Quarterly Client Letter: Q1 2026

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. Uncertainty about the economic outlook remains elevated. The implications of developments in the Middle East for the U.S. economy are uncertain. The Committee is attentive to the risks to both sides of its dual mandate.

Federal Reserve FOMC Statement

March 18, 2026

As I write this letter, there is a temporary ceasefire in the Iran War. Our thoughts are with all of those impacted by the military engagement.

In the 1^st quarter of 2026, the U.S. stock market, as measured by the S&P 500, closed with a negative total return of (-4.33%). However, as I write this letter on April 13^th, the U.S. stock market has now recovered to a more neutral level of plus +0.94% on the year. After a promising start, setting an all-time closing high on January 27^th, stocks entered a 9% swoon through March 30^th, and then began their recovery. In all, it is hard to say whether the message is indecision or resiliency, but at just 2% from an all-time high, and after a three-year bull market, it is not a bad place for investors to ponder the future.

Three things that I am watching to help judge the future health of the stock market include:

1. The price of oil: The recent spike in the price of oil is primarily linked to the restriction of supply flowing through the Strait of Hormuz. A further spike would indicate a more prolonged shortage, likely leading to a reduction in global growth and increased inflationary pressures.
2. The level of interest rates: Looking toward the bond market, the 10-year Treasury yield has been relatively stable this year. Effectively, it traded between 4.0% – 4.5%. A break above 4.5% would likely indicate that the market is spooked by further inflationary pressures. A break below 4.0% would likely indicate increased fear of an economic recession.
3. Future S&P 500 earnings estimates: Earnings growth has been a vital driver of stock valuations since this bull market began in earnest in 2023. Estimates for 2026 remain upbeat and continue to trend in all-time high territory. Much of the strength in earnings growth is coming from the massive surge of capital investment in the infrastructure build-out to support artificial intelligence. A few of the unknowns around A.I are: the sustainability of capital spending levels; the sustainability of cyclically elevated profit margins on the component supplier side; the timing and pace of A.I. revenue generation; and, the level of productivity outcomes on earnings trends as the transition from building to implementation unfolds.

With the news dominated by weighty topics like war in Iran and the exponential development trajectory of Artificial Intelligence, this past quarter has had, at least for me, a bit more of an existential quality to it (with a bit of science fiction thrown in on top). To paraphrase the quote that opened this letter, in the Federal Reserve’s typically understated style, my uncertainty is elevated. I think a large part of that feeling is my inclination to analyze events from a tail risk perspective (or low probability, worst case scenarios). As a thirty-plus year portfolio manager, however, I have learned (many, many times) that considering tail risk, as well as all other risks, is only the first step. Risks always exist, and it is the job of a portfolio manager, and the job of all successful investors, to manage risk.

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Two of my favorite parts of the 1^st Quarter of 2026:

Watching the 2026 Winter Olympics: It never ceases to amaze me what people are able to do when they dedicate themselves to excellence. And, in general, it was wonderful to see the interactions of the athletes from all over the world and the overall respect and kindness they showed to each other amidst the intensity of the competition.

New business partners at Peak Asset Management: This past quarter Johnny Russell and Jason Foster have joined Tara and me as partners of Peak. Not only have they proven themselves to be essential pillars of Peak’s future through their leadership and expertise, they are each a pleasure to work with.

Welcome partners!

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We hope this letter finds you and your family well. We appreciate your business, and we continue to work hard to earn the trust that you have placed in us. Please let us know if you have a friend or a family member who could use our assistance.

John McCorvie, CFA

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