Hope Spring Eternal

A little longer presentation this month – we’ve finished the first quarter and there’s a lot to talk about.

Let’s do a quick first quarter recap, then shift attention to the ever-changing and challenging geopolitical environment, but first some perspective looking back to last April and then a quick and fun historical note.

As much as we have had to endure early springtime volatility, consider our shared experience this time last year. Last April, we were wrestling with the fallout from Liberation Day. The President declared raising tariffs on U.S. imports to levels not seen in a century, stocks and bonds plunged, the S&P 500 peak-to-trough touched bear market levels down 20%, worse than what we’ve experienced this year. Economists and CEOs warned of recession, then a week later, the President backtracked. We all wrung our hands and gnashed our teeth at various moments, but Armageddon didn’t happen. History may not repeat, but sometimes it does rhyme.

Maybe T.S. Eliot was on to something when he wrote, “April is the cruelest month.”

Fun fact: Apple turns 50 this year. Our first trillion-dollar company is a well-known story. Other than the advent of the iPhone in 2007, the thing that stood out was the groundswell of voices claiming the stock’s imminent demise when Steve Jobs died October 2011. At the time, the stock was trading around $14 a share. Today, it’s touching $260.

Let’s recap the first quarter – S&P 500 was down 4.3%, value outperformed growth (it was actually flat for the quarter). Dividend stocks did well, the Dow Jones Dividend Index was up more than 8% in the quarter. S&P 500 small-cap stocks rose about 3.5%. S&P 500 mid-cap stocks returned 2.5%. International developed stocks, measured by the MSCI EAFE Index, were down just 1.24% and Emerging Market stocks, measured by the MSCI Emerging Market Index, fell just 24 basis points. All things considered, the equity markets have demonstrated resilience amid the volatility.

Chart 1, 2:25— The S&P 500 has remained somewhat range-bound since September 2025, demonstrating stability despite disruptions. U.S. markets benefit from energy independence, currency stability and robust infrastructure, acting as a “ballast” for global investors.

Stress has been higher for energy-import-dependent regions (e.g., Europe, Asia ex-Japan), which have seen larger drawdowns since the start of the war due to growth concerns and inflationary pressures. For example, the MSCI EAFE Index dropped more than 9.6% from February 27^th to March 23^rd, reflecting heightened sensitivity to conflict. It has since rebounded slightly.

Chart 2, 3:06— Market valuations have become more attractive. The NASDAQ 100 Premium vs. S&P 500 P/E ratio has fallen to levels last seen during 2025 tariff concerns, signaling potential oversold conditions. Non-U.S. markets, despite steeper declines, offer strategic entry points due to intra-year valuation resets.

Before this week’s announcement of a two-week cease-fire, markets had been improving, the S&P was up over 3% the prior week of March 30^th.We saw a gradual increase in ships moving through the Strait of Hormuz, and now with gaining confidence that a more permanent shutdown may be avoided. Obviously, the ceasefire announcement was well-received, stocks rallied strongly and oil dropped more than 17% the following morning.

Markets are starting to shift from reacting to the war itself to focusing on how it might be resolved, and that’s helping stabilize equities and oil. The cease fire is encouraging, but it is likely too early to declare that uncertainty and volatility are behind us. If the ceasefire holds and we shift to a post conflict scenario, solid and supportive fundamentals will return to focus, and we expect stocks have room to appreciate.

In summary, while energy disruptions and geopolitical risks have dominated headlines, markets have demonstrated relative resilience and adaptability. Investors should focus on quality assets, monitor central bank policies, and leverage U.S. market resilience.

Importantly, earnings season kicks off next week. Broadly, we expect good results and our 2026 estimate is still for 11-13% corporate profit growth.