A Quarterly Letter from the Cornerstone Investment Committee

After Several Hours at the Table, the Most Important Decision We Made Was What We Chose Not to Change

Each quarter, our Investment Committee steps away from the headlines to ask one question: Has anything fundamentally changed that should change the way we invest on your behalf?

As a South Dakota-based investment committee, we do not make decisions based on the news of the day. We review economic data, evaluate research from several respected investment firms, challenge one another’s thinking, and ask whether what we are seeing should actually change the decisions we make on behalf of our clients.

This past quarter, five themes dominated our discussion: inflation and interest rates, artificial intelligence, corporate earnings, geopolitical developments, and the upcoming November elections. There were, as always, different perspectives around the table. We left with a shared view, and perhaps more importantly, continued conviction in the long-term investment philosophy that supports the plans we have built alongside you.

After several hours of discussion, the most important outcome of our meeting was not what we changed. It was what we chose not to change. More on that in a moment.

Inflation: Reading More Than the Gauge

Outside of Cornerstone, I spend a meaningful portion of my time officiating basketball and soccer. Before every game, officials inspect the ball. The rule book specifies a recommended air pressure range, but experience teaches you quickly that the gauge is not the whole story. Temperature, playing conditions, and the feel of the ball all inform the decision. Having experienced a few concussions from an overinflated soccer ball, I pay closer attention to that process than most officials probably do.

Inflation reminds me of that pregame inspection.

The Federal Reserve has a target, but policymakers are not making decisions based on a single inflation report any more than an official makes a call based solely on a pressure reading. Employment, wages, consumer spending, energy prices, and broader economic conditions all help tell the full story.

Our committee’s view is that inflation may remain elevated longer than many anticipated earlier this year, and that the final stretch back toward the Fed’s long-term objective may prove more difficult than markets expected. That could keep interest rates somewhat higher for longer. Even so, we believe the Federal Reserve is more likely to remain patient than to make significant policy changes in the near term.

Artificial Intelligence: One Player Does Not Win a Championship

There is little doubt that AI is reshaping the way businesses operate and has the potential to drive meaningful productivity gains for years ahead. We remain optimistic about its long-term potential.

I have been coaching basketball for over a decade, most recently this past winter as an assistant with the state champion West Central Trojans. One thing that experience makes clear: a single dominant player rarely wins a championship. Successful teams need shooters, defenders, facilitators, and contributors across the roster. Over a long season, those contributions tend to balance out.

We believe markets may be entering a similar phase. Technology has deservedly led for several years. Our committee believes market leadership has the potential to broaden as earnings growth expands across additional industries and sectors. Rather than positioning around a single winner, we continue to emphasize diversified portfolios that allow clients to participate in long-term growth without depending on any one part of the market to carry the result.

Corporate Earnings: The Number That Matters Most

Over time, stock prices tend to follow one thing more than anything else: corporate profits.

That was another area where our committee found reason for cautious optimism. Despite higher borrowing costs and continued uncertainty, American businesses have remained resilient. Companies continue investing in technology, improving productivity, and adapting to changing conditions.

Our committee views corporate earnings as one of the strongest long-term supports for equity markets. The next chapter of this market may be defined less by a handful of dominant names and more by broader participation across the economy.

Geopolitical Developments: Preparing for the Road Game

Every basketball season includes difficult road games. Coaches cannot control the venue, the crowd, the travel schedule, or every call during the game. The objective is not to control those variables. It is to prepare well enough to compete regardless of the environment.

Families planning for the future face similar challenges. Global developments involving Iran, China, trade policy, and international conflicts all have the potential to influence markets. Our committee continues to monitor these carefully. Based on what we know today, reaching a lasting resolution with Iran appears difficult, and we expect China to remain at the center of many economic and geopolitical conversations for the foreseeable future.

These events deserve attention. They do not change our investment philosophy. History has shown that markets have navigated wars, political upheaval, and global uncertainty throughout the past century. Preparing portfolios for an uncertain environment has proven far more valuable than attempting to predict any single headline.

The Election: Halftime for the Country

Election years have a way of feeling like halftime. There is a pause, a lot of analysis, and considerable speculation about what the second half will look like. Officiating crews use halftime the same way coaches do, reviewing what happened in the first half and preparing for what comes next.

Our committee’s current expectation is that Washington will likely remain divided following the November election. Historically, periods of divided government have often coincided with greater policy stability, something markets have generally viewed as favorable.

Rather than positioning portfolios around election outcomes, we remain focused on what has historically driven long-term investment success: growing businesses, innovation, disciplined portfolio construction, and patience.

What the Investment Committee Decided — and What It Did Not

At this time, we do not believe increasing international exposure is warranted, despite attractive valuations in certain regions. We are also not increasing our allocation to small-cap stocks simply because they have recently attracted renewed attention.

What we did approve was routine rebalancing within applicable discretionary portfolios, to maintain each strategy’s intended allocation and risk profile. Rebalancing is not about chasing recent performance. It is about maintaining the discipline that long-term investing requires.

One of the clearest lessons from years of coaching is that successful teams do not abandon a sound game plan because of one strong quarter or one difficult one. They make thoughtful adjustments when the situation calls for it, trust their preparation, and stay committed to the process.

We believe long-term financial planning requires that same discipline.

The headlines will keep coming. Markets will rise and fall. New technologies will emerge. Political leadership will change. Our responsibility is not to predict each headline perfectly. It is to evaluate new information carefully, challenge our own assumptions, and make thoughtful decisions that position you for long-term success.

Thank you for the trust you place in Cornerstone Financial Solutions. Every member of our Investment Committee takes that responsibility seriously. We look forward to continuing to serve you well.

Andrew Ulvestad, CFP®, CKA®, AAMS®, ChFEBC^SM

Wealth Manager
On Behalf of the Cornerstone Financial Solutions Investment Committee

Any opinions are those of Cornerstone Financial Solutions and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected, including asset allocation and diversification.

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