Market Commentary

• Current headlines have caught our attention, but our selectivity focuses on those sectors of the market where we see robust earnings potential and attractive valuations.
• The wide price dispersion among various asset classes and sectors has provided an opportunity to rotate funds into other areas that appear attractive in our work.

A variety of headlines have taken equities on a roller coaster ride so far in 2026, but the net of all the handwringing and volatility is that the S&P 500 Index (SPX) went out at a new closing record high last Friday. Iran’s foreign minister also helped the cause on the final trading day of the week when he said the Strait of Hormuz was open. Then, over the weekend, the Iranian Navy shot at two Indian commercial vessels, and the U.S. Navy seized an Iranian-flagged cargo ship in the Persian Gulf as part of a naval blockade. In response, the Iranians said they would retaliate “soon.”

Those headlines grabbed the financial markets over the last few trading days. Earlier in the year, investors suffered bouts of moodiness over the actual level of Artificial Intelligence (AI) spending, profitability, and ultimate adoption, as well as fears about weakness among some (especially smaller) private credit funds. Both of these issues clearly need to be watched by investors, but we do not think extrapolating AI to put entire industries out of business will help portfolios. Nor do we think that the problems of mainly a few smaller private credit firms should be extrapolated into a systemic problem.

While the current headlines have caught our attention, our selectivity focuses on those sectors of the market where we see robust earnings potential and valuations that our analysis suggests are attractive. As a recent example, on April 6 we downgraded the Energy sector from neutral to unfavorable and upgraded the Information Technology sector from neutral to favorable. Year-to-date, the Energy sector has gained nearly 23% while the Information Technology sector has performed largely in line with the SPX. What’s more, the Tech sector P/E (price-to-earnings) ratio fell to a level more in line with that of the SPX, and the consensus earnings growth estimate for the Tech sector is nearly double that of the SPX. So, on April 6 we guided to rebalance, that is, reallocating from the Energy sector to the Information Technology sector of SPX. We also continued with a most favorable rating on the Financials sector and favorable ratings on the Industrials and Utilities sectors.

Our analysis suggests there is a similar opportunity within the Commodities asset class. The energy-related components of the Commodities sector outperformed into early April as the price of oil surged during the opening weeks of the Iran war. And while the price of oil rose, the price of precious metals like gold and industrial metals like copper dropped. The price of gold fell due at least in part to international buyers who needed to sell the precious metal to raise dollars they could then use to purchase oil at higher dollar-denominated prices. Thus, we believe an opportunity exists to reallocate from energy-related commodities into our favored precious metals segment of commodities.

The wide price dispersion among various asset classes and sectors has provided an opportunity to rotate funds from areas we feel are overvalued, relative to expected fundamentals, into other areas that have underperformed but appear attractive in our work due to the positive fundaments we see ahead. 

Forecasts are not guaranteed and subject to change without notice.

Equity securities are subject to market risk which means their value may fluctuate in response to general economic and market conditions and the perception of individual issuers. Investments in equity securities are generally more volatile than other types of securities.

Each asset class has its own risk and return characteristics. The level of risk associated with a particular investment or asset class generally correlates with the level of return the investment or asset class might achieve. Stock markets, especially foreign markets, are volatile. Stock values may fluctuate in response to general economic and market conditions, the prospects of individual companies, and industry sectors. Foreign investing has additional risks including those associated with currency fluctuation, political and economic instability, and different accounting standards. These risks are heightened in emerging markets. The commodities markets are considered speculative, carry substantial risks, and have experienced periods of extreme volatility. Investing in a volatile and uncertain commodities market may cause a portfolio to rapidly increase or decrease in value which may result in greater share price volatility. Investing in gold, silver or other precious metals involves special risk considerations such as severe price fluctuations and adverse economic and regulatory developments affecting the sector or industry. Sector investing can be more volatile than investments that are broadly diversified over numerous sectors of the economy and will increase a portfolio’s vulnerability to any single economic, political, or regulatory development affecting the sector. This can result in greater price volatility.

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