Balancing Uncertainty with Fundamentals and Opportunities

1. From Early-Year Optimism to Opportunity Amid Uncertainty At the start of the year, investor sentiment was notably optimistic, supported by expectations for stronger growth driven by policy initiatives such as the One Big Beautiful Bill, potential tariff relief, favorable comparisons following prior market dislocations, and continued momentum from AI-driven investment. While many of these structural themes remain intact, sentiment has shifted as we moved into April. Concerns have risen around higher gas prices, with the average now at $4.11 per gallon,¹ ongoing geopolitical tensions, moderating global growth, and broader cost pressures.

A key variable remains the duration of the current conflict involving Iran. The Trump administration has recently suggested the situation could be resolved within the next two to three weeks, reinforcing the view that there is a strong incentive to limit the economic impact, particularly around fuel and food inflation. If the timeline proves relatively short, it would likely allow markets to refocus on underlying fundamentals, which remain constructive.

Importantly, earnings trends continue to move in a positive direction. Expectations have been revised higher in recent weeks, with the S&P 500 now projected to deliver approximately 20.3% earnings growth this year.² At the same time, valuation multiples have compressed, declining from roughly 23x to 19x forward earnings,³ with many sectors trading at even more attractive levels.

In this context, the current environment presents a more balanced setup. While near-term uncertainty remains elevated, the combination of resilient economic data, improving earnings expectations, and more reasonable valuations suggests that periods of volatility may create opportunities. For investors, this is often a time to build a disciplined “shopping list,” focusing on quality companies that have been disproportionately impacted despite stable underlying fundamentals.

2. Strong Economic Data Amid Negative Headlines Despite a backdrop dominated by geopolitical uncertainty and market volatility, recent economic data continues to point to a fundamentally resilient U.S. economy. Labor market indicators remain particularly constructive. Private sector employment, as measured by ADP, increased by 62,000 jobs in March, while annual pay was up 4.5%.⁴ Layoff activity has also been softer than expected, with Challenger job cuts totaling 60,600, well below estimates, and down 78% year-over-year,⁵ suggesting limited signs of broad-based labor market stress.

Weekly initial jobless claims further reinforce this stability, coming in at 202,000, with the four-week moving average declining to 207,750,⁶ levels that remain firmly below those typically associated with economic contraction. Additionally, the nonfarm payrolls report showed a meaningful rebound, with 178,000 jobs added versus expectations of just 65,000, while the unemployment rate edged lower to 4.3%.⁷

Beyond employment, broader economic activity continues to show steady expansion. Retail sales are growing at 3.7% year-over-year, reflecting continued consumer resilience,⁸ while the Institute for Supply Management manufacturing index registered 52.7,⁹ marking a third consecutive month of expansion. Sector-level data also underscores ongoing strength in autos; total vehicle sales reached 16.3 million, exceeding expectations, while Class 8 truck orders surged 126% year-over-year,¹⁰ an encouraging signal for industrial demand and freight activity.

3. Earnings Season Setup Last week’s market rebound provided a clear look at where investors are leaning as confidence begins to rebuild. Flows rotated back into technology, financials, and AI-linked industrials, areas that continue to anchor the market’s long-term growth narrative. As earnings season begins, leadership from the large banks will be an early focal point. The big six banks are entering this period with substantial excess capital, positioning them to increase buybacks, dividends, and loan growth, while also continuing to regain share from private market participants amid a more favorable regulatory backdrop.

Expectations for earnings are constructive, with the potential for results to build momentum as the season progresses. Technology will be particularly important in shaping overall market direction. For the MAG 7 to reassert leadership, the focus will shift toward execution, specifically the ability to discuss rising free cash flow. While heavy investment in AI infrastructure is well understood and strategically sound, investors are increasingly looking for tangible returns on that spend. Strong commentary around monetization and improving cash flow dynamics will be critical in supporting valuations and sustaining broader market upside.

4. Fixed Income U.S. Treasury yields declined across the curve last week as investors grew increasingly concerned that the ongoing conflict in Iran could weigh on global growth and elevate recession risks. By Friday’s close, the 2-, 10-, and 30-year yields fell 7, 9, and 6 basis points, respectively.¹¹ The week ahead features a heavy data slate, including MBA Mortgage Applications, PCE, GDP release, March CPI, and the March FOMC minutes.

Credit markets strengthened last week with tightening evident across both the investment-grade and high-yield sectors. Investment-grade spreads narrowed 7 basis points to +123, while high-yield spreads tightened 28 basis points to +366. Concurrently, U.S. credit quality improved as the main rating agencies issued 42 upgrades versus 33 downgrades. The Energy sector led with the most upgrades, while the Financial sector saw the most downgrades. In the municipal market, tax-exempt yields followed Treasuries lower, decreasing 6-10 basis points across the curve.¹²

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Return for Selected Indices¹³

Sources:

1. AAA: As of April 6, 2026 ↩︎
2. Bloomberg: As of April 6, 2026 ↩︎
3. Bloomberg: As of April 6, 2026 ↩︎
4. Bloomberg: As of April 1, 2026 ↩︎
5. Bloomberg: As of April 2, 2026 ↩︎
6. Department of Labor: As of April 2, 2026 ↩︎
7. Bloomberg: As of April 3, 2026 ↩︎
8. Bloomberg: As of April 1, 2026 ↩︎
9. Institute for Supply Management: As of April 1, 2026 ↩︎
10. Act Research: As of April 2, 2026 ↩︎
11. Bloomberg: As of April 6, 2026 ↩︎
12. Bloomberg: As of April 6, 2026 ↩︎
13. Bloomberg. As of April 6, 2026 ↩︎

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