Wealth Insights

Stocks Commentary

Stocks: Fundamentals, Valuations Supportive Of U.S. Indices On A Relative Basis

April 2026

An increasingly uncertain macro backdrop dominated during March as the onset of the conflict in the Middle East pushed energy prices and near-term inflation expectations higher, tamping down investor sentiment and risk appetite. Investors appeared eager to decrease equity exposure early in the month, leading to a steep drop in developed and developing markets abroad with more muted pullbacks stateside. The S&P 500 experienced a peak-to-trough decline of 9% before staging a comeback to close out the month, while the S&P Midcap 400 and S&P Small Cap 600 indices fell 8% and 7%, respectively, from the end of February to their March lows. Notably, even after drawdowns in March, the Midcap 400 and Small Cap 600 indices were still higher by 2.5% and 3.5%, respectively, year-to-date through month-end. Elevated and volatile energy prices will likely continue to cloud the outlook for economic growth and corporate profits but, from a fundamental and valuation perspective, U.S. stocks hold more appeal on both an absolute and relative basis than they did at the start of last month.

As energy prices rose last month, the prospect of stagflation in the U.S. and global economy led market participants to downgrade their expectations for rate cuts from the FOMC this calendar year. In contrast, the futures market began to price in a higher probability that both the Bank of England and the European Central Bank would begin hiking key policy rates, potentially as soon as April, to combat rising inflationary pressures. This shift was particularly painful for economically sensitive sectors/stocks as most central banks across the globe were expected to either be on pause or perhaps ease policy further in the coming quarters, not make policy more restrictive. This outcome was an underappreciated and underpriced headwind in our opinion. With this backdrop in place, U.S. stocks find themselves relatively well positioned compared to developed markets abroad, many of which rely heavily on imported energy and could see inflation rise materially in the coming months.

The underpinnings of U.S. stocks, i.e. earnings estimates, moved higher in March despite a more uncertain backdrop for energy prices and the global economy. On February 28, the consensus estimate called for the S&P 500 to earn $314.35 In 2026, but that figure had surprisingly risen to $323.59 as of March 31 as estimates for the energy and information technology sectors moved higher. So far, strategists have chosen to take more of a wait and see approach to the Iran conflict, with downward revisions to corporate profits few and far between up to this point. With quarterly reporting season set to ramp up, companies could be forgiven for lowering or withdrawing guidance citing the ongoing conflict in the Middle East, but to what degree they do so and the tone they set could dictate the path forward for earnings estimates and either improve or weigh on investor sentiment into the summer months.

On the valuation front, the S&P 500 now trades at 20.2 times projected 2026 earnings and 17.6 times the 2027 estimate, down from 21.8 and 19.0 times at the end of February. Lower valuations are pricing in a combination of less earnings/economic visibility along with higher Treasury yields/interest rates which decrease the present value of future cash flows. While still not ‘cheap’ relative to historical valuation norms, the fact that the entirety of the March drawdown in the S&P 500 was driven by valuation compression and not downward earnings revisions is reason to believe a constructive outlook on U.S. stocks remains warranted. While we are encouraged that earnings estimates for U.S. large cap companies have remained resilient, market tops tend to be caused by events such as the onset of the Iran conflict, while finding a durable market bottom is a process that often takes time to play out. We are monitoring the CBOE Volatility Index, or VIX, as a spike into the mid-to-high 30’s or a sustained move below 20 could potentially be ‘all clear’ signs. Credit spreads on high yield bonds are also worth watching as they were around 270-basis points over the Treasury curve in early April, and a move back toward 250-bps could indicate that risk appetite has returned.

Emerging Markets Set For Relief Rally If Resolution Holds, But Concentration, Thematic Risks Have Risen. Country leadership in emerging market indices shifted last month as South Korea and Taiwan were the biggest detractors, with the former falling by 18.9% and the latter by 10.3%, respectively, in March. Both countries have still turned out sizable year-to-date gains thanks to their parabolic rise in the first two months of the year, but both rely heavily on energy imported from the Middle East which clouds each country’s economic outlook to varying degrees. Over the last 12-months, South Korea and Taiwan are responsible for 30.2% and 21.8% of the return generated by the broader MSCI EM index. For those keeping track, roughly two-thirds of the MSCI EM’s return over the past year has come from just those two countries. If that concentration of returns isn’t stark enough, three stocks: Taiwan Semiconductor, Samsung, and SK HYNIX have accounted for 12.5% of the benchmark’s 30.2% total return over that same time frame. Those outsized returns have been most welcomed by global investors, but tech hardware providers, including DRAM manufacturers like Samsung, are historically cyclical in nature and new entrants should be wary of the rising individual stock and country risk in the broader index. That said, potential resolution to the conflict in Iran could lead to a sharp reversal and reignite bullish momentum behind emerging market stocks, so at present we think it prudent to stay neutral with a still positive near-term outlook should geopolitical fears subside. At the allocation level, we’re broadly positive on our exposure but view active managers as a risk-conscious way to play emerging market stocks as they can adjust positioning in highly appreciated areas and tilt toward pockets of stability like Latin America, which didn’t even cross below their 200-day moving average in March and are already making new highs in early April. At the same time, we see value in supplemental lower cost beta exposures as at the margin to round out portfolios.

As of April 16, 2026