Hi All,
2026 is upon us, and while January felt like it lasted forever, February is starting to fly by. In our last post, we wrote, “Given oil is trading near 5-year lows and equity market valuations are in top 10% of historical ranges, we feel energy, in particular, offers a compelling investment case and we will begin to build this into client portfolios early in 2026.” So far in 2026, the OIH (Oil Services ETF) is up 34%. Did I mention that it’s still February?
Coupled with the resurgence of unloved (and traditionally defensive) sectors, we’ve seen a Rorschach test of economic data points. Challenger recently released that announced job cuts in January was the worst January since 2009. The stock market bulls shout, “AI is making companies more productive, so profit margins are going to the moon!” Stock market bears retort, “Less people with jobs is bad for the economy!” This constant push and pull of an ever-morphing economic environment has started to bleed into the stock market as well.
The year-to-date underperformance of US equities relative to the rest of the world is the worst since at least 1995. Bears confidently claim the “Sell America” trade is alive and well. Bulls note that a broadening of the rally outside of the Magnificent Seven tech stocks (which have gone nowhere since last summer) is extremely healthy.
The sector leaders in the early part of 2026 are clear: Consumer Staples, Utilities, Energy, and Real Estate. Traditionally, these sectors are not indicative of a booming economy (banks and semiconductors usually take the lead on the way up). Investors falling all over themselves to buy Walmart and Costco at 50x earnings doesn’t quite give me the warm and fuzzies. Couple that with the spike in the price of precious metals (silver was up 144% last year), the stunning decline in the software sector (entire group is down 22% YTD), ever-present geopolitical tensions, and mortgage rates remaining stubbornly high, this market has the look and feel of something that needs a breather.
We’re still expecting a modest broader decline in the first half of 2026, and we’ve built portfolios to not only withstand this decline, but to take advantage of the opportunities that it will present. Watching the market on a day-to-day basis has been filled with massive amounts of noise, but I just want you to know that we’re prepared for whatever may happen.
“It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.” – Mark Twain
– Adam