Market Commentary

April 9, 2026

The S&P 500 Index lost 4.3 percent in the first quarter of 2026, and the S&P 500 Equal-Weight Index gained 0.7 percent, with profit-taking in Big Tech stocks accounting for a majority of the performance differential. The relatively subdued index-level returns understate the underlying market turbulence as investors rotated sectors amid uncertainties about AI disruption, the Iran conflict, and the trajectory of the economy, inflation, and central bank policy rates. The CBOE Volatility Index surged nearly 70 percent during the quarter, while measures of S&P 500 return and volume dispersion soared to levels not seen since 2008-2009. Earnings growth and dividends together added about 8.3 percentage points to the S&P 500 Index’s first-quarter loss of 4.3 percent, while a contraction in the forward price-to-earnings multiple subtracted roughly 12.6 percentage points. Of the 11 GICS sectors, energy was the big outperformer, delivering a first-quarter return of 38.2 percent (half from earnings growth, half from multiple expansion), then materials at 9.7 percent, utilities at 8.3 percent, and staples at 7.7 percent.

Outgunned in conventional military capabilities, Iran has adopted a strategy aimed at imposing prohibitive military costs on its foes and maximizing global economic disruption to deter future attacks.  The effective closure of the Strait of Hormuz through early April severely choked global energy flows and disrupted trade in other crucial commodities, notably fertilizers. The global market has been short a projected 9 million barrels of oil and refined products per day, or almost 10 percent of global demand.  Policy interventions, including emergency inventory drawdowns, have bought time, but these finite measures cannot fully offset a structural shock of this size. Prolonged Iranian control of the strait or sustained sporadic disruptions to energy flows if talks collapse are critical tail risks that cloud the global economic outlook.

Although our initial motivation for portfolio diversification stemmed from expectations of a broadening market (which has generally played out since late 2025), the evolving Iran conflict reinforces the same strategic direction.  Positioning around specific geopolitical or economic outcomes remains inherently uncertain, making a balanced allocation across both procyclical and secular growth sectors prudent. That said, we maintain a more cautious stance toward consumer-related sectors. A combination of softer employment conditions, persistently elevated inflation, and rising energy costs continues to pressure consumer sentiment. Although markets shaped by stagflationary concerns can be particularly difficult to navigate, we believe the most effective hedge lies in quality. Accordingly, we continue to prioritize companies with visible growth, strong cash flow generation, resilient balance sheets, and, ideally, a consistent and disciplined approach to capital returns.

For our latest full Global Investment Outlook & Strategy Update, download the .pdf document.