Market Perspectives Q1 2026

Market Update

Despite recent volatility, stocks have rebounded from April 2025 lows as the economy has performed better than anticipated, the Fed cut interest rates, and positive company earnings helped underpin investor sentiment. On the other hand, more recent volatility and divergence in returns have been associated with concerns about artificial intelligence (AI) disruption, stock market concentration, and stretched valuations. Bonds have performed relatively well as yields trended lower on the back of the Fed cutting rates, though yields have since been range-bound as the Fed is again on pause.

The recent divergence in performance across asset classes underscores the importance of diversification over concentration and a disciplined approach to rebalancing.

Long-Term Opportunity with Artificial Intelligence

Regarding AI concerns, we believe some of the market’s recent reactions may be overdone. While software and tech have been caught in the crosshairs, AI disruption will impact every sector of the economy. Those who can adopt and adapt, leveraging AI to improve products and services, may ultimately benefit. More broadly, we believe increased AI adoption is likely to drive enhanced productivity and will be key in extending the current economic expansion.

The Economy

Speaking of the economy, underlying economic growth has been more robust than anticipated, and gross domestic product (GDP) estimates have been revised higher, with the economy currently expected to grow +2.1% in 2026. Macro data remains supportive for growth, and the probability of a near-term recession has reduced. We are watching the labor market, cost of tariffs, and inflation closely. Recent Fed commentary indicates favorable growth and improving inflation. Given the economic backdrop, we believe the Fed is in “wait-and-see” mode, with a bias towards lower interest rates.

The current economic backdrop may be positive for stocks and bonds. However, we are cautious about stock market valuations and concentration. International stocks still trade at a discount to the U.S. market and may continue to be supported by fiscal and monetary policies and intra-region trade dynamics. Current bond yields remain relatively attractive, with many of our preferred bond funds yielding mid- to high-single digits. Moving forward, we believe alternative strategies may offer attractive risk-adjusted return potential.
For a deeper review of current opportunities, risks, and the themes guiding our portfolio positioning, please see our full Q1 Market Perspectives presentation.