Greetings from the Northwest!
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I hope everyone is enjoying a wonderful start to summer. Here in the Portland area, the season kicked off early in May, though we’ve had a few surprise visits from early spring right up until this week. Planning outdoor activities (and the right wardrobe) has kept us on our toes!

Summer is usually when minds drift from the financial markets toward vacations, family time, and the simple joys of the season. The stock market often takes a similar break until after Labor Day, when Wall Street’s “serious professionals” return from the Hamptons and elsewhere.

This year feels different. Despite elevated risks and valuations that remain a core concern (more on that from Patrick shortly), investors have stayed resilient. The underlying economy continues to show strength, although the “green” signals are a bit dimmer than we’d like. People seem determined to keep buying stocks, and bright red warning lights have been notably absent so far.

Cairn Investment Group has once again been named one of the Portland and Vancouver area’s “100 Fastest Growing Private Companies” by the Portland Business Journal. This kind of sustained growth happens only with an outstanding team, and I’m incredibly proud of everyone at Cairn. Each person plays a vital role in delivering the service and results you deserve.

Most of you already know Stefanie, the friendly voice who answers most of our calls and smoothly connects you with me, Mark, or Patrick. Behind the scenes, though, a tremendous amount of work happens to keep everything running efficiently and fully compliant with state and SEC regulations.
Driving much of that excellence is our Director of Operations and Compliance (and Shareholder), Cherie King. We want you to know more about her background and the critical role she plays at Cairn.

​Cherie grew up in the San Francisco Bay Area and studied business at Pacific Union College in the rolling hills above Napa Valley. While in school, she trained on those same hills and went on to complete the LA Marathon in 2001. She launched her financial services career at Merrill Lynch in Southern California, where she earned her Series 7, Series 66, and Life & Health licenses while serving clients across the Inland Empire for nearly five years.

A desire to be closer to family brought her to the Pacific Northwest. She joined a local investment advisory firm in its early days and spent more than a decade helping it grow to nearly $1 billion in assets under management. Cherie played a pivotal role in building its operations and compliance infrastructure from the ground up and worked closely with two colleagues who would later become her partners at Cairn. Sixteen years after they first met, the three reunited here, bringing the same collaborative spirit that continues to define our firm today.

Cherie holds the IACCP® designation for compliance professionals and is in the final stages of earning her CFP® certification.

Outside the office, Cherie stays active with Lagree Fitness, aerial yoga, biking, and sports. She has a rich background in performing hula and Tahitian dance at festivals and cultural events, which have deepened her love of community connection. She’s also deeply involved in charitable causes, including the SW Washington chapter of the Boys & Girls Club and the Northwest Association of Blind Athletes. At home, she enjoys cooking with family, cheering on her two college-aged children (who share her love of music), and spending time with the family Goldendoodle.
We’re truly fortunate to have Cherie’s talent, versatility, and positive energy on the team. Next time she picks up the phone, be sure to say hi.

One final note: Our rebrand is nearly complete! We’re putting the final touches on the new website as I write this. It’s too important to rush, so we’ll announce it as soon as everything is perfect. Stay tuned… you’re going to love it!
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Now, on to Patrick:

​Equity markets rebounded sharply during the second quarter as fears surrounding the Iranian conflict eased and enthusiasm surrounding artificial intelligence (AI) stocks pushed markets higher. Large-cap U.S. stocks, measured by the S&P 500, gained over 15% during the quarter, while international stocks were not far behind with returns exceeding 10%. Bond returns were mostly flat as investors continued weighing the prospects of persistent inflation and the possibility of interest rates remaining higher for longer.

We have talked at length about valuations and expected returns, given how expensive U.S. stocks have become, relative to historical standards. This quarter, I want to focus more specifically on the technology sector, since much of the current market enthusiasm and news flow is centered around AI and semiconductor companies.
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First, I believe the technology sector, and specifically the semiconductor industry, is experiencing a significant valuation bubble. Over the years, I have read many definitions of what constitutes a bubble, but the best explanation I have found comes from Dr. John Hussman, which I shared at the end of last year:

“Bubbles are generated when investors drive valuations higher without simultaneously adjusting their expectations for future returns lower.”

In essence, investors extrapolate recent success indefinitely into the future while underestimating the possibility that conditions can change. Looking at current market data, this appears to be what is happening with many large-cap technology and semiconductor companies.

The following two charts show the price-to-sales ratios for the S&P 500 semiconductor and information technology sectors. As you can see, investors are currently paying historically high prices for these businesses, in many cases exceeding the valuations reached during the late 1990s technology bubble.

The challenge is not whether these are good companies. Many of today’s leading technology companies are among the most profitable and innovative businesses in the world. AI has the potential to create meaningful productivity improvements and reshape industries. The technology is real.

The challenge is the price investors are paying.

When valuations become elevated, future returns become increasingly dependent on everything going right. Companies must continue growing at exceptional rates, profit margins must remain strong, and investors must remain willing to pay premium valuations. Even a slowdown in growth or a change in sentiment can have a significant impact when expectations are already extremely high.
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Another way to view this environment is through market concentration. The chart below shows the percentage of the S&P 500 represented by the largest technology companies over time. At the peak of the dot-com bubble, the largest technology companies represented approximately 33% of the S&P 500’s market capitalization. Today, that concentration has moved beyond those levels, reaching nearly 38%.

Again, this does not mean today’s market will repeat the events of 2000. There are important differences. The largest technology companies today generally have real earnings, strong balance sheets, and established business models. They are not the speculative companies of the late 1990s that were often valued on little more than future promises.

However, concentration at these levels does highlight an important risk: the broader market has become increasingly dependent on a small number of companies continuing to deliver exceptional results.

This brings us back to the late 1990s. The comparison is not that today’s companies are the same as those from the dot-com era. The comparison is investor psychology.

On September 30, 2000, the S&P 500 was trading near an all-time high. At the time, the economic data did not suggest an obvious crisis ahead. Revenue growth was positive, earnings expectations were strong, GDP was expanding, and the services sector was growing. The market appeared to be supported by healthy fundamentals.
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Yet, only one year later, conditions had changed dramatically.

The lesson is not that today’s market is destined to experience the same outcome. Markets can remain expensive, and no one can consistently forecast when sentiment will change. The lesson is that market conditions can shift quickly when expectations and valuations become stretched.

Today, the S&P 500 remains heavily influenced by a small number of technology companies. Investors are assuming continued above-average growth, strong profitability, and sustained enthusiasm for AI-related businesses. Those outcomes may occur, but history has shown that expectations themselves can become the greatest risk.
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Our approach remains unchanged. We are not attempting to predict the next market decline. Instead, we continue to focus on owning high-quality investments at reasonable valuations, maintaining diversification, and preserving flexibility so we can take advantage of opportunities when they arise. When opportunities are limited, as they are now, we will hold extra cash in interest-paying money markets and T-Bills. Valuation discipline and patience remain at the center of our investment process. Thank you for your continued trust and support and please reach out to me if you want to discuss any topic in greater detail. —Patrick Mason

Thanks, Patrick, for an excellent summary of market conditions.

I hope you all have a wonderful summer, and if you need anything, we’ll be here no matter how sunny it gets.
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Happy Trails,
Tim Mosier, President,
Cairn Investment Group, Inc.

Greetings from the Northwest!

Well… if ever there was a reminder that our personal sphere of control is smaller than we might like, these past few weeks have demonstrated it as clearly as ever.
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While Spring is finally poking through here – temps are warmer, days stretching out, and the tulips are making their reappearance – the headlines aren’t so gentle. The war in Iran has everyone on edge, with oil prices rising sharply, shipping routes disrupted, and markets jolted awake. Brent crude has hovered near one hundred dollars a barrel recently, pushing prices at the pump noticeably higher. Many are wondering how bad things will get, and where we will go from here. 

I can say with great confidence that I do not know. 

That said, I believe our robust energy infrastructure and geographic distance from the conflict zone will help limit the immediate impacts here at home. The higher prices largely reflect global pricing dynamics for U.S. crude oil, rather than any domestic supply shortage.

The overall health of the economy and the direction of the stock market will likely be shaped by a far more complex set of factors than by any single event. Our approach to managing your money fully recognizes this reality, and the current situation doesn’t prompt any change in our overall method. It may introduce new opportunities and risks, but I’m confident our disciplined process – centered on careful analysis, value focus, and prudent risk management – can handle them effectively as they arise.

We’re making good progress on the shift to Cairn Wealth Management, new branding, fresh website, all coming soon. But for now, we’re still Cairn Investment Group, with the same team and the same core promise: protecting your wealth while pursuing reasonable growth. The rebrand is just polish; the foundation stays rock-solid.

Capital markets during the first quarter of the year resembled a roller coaster. Over the first two months, markets continued to grind higher before reaching a peak and pulling back sharply as the quarter came to a close. When all was said and done, U.S. stocks, as measured by the S&P 500, declined 4.3%. International stocks fared somewhat better, finishing down 1.1% for the quarter. Bonds were not spared, posting a flat return as interest rates rose on the back of higher inflation expectations.

Amid the constant noise across the news media, many have asked how we are navigating the current investment landscape. A strong appreciation for history, combined with a disciplined, data-driven approach, is critical in all market environments – particularly during periods of heightened volatility and shifting sentiment. In our March 19th communication, we highlighted current risks and confirmed our higher-than-normal cash allocation. Below, I will expand on what we are seeing and provide additional context around potential actions within portfolios. As always, we will let facts and data guide our decisions – and when the facts change, we will change our mind.

A condition that emerged in March – one that had not been present previously – is a rapid deterioration in price trends and investor sentiment. Looking back over the past 82 years, when the S&P 500 has exhibited both elevated valuations and a negative price trend (as measured by its 10-month moving average), forward 12-month returns have declined from approximately 10% to just over 2%, with a higher probability of loss. Notably, this environment has occurred only about 9% of the time.

Needless to say, the combination of elevated valuations and weakening sentiment creates an environment where a more defensive posture is warranted for US stocks.
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While opportunities within U.S. equities remain limited, we are finding more compelling investment opportunities abroad, where valuations are significantly more attractive. Investor interest in international markets has also increased, supported by stronger relative performance over the past 12 months compared to U.S. stocks. Additionally, recent weakness in the U.S. dollar – driven by persistently elevated inflation and a growing debt burden – has provided a meaningful tailwind for many international markets.

All things being equal, I would expect our international allocation to increase as these opportunities continue to develop.

Consistent with our valuation disciplined approach, when companies or asset classes do not offer an adequate margin of safety at current prices, we are comfortable holding cash. Our cash allocation provides two primary benefits.
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First, in the short term, it offers stability and serves as a hedge against unexpected price shocks in both equities and fixed income, most recently demonstrated in 2022, while still earning a competitive yield through money market funds and Treasury bills.

Second, it provides flexibility. Maintaining liquidity allows us to take advantage of market volatility and emerging investment opportunities without being forced to sell assets we continue to view favorably.

We continue to view fixed income markets as offering both opportunity and risk, depending on the segment. In certain areas, current yields provide a meaningful level of safety, while others appear more vulnerable.
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For tax-sensitive investors, municipal bonds remain attractive, with spreads offering compelling after-tax yields alongside a relatively strong safety profile. In contrast, within taxable fixed income, we see greater risk in corporate bonds. Credit spreads over Treasuries remain historically low, which, in our view, offers insufficient compensation for the underlying credit risk and limited downside protection.

In our last letter, I noted that as we entered 2026, return expectations should be tempered following three consecutive years of strong market gains. Over this period, business fundamentals have not kept pace with rising asset prices, creating a notable disconnect in capital markets. Over the past three years, S&P 500 revenues have grown approximately 16%, while stock prices have increased by roughly 65%.

There are ultimately two ways for this imbalance to resolve: either fundamentals accelerate and catch up to current valuations, or prices adjust downward to better reflect underlying business performance. While we don’t know the exact path, the conditions discussed above suggest the potential for a period of below-average returns. For clients who take advantage of our comprehensive financial planning, we already incorporate below-average return assumptions to further stress test plans and provide an additional margin of safety against uncertain outcomes.
We will continue to adjust portfolios based on incoming data, thoughtfully increasing or decreasing exposure to risk assets as warranted by evidence with demonstrated relationships to future returns, rather than reacting to short-term news flow.

Thank you, as always, for your continued trust and support. We’ve had many valuable conversations with clients recently and encourage you to reach out with any questions or concerns. —Patrick Mason

Thank you, Patrick!

Thanks, as always, for your trust – we don’t take it lightly. Drop me a line if anything’s on your mind.
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Happy Trails,
​Tim Mosier, President
​Cairn Investment Group, Inc.