Market Views
Posted 04/08/2026
If nothing within you stays rigid,
outward things will disclose themselves.
Moving, be like water.
Still, be like a mirror.
Respond like an echo.
~ Liezi 列子 (Buddhist text)
Water, Mirror, Echo…..U.S. stocks delivered their worst quarter since Q3-2022. The tech-heavy Nasdaq composite lurched into correction territory on March 26, falling 10% below its recent high. A day later, the Dow Jones Industrial Average joined it. The current Iran War is the main culprit.
At the beginning of January 2026, economic growth was accelerating, and the Federal Reserve appeared poised to make further interest-rate cuts as markets had moved past the uncertainty created by U.S. disputes with its international trading partners. The trends pointed to the potential for double-digit returns, even after three years of strong performance. The combination of solid earnings growth, AI tailwinds, and further Fed easing could support global equities in the coming year. However, Q1-2026 saw rapid narrative rotations — from AI optimism, to SaaS multiple compression, to geopolitical shocks — fueling volatility and depressed investor sentiment. As a result, virtually all equity and bond indices posted losses, with the tech-laden NASDAQ down the most (-7.1 %).
Despite negative sentiment, key manufacturing metrics grew after three years of contraction, signaling a manufacturing rebound likely tied to infrastructure and re-shoring. S&P 500 earnings grew 13% YoY for the sixth consecutive quarter, compressing forward P/E to 19.3, below the 5-year average. Most analysts expect a strong S&P 500 rebound within 12 months, with Information Technology projected to lead growth while Energy remains flat. Moreover, Fed commentary that inflation expectations seem to be well-anchored drove Treasury yields lower as traders’ fear of a rate hike this year eased.
The AI narrative is evolving rapidly, with the pace and scale of AI-related capital expenditures by mega-cap tech firms reaching unprecedented levels. This rapid expansion has contributed to volatility, especially in software and IT services, as markets reassess the sustainability of business models and the potential for disruption. In contrast, sectors benefiting from or resilient to AI disruption includes Industrials benefiting from improved manufacturing activity and exposure to long-term trends like re-industrialization and electrification.
Artificial intelligence promises to remake economies, supercharge productivity, cure cancer, discover new drugs, and solve climate change. It is also said to be destroying jobs, privacy, profit margins, and the search for truth. One piece of data triggers optimism, followed just days, or hours, later by apocalyptic dread.
The battle is playing out in real-time on Wall Street. Software, formerly viewed as the ideal business model, is now seen as a relic, outdated by automated agents that can easily solve business problems. Asset-light tech platforms look increasingly like indebted industrials, forced to spend billions of dollars to keep up with AI’s substantial financing demands. Tech investing was suddenly turned on its head.
Prior to the outbreak of the Iran War and the surge in energy prices, concerns about the U.S. economy’s growth prospects and a continuing trade war led more investors to look overseas for stocks at attractive prices. This caused international stocks to outperform their U.S. counterparts in 2025 by the widest margin in 16 years. However, geopolitical disruption and the fear of energy shortages quickly caused the enthusiasm for international investing to dissipate. The MSCI World, EAFE and Emerging Market indices all declined in Q1. In particular, Asian economies most dependent on oil imports such as South Korea, Japan and India felt the brunt of their fundamental energy dependency.
The Fed and government are caught between fighting inflation and stimulating cyclical growth. We note a politicized Federal Reserve, rising public and private debt burdens, and sharper economic polarization. With respect to sector preferences, we hold constructive views on financials, information technology, communication services, health care, and utilities. Diversification is challenging, but unloved cyclicals may become embraced again, expecting a market-broadening trend as AI capital flows accelerate and policy support increases.
In 2026, questions about AI-driven growth and affordability pressures are affecting large parts of the economy, driving wider divergences across markets. All of the above challenges notwithstanding, our view remains modestly constructive, supported by cautious central-bank normalization, contrarian pessimistic investor sentiment, and elevated cash on the sidelines. For the balance of 2026, we expect continuing disparities across markets, consumers, and the overall economy.
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Triumph of the Therapeutic….. Self-knowledge is an essential prerequisite to successful investing. But the path to self-knowledge is long and winding, and there are many tasks it cannot address. Mental confusion - either normative or pathological - remains enigmatic, its causes ambiguous, and its cures debatable.
The marketplace sometimes makes demands on us to which we are not equal. It compels us to think about what is most thought-provoking. It puts us on the defensive. It humbles those who fail to learn from history. What is it that enjoins us to place our wealth - along with our egos and mental energies - at risk? The central dilemma is that many people not only do not know what they need, they often do not know what they really want. Strictly speaking, they do not really need most of what they proclaim to want. Even once they have it, they remain strangely unsatisfied.
The psychoanalyst Christopher Bollas posited, in his theory of the “unthought known,” that human beings at a very early stage are informed by many ideas conveyed through action rather than thinking. This then becomes a part of our unconscious perception, organization and risk preferences that profoundly affects our conscious decision-making throughout adult life. As adults, we spend our time looking for objects of interest (a “transformational object”) which can enhance our particular idioms or styles of life. This is an important aspect of maturation, progress, and productivity.
The professional class has long subscribed to the conscious rational decision-making process. This has subordinated the key role of unconscious processes (sometimes colloquially known as intuition and gut) at work. We sometimes trust our intuition or gut more than our rational decisions because they seem more romantic and revelatory. However, when our conscious and unconscious inclinations conflict, it is usually better to pause and dwell upon both preferences. In moments of uncertainty, using unconscious and conscious thought to address a big decision often yields the best outcomes, combining both intuition and rational calculation.
The connection between conscious and unconscious decision-making and risk-taking are complex, with multiple pathways for communication and feedback. Rational decision-making is effective in assessing large amounts of information with multiple choices, while the unconscious is more sensitive to risk assessment, especially when our choices have significant consequences for others.
Often, our conscious mind will have too much information, in the absence of any clear choices. Many people have difficulty when presented with too many options. Finally, one cannot listen one’s own intuition if it is drowned out by other people’s opinions. After assessing available information and seeking external guidance, there comes a point to stop, reflect and listen to one’s own voice, one’s own “human idiom.”
So how should active investors think and behave, especially during spikes in market volatility and macro-uncertainties? It is imperative that one should not be trapped in a rigid mindset, but adapt to changing circumstances. As the legendary martial artist Bruce Lee advised, channeling Taoist wisdom:
“Empty your mind. Be formless, shapeless, like water. You put water into a cup, it becomes the cup. You put water into a bottle, it becomes the bottle. You put it in a teapot, it becomes the teapot. Now, water can flow or it can crash. Be water, my friend.”
Posted 01/08/2026
No man is so harmlessly occupied
as when he is making money.
- Samuel Johnson
Our National Passion…..Markets continued to set new records in 2025, and the combination of solid earnings growth, AI tailwinds, and further Fed easing should support global equities in the coming year. AI and big tech stocks once again drove the rally, on the back of robust demand for AI infrastructure and cloud services. The Nasdaq Composite rose 20.4%, the Dow gained 13.0%, and the S&P 500 advanced 16.4%.
Current valuations are high compared to long-term averages. The S&P 500 forward price-to-earnings ratio, is at 22.6x, and remains heavily concentrated, with the top 10 stocks by market cap making up 40% of the index weight. The bullish sentiment extended beyond equities as credit markets and commodities enjoyed strong gains Gold, historically a contrarian hedge, soared 64.5%.
Concerns about the U.S. economy’s growth prospects and a continuing trade war led more investors to look overseas for stocks at attractive prices. International stocks outperformed their U.S. counterparts by the widest margin in 16 years. The MSCI All Country World ex-USA Index, which tracks developed and emerging market stocks, was up around 35% in 2025 on a U.S.-dollar basis. That beat the S&P 500, which was up 16%. In contrast, South Korea’s Kospi was up 64%, Germany’s DAX increased 22%, Japan’s Nikkei 225 climbed 24% and the U.K.’s FTSE 100 rose 18%. Compared to the S&P 500’s 23x projected earnings over the next 12 months, Japan’s Nikkei 225 recently traded at 21x and Hong Kong’s Hang Seng multiple was about 12x.
Our sector preferences remain unchanged, with constructive views on financials, information technology, communication services, health care, and utilities. Investing in U.S. markets is tantamount to a concentrated bet on the development and proliferation of AI. The market faces a high-risk, high reward environment driven by AI disruption, weakening labor demand, and concentrated earnings in a few mega-cap tech stocks. Cyclical sectors and consumer stocks are in an earnings recession, while AI hyper-scalers and related sectors outperform, creating a top-heavy, fragile market.
The Fed and government is shifting from fighting inflation to stimulating cyclical growth, with potential balance sheet expansion and lower rates despite persistent inflation. Diversification is challenging, but unloved cyclicals may become embraced again, expecting a market-broadening trend as AI capital flows accelerate and policy support increases.
In fixed income, we expect the coming months to be shaped by slowing growth, the Fed’s pivot toward easier monetary policy, and fiscal pressures that could heighten volatility. While the yield curve steepened in 2025, the curve may flatten in the short term given a more dovish Fed outlook. With spreads at their tightest in recent years, yield is a key driver of returns. We continue to prefer high yield and investment grade bonds in the intermediate area of the yield curve, allowing investors to lock in yields at historically attractive levels.
In 2026, questions about AI-driven growth and affordability pressures are set to affect large parts of the economy, driving wider divergences across markets. The past year marked a coming-of-age moment for building AI value, alongside tariff shocks, a divided Federal Reserve, rising public and private debt burdens, and sharper economic polarization. Heading into the new year, our view is generally constructive, supported by cautious central-bank normalization, front-loaded fiscal support, and elevated cash on the sidelines, even as disparities across markets, consumers, and the economy widen.
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Technology and the Human Psyche..… Although we live in a digital world connected by undersea cables pulsating with bandwidth, wireless signals bouncing off satellites, and large portions of human knowledge encapsulated in silicon chips, what we need and want remains very basic and enduring. The power of the physical, the material and tactile qualities of human interaction maintain its hold over us and reaches deep into our hearts and minds. In crucial situations, the personal connection – direct contact with a human touch – remains the most compelling and reliable.
The technology revolution has profoundly transformed our society and economy; it also provides a catalyst for us to react to market information. In the current context, our infatuation with technology has altered the nature of human relationships, driving workers out of factories and office buildings, and dispersing them back into decentralized clusters and into their homes. However, digital communications leave much less opportunity for the kind of subtle, physical communications that we relied on in the past. Moreover, instant accessibility demands instant responses and thus alters mutual expectation in a fragmented, over-saturated and hyper-specialized world.
As in prior periods of great technological advancements, technology brings material progress, but it also threatens man’s psychic connection to each other and to nature. The many advantages of modern telecommunications and information innovations simultaneously create the disadvantage of disconnection. Such fundamental changes results in the uncomfortable adjustment of many economic, social, and psychological certainties.
Technological connectivity challenges our concepts of effective communications. In an era of fiber-optic networks and computerized transactions, we still nevertheless value physical and mental proximity. This quality is hard to quantify, much less replace. We are not robots with preconditioned responses and no amount of sophisticated technology will make us so. However, we do more than tune in and listen to the worldwide transmission and exchange of information; we interact with it. This worldwide electronic nexus informs, entices, and seduces us and we, in turn, respond to it.
For better or for worse, techno-consumerism now drives major sectors of global free market capitalism. Technology and the endless gadgetry that it brings offer a powerful narcotic to the masses. There is a sharp acceleration in the amount of discretionary time people are now connected to technology. The information age has made so much information available to consumers. So much information, but so little knowledge. The pace of our modern, technology-driven life compresses attention spans and creativity. As more and more megabytes of data are compressed onto microscopic bits of silicon, the more we realize that good answers demand even better questions. Information has replaced knowledge while data gathering supplants human understanding. The convergence of the silicon chip, digital transmission technology and the human brain has dictated that information, however excessive and irrelevant, must constantly be placed in front of us for processing. The ubiquity of technology in our lives sets up a constant tension between productivity and frenetic busyness.
In many ways, we are laboring under the shadow of a burnout society. Under the illusion that the more information we have, the better off we will be, most people are willing to browse the digital landscape for news, entertainment, gossip, and otherwise mindless excreta. We are compulsively drawn to the stimulation of ever-changing incoming data. The electronic apotheosis of our mass media culture persuades us that a constant flow of information leads to understanding and that frequent communications create a sense of community. The volatility of this information barrage has also changed our sense of time and priorities.
With limited time for each incoming bit of data, we react to data rather than reflect on what is important. But information, whether real or fictional, has a seductive power to engage its recipient. It has the power to inform and bemuse us, but also the capacity to deceive and distract. The more information we process, the more difficult it is to act thoughtfully on any part of it. Banality and superficiality are the predominant qualities for what passes as information these days. This becomes more widespread as we sink deeper into the age of technology and mass telecommunications.
