The discipline to stay boring | U.S. equity market commentary 2Q 2026
Oakmark is the mutual fund family launched in 1991 by Harris Associates, the Chicago deep-value firm founded in 1976 (about $105bn AUM). Bill Nygren runs the flagship Oakmark Fund and David Herro the Oakmark International Fund, buying businesses at large discounts to intrinsic value and holding them like owners — publishing quarterly fund commentaries, market commentaries and insight articles.
In plain words
This report explains why the Russell 1000 Value Index, a popular value benchmark, no longer reflects true value investing. In early 2026, high-valuation tech stocks like Apple, Amazon, and Intel were added to the index, causing it to soar while real cheap stocks lagged. The Oakmark fund, sticking to traditional low-P/E (price-to-earnings) stocks, underperformed. For ordinary investors, this means buying a value index ETF may expose you to overpriced tech stocks, not bargains. The author warns against chasing hype, comparing current sentiment to the 1999 dot-com bubble, but stops short of predicting a crash.
Oakmark Fund's Q2 2026 report notes that while value stocks overall outperformed growth stocks, the Oakmark Fund's first-half returns were flat, lagging behind the double-digit gains of the S&P 500 and the Russell 1000 Value Index. The core reason is that the index's gains were highly concentrated i
Theme and Background
This chapter discusses the structural distortion observed in the U.S. value stock market during the first half of 2026. The report notes that although the value style overall outperformed the growth style, the Oakmark Fund posted flat returns, significantly lagging behind the double-digit gains of the S&P 500 and the Russell 1000 Value Index. The core reason is the surge in AI infrastructure investment, which has led to a large number of high-P/E, cyclical technology stocks being included in the Russell Value Index, causing the index’s style definition to deviate substantially from traditional value investing.
Core Thesis
The author’s key judgment is that the current Russell 1000 Value Index is no longer a traditional value index. Its gains are highly concentrated in a few AI-related, high-valuation tech stocks, while genuine value stocks (such as those in the Oakmark portfolio) are being overlooked by the market. The author argues that this market structure exhibits investor behavior similar to the 1999 internet bubble—a frenzy for high-growth assets and indifference to undervalued assets—but explicitly refrains from predicting whether a bubble burst will recur.
Key Arguments and Data
1. Highly Concentrated Index Gains: The top 10 gainers in the Russell 1000 Value Index (out of 863 constituents) contributed nearly half of the index’s gains in the first half of 2026. These stocks had a median P/E ratio of 27x at the end of 2025, even higher than the overall S&P 500 level.
2. Severe Style Deviation in Index Constituents: According to Russell’s own value/growth classification, the net weight of “value stocks” in the Russell 1000 Value Index has fallen from historical highs (around 70%) to negative territory (i.e., growth stock weight exceeds value stock weight). Apple and Microsoft have become new members of the index, while Amazon’s value score surged from 27% to 92%, making it the index’s largest holding.
3. Oakmark Portfolio Valuation Comparison:
Sandisk Corporation leads the Russell 1000 Value Index with a 781% year-to-date return. The top ten performers are mostly semiconductor and hardware companies, with gains ranging from 153% to 781% and 2025 P/E ratios between 14x and 100x.
| Metric | Oakmark Fund | Top 10 Gainers in Russell 1000 Value Index |
|---|---|---|
| 2026 Estimated P/E | 11.7x | Median 27x (end of 2025) |
| Style Characteristics | Traditional Value | High P/E, Cyclical Tech |
4. Extremely Poor Market Breadth: Excluding AI-related stocks and the companies that supply energy to them, the S&P 500 has actually declined year-to-date.
Companies/Assets Involved
The net weight of value stocks relative to growth stocks in the Russell 1000 Value Index has steadily declined from an average of about 60% during 2004-2010, falling into negative territory at approximately -20% for the first time in Q2 2026, signaling a substantive shift toward a growth style in the index’s composition.
- Sandisk (SNDK): Up 781%, P/E 100x, the index’s top gainer
- Micron (MU): Up 297%, P/E 25x
- Intel (INTC): Up 278%, P/E 95x
- Dell (DELL): Up 245%, P/E 14x
- Western Digital (WDC): Up 241%, P/E 28x
- Iridium Communications (IRDM): Up 219%, P/E 15x
- Marvell Technology (MRVL): Up 214%, P/E 32x
- MSK inc. (MKSI): Up 179%, P/E 21x
- Flex (FLEX): Up 168%, P/E 20x
- Corning (GLW): Up 153%, P/E 37x
- Apple, Microsoft: New additions to the Russell 1000 Value Index
- Amazon: Value score rose from 27% to 92%, becoming the index’s largest holding
- Corebridge Financial: Oakmark holding, P/E below 6x; the author believes a fair valuation should be 9x
Investment Implications
The author suggests that current market pricing for AI-related stocks has detached from fundamentals, while genuine value stocks (such as Corebridge Financial) are severely undervalued. Investors should be wary of the style drift risk inherent in passive index fund allocations—buying a Russell 1000 Value Index ETF effectively means purchasing a large number of high-valuation growth stocks. For active investors, the report advises adhering to a low-valuation strategy and avoiding chasing AI concept stocks that are already fully priced. By drawing parallels to investor behavior during the internet bubble (e.g., refusing to sell continuously rising stocks, retail investors trading ETFs full-time), the author implies that current market sentiment has approached extreme levels.