historical patterns, including election-year averages, are not predictive.

Data and charts from third-party sources—including Avantis Investors, FactSet, Cetera Investment Management, Vanguard, iShares, AQR Funds, Embassy, Bloomberg, First Citizens Wealth, the U.S. Treasury, CFRA and published academic research—are believed to be reliable but are not guaranteed. Quotations from third parties do not imply endorsement. Alternative strategies may involve additional risks, including the use of leverage and derivatives, and may be less liquid than traditional investments. Fund returns shown are net of fund expenses but do not reflect Pomona’s advisory fee, are not the performance of any client account, and are not a recommendation to buy or sell any security; standardized fund performance is available upon request. Information is as of September 30, 2026, unless otherwise noted, and may no longer be current.

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