Author: Massimo Santicchia

22 May

Posted at 15:37h in Market Commentary by

The Reflationary Case

The markets are telling a reflationary story right now. Economic growth is broadening, inflation is firming, and risk appetite is healthy. In this environment, history suggests favoring the parts of the global equity market that benefit when growth accelerates: emerging markets, value-oriented stocks, and cyclical sectors.

This isn’t a guess about where the market is heading – it’s a response to where it already is. The data supports a pro-cyclical stance across multiple dimensions: manufacturing activity is expanding, corporate earnings are strong and broadening beyond the mega-cap technology stocks that dominated last year, and credit markets remain healthy. Most importantly, markets are rewarding economic sensitivity.

The key question isn’t whether this setup is attractive right now; it is. The question is how long these conditions persist, and what could change them. We’ll walk through both the opportunity and the risks.

Global Equity Market Commentary May 2026

What the Market Environment Favors

The current backdrop favors a pro-cyclical orientation. That means tilting toward:

  • Value over Growth: Companies trading at attractive valuations relative to their fundamentals tend to outperform when inflation is firming and growth is broadening. The environment now supports value stocks across both US and international markets.
  • Cyclicals over Defensives: Sectors like Technology, Consumer Discretionary, and Industrials benefit when economic activity accelerates. Defensive sectors like Utilities, Consumer Staples, and Healthcare typically lag in reflationary periods.
  • International Exposure: Both developed international markets and emerging markets deserve meaningful weight. The US dollar is trading below trend, and global growth momentum is positive – both conditions that historically support non-US equities.
  • Economically Sensitive Markets: Within emerging markets, regions with strong economic linkages to global growth, such as Asia ex-Japan and Latin America, are particularly well-positioned.

Recent Shift in Market Leadership

Over the past month, market leadership shifted decisively toward risk assets. Defensive positioning that made sense earlier this year is now a drag on performance.

The rotation has been clear: out of minimum-volatility strategies and defensive sectors, into broad market exposure and growth cyclicals. Technology, Consumer Discretionary, and Industrials are leading, while Utilities, Staples, and Healthcare are lagging.

The message is clear: markets are rewarding economic expansion. Positioning should reflect that reality.

Why This Positioning Makes Sense

The Economic Backdrop

Growth momentum is positive and building. Manufacturing activity (PMI) sits above 50 and is rising, indicating expansion. Inflation is firming alongside economic growth, and the yield curve maintains a positive, steepening slope; all signals that historically support risk-taking in equities.

This is the exact backdrop that favors cyclical positioning. Value stocks, cyclical sectors, emerging markets, and international equities typically need broadening growth momentum and healthy risk appetite to outperform. We have both right now.

Corporate Earnings Are Strong

The most recent earnings season delivered impressive results: 84% of S&P 500 companies beat earnings estimates, and 80% exceeded revenue expectations. Year-over-year earnings growth accelerated to 27.7%, while revenue growth came in at 11.3%. Perhaps most importantly, earnings growth is broadening beyond the mega-cap technology names that carried the market through much of last year. Ten of eleven sectors now show year-over-year earnings growth, with seven sectors posting double-digit gains. This breadth of participation supports a cyclical tilt.

That said, concentration hasn’t disappeared completely. A meaningful portion of the upside in aggregate earnings still comes from a handful of large technology and platform companies. The market is broadening, but it’s not yet fully divorced from mega-cap leadership. Continued broadening would strengthen the case for cyclical positioning.

One critical point for a value and cyclical strategy: margins are holding up. The S&P 500 net profit margin hit 14.7% – the highest level on record. Rising inflation is manageable when companies can maintain pricing power and cost control. So far, they can.

Earnings Snapshot

Earnings Snapshot Chart

Source: FactSet

Market Conditions Support Risk-Taking

The risk environment has shifted decisively into risk-on mode. Equity volatility is contained, credit spreads are tight, and the US dollar is trading below its trend – all conditions that historically support international and emerging market equities.

The clearest signal comes from market leadership itself: cyclical stocks are outperforming defensive stocks across the US, developed international markets, and emerging markets. When cyclicals lead globally, it tells you that markets are rewarding economic sensitivity. That validates a pro-cyclical stance.

What Could Derail This Setup

This setup is compelling, but it’s not without risk. A pro-cyclical stance concentrated in value stocks, cyclical sectors, and emerging markets creates vulnerability if the conditions supporting these areas reverse.

The primary risk scenario: a resurgence of inflation that drives bond yields sharply higher and strengthens the US dollar. This combination would disproportionately pressure emerging markets, cyclicals, and international equities.

Specific warning signs to monitor:

  • US dollar breaking above its 200-day moving average, creating headwinds for international equities
  • 10-year Treasury yields rising more than 50 basis points, challenging cyclical stocks and equity valuations
  • High-yield credit spreads widening significantly, signaling deteriorating risk appetite
  • Global manufacturing activity (PMI) falling back below 50, weakening the growth thesis
  • Defensive stocks beginning to outperform cyclicals, signaling a shift in market sentiment
  • Emerging markets underperforming developed markets, challenging the case for EM exposure

Any combination of deteriorating growth, tightening liquidity, rising yields, widening credit spreads, or renewed dollar strength would hit cyclical positioning disproportionately hard. These are not distant theoretical risks; they’re the specific conditions that would invalidate the current opportunity. That’s why monitoring them is essential.

The Bottom Line

The market environment favors a reflationary playbook, and right now, that thesis is playing out. Economic growth is broadening, earnings are strong, risk appetite is healthy, and markets are rewarding cyclical exposure.

The setup is constructive for value-oriented stocks, cyclical sectors, and international markets, particularly emerging markets. These areas benefit from the current combination of expanding growth, firming inflation, and accommodative liquidity conditions.

The core issue isn’t whether this asset mix aligns with today’s environment. It clearly does. The real task is keeping a close eye on the macro drivers that justify the stance: tracking growth momentum, inflation trends, credit conditions, currency swings, and shifts in market leadership. If the underlying data changes, our positioning needs to shift with it. For now, the tactical opportunity is compelling, and the right conditions are in place to capture it.

IMPORTANT DISCLAIMERS AND DISCLOSURES:

The information contained in this presentation has been gathered from sources we believe to be reliable, but we do not guarantee the accuracy or completeness of such information, and we assume no liability for damages resulting from or arising out of the use of such information. Past performance is not indicative of future results.

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16 Apr

Posted at 20:27h in Market Commentary by

Executive Summary

Q1 2026 ultimately reflected a rotation-driven market under a temporary inflation shock, rather than a deterioration in underlying economic fundamentals. While the S&P 500 declined 4.3% over the quarter, leadership broadened meaningfully across small caps, value, international equities, and commodities, cushioning diversified portfolios and highlighting the benefits of diversification.

The dominant late-quarter event was the escalation of conflict involving Iran and the resulting disruptions in the Strait of Hormuz. This triggered a sharp rise in oil prices, a rapid repricing of inflation expectations, and a rotation away from duration-sensitive mega-cap growth. However, the subsequent truce and equally sharp reversal in oil prices suggest that this “overheat” phase was externally induced and is now beginning to unwind.

Importantly, the U.S. economy remained resilient throughout this period. Labor markets held firm, business activity remained in expansion, and corporate earnings expectations continued to improve. As the inflation shock fades, the macro regime appears to be shifting back toward broadening expansion with easing supply constraints, supporting a more constructive, though still data-dependent, outlook.

Market Performance

  • U.S. Large-Cap (S&P 500): –4.3% (largest quarterly decline since 2022)
  • U.S. Small-Cap (Russell 2000): +0.9%
  • Style Rotation: Value stocks +1.7% to +2.1% vs. Growth stocks –8.4% to –10% (widest quarterly gap in over a decade)
  • International: MSCI EAFE (developed), –2.25%; MSCI Emerging Markets, –0.1% (both outperformed U.S. large-caps)
  • Fixed Income: Bloomberg U.S. Aggregate Bond Index –0.05%
  • Commodities: Bloomberg Commodity Index +24.4%, driven by energy (Brent crude +~63% in March alone)

This divergence underscores a key point: markets were not signaling systemic stress, but rather adjusting to a shift in macro conditions, specifically, a rise in inflation expectations and interest rate sensitivity. The result was a temporary breakdown in concentration leadership and a reallocation toward sectors more resilient to or benefiting from higher input costs.

(Sources: Creative Planning Q1 2026 Market Commentary; J.P. Morgan Asset Management Q1 Review; Vanguard Q1 Perspectives)

Labor Market (Jobs)

The labor market remained resilient and broadly balanced throughout the quarter. March nonfarm payrolls increased by 178,000, well above expectations, while the unemployment rate held steady near 4.3%. Gains were concentrated in health care, construction, and transportation — sectors that are typically sensitive to underlying economic activity. Importantly, there was little evidence of either overheating or deterioration.

Wage pressures remained contained, and hiring continued at a pace consistent with steady, sustainable growth. Taken together, the labor data reinforces the view that the economy entered and navigated the geopolitical shock from a position of strength.

(Source: U.S. Bureau of Labor Statistics – Employment Situation Summary, March 2026)

PMI (Business Activity)

Both manufacturing and services sectors stayed firmly in expansion:

  • ISM Manufacturing PMI: 50.7 in March (third consecutive month above 50, the strongest run since 2022)
  • ISM Services PMI: 53.0 in March (solidly expansionary, though down from 56.1 in February)

While respondents noted rising energy-related costs and some supply-side pressures, there was little indication of demand destruction. This distinction is important: the data point to a supply-driven inflation shock layered onto a still-expanding economy, rather than a slowdown in activity.

Inflation

Inflation dynamics evolved meaningfully over the course of the quarter. Early in Q1, headline inflation remained relatively contained, with CPI at 2.4% year-over-year and core PCE around 3.1%. However, the late-quarter oil shock introduced a new source of pressure. Rising energy costs fed through to input prices, contributing to a repricing of inflation expectations and a modest increase in bond yields.

More recently, the reversal in oil prices following the geopolitical truce has begun to ease that pressure. While services inflation remains elevated, the sharp increase in input costs now appears more likely to have been cyclical — driven by a temporary supply disruption — rather than the start of a sustained re-acceleration. As a result, inflation risk has shifted from one of escalation to persistence, with markets now focused on whether disinflation resumes rather than whether inflation will continue to rise.

(Sources: U.S. Bureau of Labor Statistics – CPI data releases; Federal Reserve Summary of Economic Projections)

Market Resilience in Light of Current Events & Upward EPS Revisions

The late-February Iran conflict escalation and Strait of Hormuz disruptions created a classic supply-shock scenario, spiking oil and commodities while initially pressuring risk assets. Despite this, markets proved resilient:

  • Leadership broadened dramatically (small caps and equal-weighted indices outperformed cap-weighted).
  • The energy sector surged +18.5%, while software/tech names faced “creative destruction” pressure but the broader index held.
  • No recession fears materialized — consensus recession odds stayed low (~30%).
  • Corporate earnings momentum reinforced this: FactSet data shows S&P 500 Q1 2026 earnings growth estimates were revised upward to +13.2% year-over-year (from +12.8% at year-end 2025), with revenue growth estimates also lifted to +9.7%. Nine of eleven sectors are now expected to post positive growth, reflecting broadening participation beyond the “Magnificent 7.”

(Sources: FactSet S&P 500 Earnings Season Preview Q1 2026; multiple Reuters/Bloomberg reports on Iran/Hormuz events)

Outlook & Portfolio Implications

Looking ahead, the macro backdrop remains constructive, but the drivers of market performance are evolving. The economy continues to expand, supported by resilient labor markets, solid business activity, and positive earnings momentum. At the same time, the easing of the oil-driven inflation shock reduces the primary near-term risk to the outlook and reintroduces policy flexibility. This shift suggests a transition from a narrow, inflation-driven rotation toward a more balanced environment characterized by broader participation across sectors and styles.

From a portfolio perspective, this argues for rebalancing rather than repositioning. Cyclical exposure remains appropriate given the strength of the expansion, but the case for an outsized overweight to energy and other inflation beneficiaries has weakened as oil prices have retraced. Conversely, the headwinds facing duration-sensitive assets, particularly growth equities, are beginning to ease, creating opportunities to reintroduce exposure selectively.

Fixed income also becomes more balanced in this environment. With inflation pressures moderating at the margin, duration risk is less one-sided, and intermediate maturities may offer more attractive risk-adjusted opportunities. That said, the outlook remains contingent on several key factors. The durability of the geopolitical de-escalation, the trajectory of services inflation, and the behavior of credit markets will all play a critical role in determining whether the current improvement is sustained.

Key Sources:

J.P. Morgan Asset Management, Vanguard, Goldman Sachs Asset Management, and Evercore Wealth Management

U.S. Bureau of Labor Statistics – Employment Situation Summary (March 2026) and Consumer Price Index (February 2026); Institute for Supply Management – Manufacturing PMI Report (March 2026) and Services PMI Report (March 2026); FactSet – S&P 500 Earnings Season Preview, Q1 2026; Bloomberg, Reuters, and wire service reports on the Iran conflict and Strait of Hormuz developments (February–March 2026)

31 Mar

Posted at 16:23h in Large Cap by

Alpha Quant® Core Equity is a portfolio of about 50-60 large-cap stocks that exhibit a combination of higher return on invested capital, stronger free cash flow generation, and lower debt leverage compared to the benchmark and peers. The portfolio is managed with a fundamentally based, systematic process with quarterly rebalancing to maintain the portfolio’s focused fundamental profile.

31 Mar

Posted at 16:22h in Large Cap by

Alpha Quant® Dividend Equity is a focused portfolio consisting of 30 large-cap stocks with strong dividend persistence. The portfolio invests in companies that not only offer high yield, but also have characteristics indicative of strong dividend growth potential. The portfolio is managed with a fundamentally based, systematic process with quarterly rebalancing to maintain the portfolio’s focused fundamental profile.

31 Mar

Posted at 16:21h in Large Cap by

Alpha Quant® Large Cap Growth

Alpha Quant Large Cap Growth is a high-conviction, high-quality portfolio consisting of 20 stocks that demonstrate sustainable profitability and strong growth fundamentals. The strategy focuses primarily on large-cap stocks, with the flexibility to include select mid-cap holdings. The portfolio typically exhibits superior profitability, measured by return on invested capital and higher projected long-term EPS growth compared to its benchmark and peers. It is managed using a fundamentally driven, systematic process with quarterly portfolio adjustments to maintain its focused fundamental profile.

31 Mar

Posted at 16:20h in Mid Cap by

Alpha Quant® Mid Cap portfolio is a multi-strategy portfolio that combines distinct systematic sub-strategies across mid-capitalization quality and value investment styles. The portfolio is comprised of mid-cap stocks selected based on profitability, valuation, low debt and strong cash flows. The strategy is built bottom-up and diversified across sectors and industries.

The portfolio is managed with a fundamentally based, systematic process with portfolio adjustments and annual rebalancing to equal weight to maintain the portfolio’s focused fundamental profile.

31 Mar

Posted at 16:18h in Mid Cap by

Alpha Quant® Mid Cap Growth portfolio is a multi-strategy, systematic portfolio that invests in companies with high profitability and strong cash flows. The strategy aims to select profitable companies with sustainable earnings growth. The strategy is built bottom-up and diversified across sectors and industries.

The portfolio is managed with a fundamentally based, systematic process with portfolio adjustments and annual rebalancing to equal weight to maintain the portfolio’s focused fundamental profile.

31 Mar

Posted at 16:17h in Mid Cap by

Alpha Quant® Mid Cap Quality portfolio is a systematic strategy that selects companies with high return on invested capital, strong cash flows, and high productivity. The strategy aims to select profitable companies with sustainable earnings growth. The strategy is built bottom-up and diversified across sectors and industries.

The portfolio is managed with a fundamentally based, systematic process with portfolio adjustments and annual rebalancing to equal weight to maintain the portfolio’s focused fundamental profile.

31 Mar

Posted at 16:16h in Mid Cap by

Alpha Quant® Mid Cap Quality Growth portfolio is a systematic strategy that selects companies with high return on equity and strong cash flows. The strategy aims to select profitable companies with sustainable earnings growth. The strategy is built bottom-up and diversified across sectors and industries.

The portfolio is managed with a fundamentally based, systematic process with portfolio adjustments and annual rebalancing to equal weight to maintain the portfolio’s focused fundamental profile.

31 Mar

Posted at 16:15h in Mid Cap by

Alpha Quant® Mid Cap Value portfolio is a systematic strategy that invests in companies with strong cash flows, lower debt and high free cash flow yield. With the goal of managing “value trap” risk, the strategy incorporates earnings and revenue growth factors. The strategy is built bottom-up and diversified across sectors and industries.

The portfolio is managed with a fundamentally based, systematic process with portfolio adjustments and annual rebalancing to equal weight to maintain the portfolio’s focused fundamental profile.

31 Mar

Posted at 16:14h in Large Cap by

Alpha Quant® Quality Equity is a high conviction, high quality portfolio consisting of 30 stocks that display sustainable profitability and growth fundamentals. The strategy aims to be focused in large-caps with the flexibility to hold mid-cap stocks.

The portfolio will typically display strong profitability in terms of return on invested capital as compared to the benchmark and peers.

The portfolio is managed with a fundamentally based, systematic process with quarterly portfolio adjustments to maintain the portfolio’s focused fundamental profile.

31 Mar

Posted at 16:12h in Small Cap by

Alpha Quant® Small Cap portfolio is a multi-strategy portfolio that combines distinct systematic sub-strategies across small-capitalization quality and value investment styles. The portfolio is comprised of small-cap stocks selected based on profitability, valuation, low debt and strong cash flows. The strategy is built bottom-up and diversified across sectors and industries.

The portfolio is managed with a fundamentally based, systematic process with portfolio adjustments and annual rebalancing to equal weight to maintain the portfolio’s focused fundamental profile.