Market Performance & Trends

The stock markets started 2026 with more of the same as the S&P 500 was up 4.88% through the first two months of the year. However, the beginnings of the conflict in the Middle East, specifically the U.S. and Israel bombing Iran on February 28, caused worldwide stock markets to turn negative for the year. The S&P 500 ended the first quarter down 4.63%. Because of the conflict in the Middle East, the Energy sector led stock market performance with a return of 38.2%. Crude oil was up 77%! On the downside of the market, Financials, Technology and Consumer Discretionary were all down over 9% in the first quarter. International markets continued to outperform the U.S. markets, with international stocks up 10.9% prior to the Middle East conflict, ending the quarter up 2%. As far as the value/growth trade, value continued to outperform growth in the short term, although both metrics ended negative for the quarter. Large cap value vs. large cap growth: -4.9% vs -5.3% and small cap value vs small cap growth: -3.7% vs -6.3%.

Economic Landscape

The Federal Reserve cut the Federal Funds Rate at the last three meetings of 2025. The Fed met two times in the first quarter with no changes to the Federal Funds Rate. So, the rate is currently in the range of 3.50% to 3.75%. Due to the increasing inflation data, at least in the near term, there is no expectation of a cut in the Federal Funds Rate anytime soon. In fact, there are those who believe the next move could be an increase in the Federal Funds Rate to combat the expected inflationary trends caused by the activity in the Middle East. Interest rates rose in March, with the 10-year U.S. Treasury up 35 basis points, again anticipating higher rates in response to increasing inflation data. GDP for 2025 was up 2.2%, compared to an increase of 2.8% in 2024.

Investment Committee Update

The Investment Committee instituted no changes to current investment allocations or investment portfolios in the first quarter. Within TTC portfolios, outsized allocations to the international stocks, added to portfolio returns. Our scheduled passive portfolio rebalance was completed in March. Our last full rebalance to the taxable active portfolio was in August 2025. Our model portfolios have outperformed their respective benchmarks, with the exception of the fixed income allocation within our passive allocations. Fixed income active allocations and stock allocations across our model portfolios achieved outperformance in the first quarter.

Investment Outlook

International stock markets currently offer valuations, which are still attractive, even with the outperformance in this space in 2025. As noted earlier, the international stock market was able to achieve positive returns in the first quarter, even after the Middle East conflict caused worldwide markets to fall and become very volatile in a short period of time. In addition, with underperformance of the value names prior to 2025, these investments continue to offer opportunities as well. Also, double digit pullbacks with some large cap technology stocks provide opportunities for investment. The recent repricing across rates, commodities and equities reflects an adjustment to a more complex backdrop rather than a breakdown of underlying trends. S&P 500 stocks are forecasted to achieve 13% YoY EPS growth from first quarter earnings reports. This would mark the sixth consecutive quarter of double-digit earnings growth for the index. These forecasts were increased from 12.8% at the beginning of the quarter. On the top line, S&P 500 revenues are expected to increase 9.7% YoY, which is up from forecasts of 8.2% at the start of the first quarter. We would be remiss to not mention the current valuation of the U.S. stock market as it compares to historical levels. The cyclically adjusted price-to-earnings (CAPE) ratio of 38.15 at the end of March, indicates the overall stock market is overvalued as compared to historical averages. While it is understood, that the market as a whole, is labeled as overvalued, we believe there are areas which still hold opportunities to achieve outperformance, as compared to stock market averages.