Coming into the year, the Global economy had evolved into a powerful and increasingly durable expansion. Growth was firming, earnings were accelerating, inflation was moderating, and importantly, market leadership was broadening beyond a narrow group of mega-cap names.
That transition was both healthy and constructive. It reduced concentration risk and signaled a more balanced and sustainable market environment.
That backdrop, as we all know, was firmly tested.
A sharp escalation in geopolitical tensions, coupled with a surge in oil prices and renewed upward pressure on interest rates, introduced a new set of variables that markets could not ignore. What had been a clean transition toward synchronized global growth was briefly interrupted by an inflation impulse driven largely by energy.
For the month of March, markets shifted their focus away from growth and earnings and toward oil, rates, and credit spreads. As those inputs moved higher, financial conditions tightened, and valuation multiples began to compress. The market was no longer simply rewarding growth, it was actively discounting risk. We saw the S&P 500 and the Global ACWI correct 9% and 10% respectively.
That phase, while meaningful, has resolved itself in record time. All the losses have been clawed back, and markets sit at All Time Highs.
Looking Through the Shock
Markets have largely recovered the drawdown associated with the Iran-related escalation, and in doing so, are beginning to look through the near-term uncertainty and refocus on the underlying fundamentals.
The key question investors have been grappling with remains unchanged:
Is this a temporary inflation shock, or the start of something more persistent?
So far, the data is suggesting the former.
Despite the volatility in energy markets, there has been little evidence that the geopolitical shock has meaningfully slowed economic activity. In fact, several key indicators point to continued resilience:
- Retail sales remain stable
- Durable goods orders continue to trend higher
- Capital expenditure plans are expanding, not contracting
- Manufacturing activity has now moved into expansion for three consecutive months. The first such stretch in over three years
Taken together, this data suggests that while markets briefly paused to reassess risk, the underlying growth engine has remained intact. And as the geopolitical conflict resolves, growth is ready to continue.
The Fine Line: Inflation vs. Growth
Inflation has moved higher, now running above 3% after trending in the mid-2% range earlier in the year. This increase has been driven primarily by energy, a direct result of geopolitical developments.
However, context remains important.
Energy today represents a significantly smaller portion of overall consumer spending than it did in prior cycles; approximately 2% of total consumption, compared to 4–5% fifteen years ago. While higher prices at the pump are certainly felt, the broader economic impact is more contained, particularly for middle- and higher-income cohorts.
That said, the burden is not evenly distributed. Lower-income households remain more sensitive to energy and food price fluctuations, and this cohort continues to face more persistent financial pressure. As has been the case throughout this cycle, the consumer remains bifurcated, but functional.
For the broader economy, the implication is clear: while inflation has reaccelerated modestly, it has not yet reached a level that meaningfully disrupts consumption or growth.
Earnings Resilience
As the immediate macro shock begins to fade, markets are increasingly refocusing on earnings—the primary long-term driver of equity returns.
Current expectations call for:
- Approximately +15% earnings growth in 2026
- Continued double-digit EPS growth into 2027
This matters. Earnings power can drive equity prices ever higher absent a further geopolitical disruption.
Markets ultimately do not trade on headlines forever; they trade on the trajectory of cash flows and earnings, and the price investors are willing to pay for them. While valuation multiples compressed during the period of heightened uncertainty, that adjustment has helped partially reset expectations.
Valuations are no longer expanding, they are being asked to justify themselves through earnings. Thus far, earnings continue to deliver.
Leadership: Broadening Continues—Globally
One of the more important developments beneath the surface has been the continued expansion of market leadership.
This is not simply a U.S. story.
Global markets have taken on a leadership role in 2026, supported by:
- Lower starting valuations
- Some have less direct exposure to Middle East energy bottlenecks
- Improving domestic growth dynamics
In many cases, international markets are more directly tied to the broader global industrial and manufacturing cycle, which continues to strengthen. As a result, areas less dependent on the Strait of Hormuz and energy transit risk have been better positioned to look through recent geopolitical developments. Europe, which is exposed a lot to the energy conflict, is working through the shock.
This reinforces the broader theme we have been seeing: the market is not narrowing; it is in fact broadening out, which makes this expansion more durable, excluding Geopolitical conflict.
Policy & the Fed: Still a Balancing Act
The recent uptick in inflation complicates the Federal Reserve’s path forward.
While growth remains intact, inflation above 3%, even if energy-driven, does limit the Fed’s ability to ease policy aggressively in the near term. At the same time, the absence of meaningful economic deterioration reduces the urgency to act.
This leaves policymakers in a familiar position:
- Cut too much or early, and risk reigniting inflation
- Stay too tight, and risk slowing growth unnecessarily
The Fed does not find itself in an easy situation. For now, the Fed appears likely to remain patient, allowing incoming data to guide the next move. Markets have adjusted expectations accordingly, and rate volatility reflects this ongoing recalibration.
Portfolio Positioning: Adapting to a Conditional Environment
As conditions evolved earlier this year, so did positioning.
Portfolios were adjusted toward a more defensive posture during the period of heightened uncertainty, raising cash levels, reducing exposure to more cyclical areas. This allowed us to navigate the initial repricing of risk with greater resilience.
As the environment stabilizes, the opportunity set is once again expanding.
The current backdrop argues for:
- Maintaining broad exposure to global markets with emphasis on high-quality equities with durable earnings profiles
- Continuing to diversify across sectors, factors, and geographies
- Selectively participating in areas benefiting from global growth, cyclicality and capital investment trends
Risk management remains central. In difficult environments like this, where there are multiple variables: oil, rates, inflation, and growth. All moving simultaneously, flexibility and discipline are essential.
The Setup From Here: Not Perfect, But Improving
This is not the same clean, synchronized expansion we entered the year with.
But it is also not a broken environment.
Instead, we are in a transitional phase where:
- Growth remains intact and could in fact be accelerating, though more closely monitored
- Inflation has risen, but is not yet destabilizing global growth.
- Valuations have adjusted, reducing some excess
- Leadership continues to broaden, both domestically and globally, which is very constructive
The market is recalibrating in real time and increasing the speed and velocity at which it is happening. It appears to be finding its footing and looking through to the strong fundamental global backdrop.
If energy markets continue to stabilize further and geopolitical tensions do not escalate meaningfully, the path forward becomes clearer: a return to a growth-driven environment supported by earnings, capital expenditures, and broader participation.
If not, volatility is likely to persist as markets continue to weigh competing forces.
Either way, this is not unfamiliar territory. Our process is designed for environments like this. Adaptive, data-driven, and grounded in risk management. When conditions change, we adjust. When clarity improves, we lean in. And as always, remain grounded in our long-term disciplines.
For now, the data suggests that the underlying expansion remains in place and markets, once again, are beginning to reflect that.
We appreciate your continued trust and partnership. As always, we remain available to discuss how these developments may impact your portfolio and long-term financial plan.
