Review & Outlook
April 13, 2026
Broader participation in stocks that marked the start of the year quickly reversed in March, with major indices falling more than five percent. Over the past few weeks, military operations in Iran created the prospect for terminally higher commodity prices and inflation. We experienced a similar scenario in 2022 when an unexpected war in Ukraine led to growth stocks selling off as rates and commodity prices spiked. But unlike that period, we currently do not have the Covid Fiscal Stimulus boosting growth and incomes.
Given recent events, there is a good chance that there is a new higher floor for oil prices, but in our view, it should not be enough to derail the United States’ economic engine. But the market’s reaction during the quarter was puzzling, and to our surprise, the expected defensive sectors such as healthcare, financials, and consumer staples did not act as the historical “safe havens,” and prices were hit hard. Overall, we view this as temporary. Corporate earnings and economic fundamentals over the next twelve months should prevail over the current shorter term geopolitical shocks.
Technology companies continue to tout Artificial Intelligence’s (“AI”) development and its capability to displace a variety of businesses and even whole industries, many of which we consider to be high quality and dependable. Targeted press releases are issued regularly to show how AI can replicate functions in the software, insurance, legal services, cybersecurity,and finance industries due to its ability to generate code at the “snap of a finger.” This has caused lower stock prices in these industries and has created an opportunity to buy, because in our view, Generative AI will not be the primary hurdle for their future success.
In contrast to the current consensus, we believe AI will take longer to integrate into our daily lives than is currently expected by the financial markets. To expand further, we will be monitoring the following themes and data to guide our decisionmaking over the next twelve months:
- Estimates show AI companies need to scale revenue forty times their current run rate to achieve adequate returns on investment over the next four years.
- Three blockbuster IPOs (Anthropic, SpaceX, and OpenAI) this summer will make the S&P 500 and Nasdaq even more dependent on the success of Artificial Intelligence.
- Political backlash and the converging performance of running AI models on a laptop versus in the cloud will slow data center investment over time.
- “Picks and shovels” companies feeding the AI theme have already priced in tremendous earnings growth over the coming years, leaving little room for error.
- Four million Baby Boomers retiring a year will provide a tailwind to the healthcare sector over the next decade and more.
- Our collective Quality Growth stocks now trade at a mild forward discount to the S&P 500, a rare occurrence that provides a path for good potential future returns.
Furthermore, our recent activity can be summarized as follows:
- Buying activity has modestly outpaced sales over the past 12 months, as we remain bullish about the underlying economy and outlook for growth.
- We continue to rotate toward undervalued issues in equities while keeping capital gains as low as possible.
- We will continue to buy Treasury Bills with excess cash in portfolios if short-term rates remain meaningfully above zero.
- Cash reserve targets still hover around 10% as we stay constructive on stocks.
- Longer duration fixed income securities have become more attractive as rates have spiked in the aftermath of the Iran war.
Though our portfolios were down during the First Quarter, overall, we continue to remain constructive on the stock market in 2026 and expect it to be higher by year end. While there will be bumps along the way, owning a broadly diversified, higher quality portfolio should track well, and progress will be made as corporate fundamentals improve and political tensions lessen.
As always, please do not hesitate to call or set up a meeting to discuss your circumstances or any questions you may have.
Warm regards,
Daniel A. Kane, CFA
President
Stephen F. Knapp, CFA
Director of Research
Jeanne C. Goedecke, CFA
Portfolio Manager
