Insights

Despite elevated geopolitical tensions and the continued closure of the Strait of Hormuz, equities have climbed back to all-time highs as investors refocus on the strength of corporate earnings and the broader economic backdrop. Companies are beating profit estimates at an unusually strong pace, while earnings growth has accelerated to levels rarely seen outside of post-recession recoveries.

The market backdrop has shifted quickly in 2026, with AI disruption, rising oil prices from geopolitical tensions, and growing concerns around private credit replacing earlier optimism.

Oil prices have surged due to conflict-related risks around the Strait of Hormuz, temporarily interrupting a macro environment that had been trending in a favorable direction.

Several industries, led by software, have sold off significantly year to date, as investors assess the impact of artificial intelligence on established business models. While some companies will face genuine pressure, the initial market response is often indiscriminate—pricing in disruption broadly before fully understanding the scope and timing of new innovations. Over time, the market will distinguish between structural losers and firms that successfully adapt and continue

The U.S. economy remained resilient in 2025. Despite a cooling labor market, a weak housing sector, and uncertainty around tariff policy, the economy continued to grow, supported by steady spending, AI-driven investment, and lower interest rates.

Our base case for 2026 is no recession. Accommodative monetary policy is set to deepen via Fed rate cuts, a dynamic further reinforced by fiscal stimulus to sustain economic momentum.

The Fed cut rates for the second consecutive meeting, and although another cut this year remains uncertain, history suggests that easing policy amid strong markets often supports further gains.

Enthusiasm over advancements in artificial intelligence has fueled a significant stock rally, but in our view, it is not a bubble—at least not yet. While AI has clearly captured investor attention, today’s market leaders are far more profitable and better capitalized than tech names during past bubbles. Speculation exists, but widespread skepticism and strong fundamentals—like earnings, margins, and cash flow—are helping anchor valuations.