March 2026
US Economy: Q4 GDP growth disappoints.
The 1.4% advance estimate for Q4 US GDP growth fell well below analyst expectations for more than double that pace. Slower than expected consumption activity (+2.4%) was a factor in the slower pace as was this last fall’s long government shutdown that by some estimates accounted for a 1% haircut to the pace. Core PCE Inflation meanwhile accelerated to 3.0% yoy, the fastest pace since April of 2024, underscoring the continued challenge faced by the Fed in managing policy amid conflicting forces.
US Stocks: Non-tech market leadership persists.
US large cap stocks pulled back from all-time highs in February although weakness wasn’t uniform. We continue to see a broadening of market performance drivers which may yet unfold as a persistent rotation to new market leadership: Utilities, materials and energy outperformed on continued infrastructure build demand and the rising tension in the Mideast in the case of the latter. Meanwhile, technology stocks fell nearly 4% with concerns mounting over the AI impact on software companies.
Foreign Stocks: The streak continues.
International equities continued their recent run, outpacing US stocks in each of the last 2 months. Weakness in the US dollar had been a factor in results but not in February as the less technology centered non-U.S. markets benefited from recent investor attention favoring better valuations and, importantly, economic and corporate earnings momentum. Australian stocks returned nearly 8% on strong mining sector performance underscoring the trend of top performers outside of tech.
Fixed Income: Treasury yields fall risk-off sentiment.
The 10-year US Treasury yield fell just below 4% on increasing risk aversion from investors alongside the concerns over software businesses and the surprisingly weaker GDP data. Corporate credit spreads widened and US Treasury bonds outperformed in this backdrop while, municipal bonds—which are less sensitive to interest rate fluctuations— lagged somewhat with seasonal supply and demand factors creating an added headwind.
Real Assets: Infrastructure posts big month.
Performance within real assets was mixed across different sectors, yet the results still captured the shifting momentum currently seen in the broader financial markets. Bitcoin fell 11% during February with the slide dating back to October 2025 reaching nearly 50% as ETF flows and sentiment have reversed. Meanwhile, infrastructure returned nearly 8%, continuing to benefit from the surge in AI compute demand and defensive traits. Infrastructure has now doubled the return of the S&P 500 in the last 12 months.
Alternatives: PE recovery picks up steam, new risk.
2025 featured returns somewhat better than bonds for many hedge funds although some more equity sensitive strategies posted incredible results. The most definitive signal of market recalibration came from the private equity sector; according to Ernst and Young, a 57% year-over-year surge in deal value and accelerated transaction activity could drive more meaningful valuation ‘marks’ across company and fund portfolios. At root, financing costs have stabilized, which has allowed buyers and sellers to better align on valuations and has improved confidence in underwriting and scenarios analysis. However, the outlook for recent vintages remains clouded by market anxieties regarding AI-driven disintermediation, particularly the risk that generative technology could render traditional software business models obsolete.
Source of data: Bloomberg
Equities Total Return
| FEB | 3 MO | 1 YR | |
|---|---|---|---|
| U.S. Large Cap | (0.8%) | 0.7% | 17.0% |
| U.S. Small Cap | 0.8% | 5.6% | 23.4% |
| U.S. Growth | (3.3%) | (5.1%) | 14.8% |
| U.S. Value | 2.6% | 8.0% | 18.6% |
| Int’l Developed | 4.6% | 13.4% | 34.6% |
| Emerging Markets | 5.5% | 18.3% | 50.0% |
Fixed Income Total Return
| FEB | 3 MO | 1 YR | |
|---|---|---|---|
| Taxable | |||
| U.S. Agg. Bond | 1.6% | 1.6% | 6.3% |
| TIPS | 1.3% | 1.2% | 5.1% |
| U.S. High Yield | 0.2% | 1.3% | 7.0% |
| Int’l Developed | 1.6% | 0.8% | 0.3% |
| Emerging Markets | 0.6% | 1.0% | 4.2% |
| Tax-Exempt | |||
| Intermediate Munis | 0.9% | 2.1% | 5.5% |
| Munis Broad Mkt | 1.4% | 2.2% | 4.8% |
Non-Traditional Assets Total Return
| FEB | 3 MO | 1 YR | |
|---|---|---|---|
| Commodities | 1.1% | 11.2% | 23.3% |
| REITs | 7.5% | 8.2% | 7.4% |
| Infrastructure | 7.4% | 12.1% | 35.1% |
| Hedge Funds | |||
| Absolute Return | (0.0%) | 1.5% | 5.3% |
| Overall HF Market | 0.5% | 3.4% | 8.5% |
| Managed Futures | 3.3% | 9.4% | 10.1% |
Economic Indicators
| FEB-26 | NOV-25 | FEB-25 | |
|---|---|---|---|
| Equity Volatility | 19.9 | 16.4 | 19.6 |
| Implied Inflation | 2.3% | 2.2% | 2.4% |
| Gold Spot $/OZ | $5278.9 | $4239.4 | $2857.8 |
| Oil ($/BBL) | $72.5 | $63.2 | $73.2 |
| U.S. Dollar Index | 118.0 | 121.1 | 128.3 |
Our Take
The perception of US economic fundamentals hasn’t changed dramatically even if the Q4 economic result came as a bit of a surprise to financial markets: the U.S. economy appears to be cooling without breaking—employers are cautious, inflation pressures are mixed, but consumers, at least the top 10% income earning consumers, remain resilient. With that backdrop, our focus has been on how changes in sentiment—around AI, geopolitics, or otherwise—can become a meaningful driver of market behavior, even absent a clear deterioration in fundamentals.
Perhaps the coordinated attack on Iran by the US and Israel has brought that risk forward if not front and center. When geopolitical crises like this break, markets tend to do the same thing—they overreact early. The opening days are when uncertainty peaks; information is incomplete, and prices can reflect fear more than fundamentals. The immediate financial market consequence is additional risk being priced into energy markets with the potential for an upward shock to the price of oil. Even if production continues unabated, other considerations such as insurance costs or shipping disruptions could add upward pressure. However, if a protracted conflict leads to sustained rising oil prices causing inflation to accelerate, the Fed may need to reverse course to address it, making for a less benign environment for risk assets globally.
Somewhat surprisingly, however, the Monday after the attacks, investors seemed to be looking beyond the immediate ramifications of the conflict on day one. They could have been applying the Venezuelan playbook and how it subsequently unfolded where the interim Venezuelan government has, in effect, appeared cooperative. However, it would be overly optimistic to think Iran could unfold in a comparable fashion. Iran is not a conventional adversary with a centralized system; it functions more like a web of bureaucratic, military, and ideological nodes, making regime change uncertain and duration as well as escalation risk critical. Removing the leader of a regime alone does not necessarily dismantle the system, and there is a significant risk of turmoil and chaos in the country as factions try to fill the void.
However, there are potential mitigating second and third order outcomes that investors may be factoring in. Iran’s attacks on its Gulf neighbors have likely alienated the country and have increased the probability of Arab states coordinating against the nation, not rallying to its aid. A weakened Iranian regime and catalyzed regional alignment could revive the Abraham Accords, improve long term Middle East stability and, and as a result, lead to economic integration/prosperity in the Middle East. Israeli equities strengthening post attack may be evidence of investors considering just that possibility. However, that’s why markets may struggle here over the coming days and weeks—not because of the event itself, but because the timeline and the unexpected consequences are uncertain.
In sum, geopolitical crises typically create maximum market stress at the outset, when uncertainty can overwhelm fundamentals. History argues strongly against trading military conflicts, even when conflicts feel existential in real time. The scale here is undeniably larger, and regime uncertainty carries heavier tail risks than isolated strikes. However, markets rarely break from a single shock; they tend to falter when multiple stresses reinforce one another. That’s why we continue to monitor the broader macro landscape for signs that such fissures may be forming.
Regardless, long-term investors should stay focused, not frantic. Tail risks deserve respect—but not reflexive portfolio change- as leaning into the resilience of a diversified portfolio offers a better track record than trying to trade headlines. To that end, our portfolios are built with exposures that are incorporated for the uptick in volatility that may ensue from the conflict, including diversifying asset classes such as hedge funds and real assets, among others, that have quietly demonstrated their value in the last few years. If the less optimistic outcomes are waiting for us in 2026, these holdings are likely to be what protected portfolios and, in our experience, that strategic discipline is most likely to reward investors once the fog clears.
