Market Commentary: Bird’s Eye View—Spring Update, 2026
U.S. equities faced a challenging start to 2026, with the S&P 500 down nearly 5% in Q1. Large-cap growth stocks declined more sharply, while value and small-cap stocks posted modest gains. Meanwhile, rising Treasury yields and renewed inflation concerns added pressure across markets.
In this five-minute video, Frank J. Esposito, CFA, Managing Partner at EverNest, discusses the forces driving markets, where risks are building, and how we’re positioned.
Topics include:
- AI spending & market leadership. Heavy capital investment by hyperscalers has pressured free cash flow and raised questions about future returns for large-cap growth stocks.
- Inflation, oil & policy uncertainty. The conflict in Iran has contributed to an oil shock at a time when inflation remains above the Federal Reserve’s target. With additional uncertainty around trade policy, markets are navigating a renewed period of instability.
- Interest rates & bonds. Although the Federal Reserve held rates steady at 3.75% during the quarter, both 2-year and 10-year Treasury yields moved higher, pushing mortgage rates up as inflation concerns persisted.
- Earnings growth. Despite these headwinds, S&P 500 earnings expectations remained stable and began to improve late in the quarter. Earnings growth is broadening beyond the Magnificent 7, with the other 493 companies in the index showing renewed acceleration, on average.
- Valuations & small caps. Equal-weighted stocks are trading at more attractive valuations than the traditional cap-weighted index, and small-cap companies continue to stand out with stronger expected earnings growth and historically compelling valuations.
- Presidential cycle & portfolio strategy. Midterm years have historically brought elevated volatility, but market returns have often improved meaningfully after the cycle’s low point. Given resilient fundamentals and attractive valuations, we remain overweight small-cap and international equities while staying mindful of near-term volatility.
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