Market Overview - The first quarter of 2026 has seen a decline in most client portfolios, although they have outperformed the SP500 by nearly 1% [2] - The SP500 is down 4.7% year-to-date, while the Bloomberg Bond Index has decreased by 0.7% [3] - Geopolitical tensions, particularly U.S. involvement in Venezuela and the conflict with Iran, have contributed to market volatility [3][16] Geopolitical Events - The U.S. military action against Iran began on February 28, 2026, creating ongoing market uncertainty [3] - The appointment of Kevin Warsh as the Chairman of the Federal Reserve has impacted gold prices, which initially surged over 20% but have since stabilized with a 2% increase year-to-date [5][6] Sector Performance - AI developments have caused significant disruptions in the software industry, with companies like Monday.com and HubSpot experiencing sell-offs of up to 50% [4] - Notable stock performances include Nextpower (+36%), Oneok (+22%), and GE Vernova (+37%), driven by strong earnings and demand for renewable energy [9][10][11] - Conversely, Microsoft has seen a decline of 20%, attributed to industry shakeouts despite strong financial results [12] Energy Market Dynamics - The war in Iran has led to increased oil prices, with predictions of future prices ranging from $60 to $80 per barrel [24] - The conflict has disrupted oil supply routes, particularly through the Strait of Hormuz, affecting global energy markets [20][21] - The combined impact of the Venezuelan and Iranian conflicts could lead to sustained increases in oil prices, potentially raising inflation and slowing economic growth [25] Investment Strategy - The company has adopted a conservative investment strategy, reducing exposure to stocks and long-term bonds while increasing short-term bond holdings [46] - Fixed income remains a foundation for client portfolios, with a focus on high-quality, short-term investments yielding attractive returns [48] - In equities, the company emphasizes strong holdings in technology and energy sectors, while hedging against market risks [52][58] Key Holdings - Nvidia is highlighted as a leading company in AI chip manufacturing, with significant revenue growth expected [65] - NextPower's innovative solar technology positions it well in the renewable energy sector [66] - Vertex Pharmaceuticals is recognized for its leadership in cystic fibrosis treatments and potential expansion into new markets [68] - GE Vernova is noted for its critical role in energy generation, with a backlog of orders extending through 2028 [71]

Industry Insights - The data center construction market is experiencing significant growth, particularly in core states like Illinois, Indiana, Ohio, and Pennsylvania, with notable projects such as a 9-gigawatt capacity deal between HP and SoftBank in Ohio [1] - Approximately 3% increase in U.S. gas generating capacity is noted, with capital markets playing a crucial role in financing data center developments [2] - The issuance of corporate bonds is increasing, with one company planning to issue around $1 billion weekly, contributing to rising interest rates across the board [3] Financial Considerations - A substantial portion of data center expenses, about 75%, is attributed to chips, which have a five-year depreciation cycle, necessitating the recovery of capital within that timeframe [4] - The current economic environment is characterized by a soft labor market for white-collar jobs, particularly affecting new college graduates, while blue-collar jobs remain tighter, influencing inflation through wage growth [6][7] Regional Economic Trends - Loudoun County in Virginia is highlighted as a growth hub for data centers, benefiting from favorable tax rates that support local government funding [9] - Job growth in cities around the Great Lakes, such as Columbus and Indianapolis, is outperforming other regions, indicating a K-shaped recovery in the economy [15][16] - Consumer spending on oil and gasoline is projected to rise from 4% to 5-6% due to increasing oil prices, which may exert additional pressure on consumers [14]

Core Viewpoint - The current market is influenced by a rotation of fear driven by geopolitical issues, private credit concerns, and AI spending, with a focus on transparency and understanding impacts [1][3]. Geopolitical Concerns - Geopolitical factors are ranked as the most significant risk, followed by private credit and AI spending, indicating a need for clarity on their impacts [3]. Private Credit and Equity - There has been a significant increase in withdrawal requests from private equity firms, with notable figures such as Blue Owl at $1.6 billion, BlackRock at $26 billion, and Blackstone at $82 billion, raising fears of a negative feedback loop similar to the 2008 financial crisis [8][10]. - The concern is that these withdrawals could lead to forced sales of other assets, further driving down prices and creating a cycle of market instability [9][11]. Market Reactions - Despite the oil market experiencing what is termed the greatest oil shock in history, other markets such as gold and energy stocks have not shown corresponding movements, suggesting a lack of long-term confidence in the oil price trend [4][5]. - The current market dynamics indicate that there is skepticism about the sustainability of recent trends, as evidenced by flat yields and the performance of gold [6][11]. Stock Picks - Carpenter Technology is highlighted as a strong investment due to its role in providing specialty materials for aerospace and defense, showcasing solid fundamentals and revenue growth [12]. - The New York Times is noted for its subscription revenue model, which is performing well despite political controversies [13]. - Five Below is recognized for its strong retail growth, appealing to consumers in a K-shaped economy where luxury and budget segments are diverging [14].

Macy's - Macy's reported better-than-expected earnings with adjusted EPS at $1.67, surpassing the expected $1.53, and revenue at $7.64 billion, slightly above the anticipated $7.62 billion [2][3] - The company expects a decline in sales and profit for the fiscal year, projecting sales between $21.4 billion to $21.65 billion, which is lower year-over-year [3][4] - Macy's is in the second year of a three-year turnaround plan, having closed over 100 underperforming locations and focusing on quality over quantity [5][6] - Bloomingdale's, a premium segment of Macy's, showed strong performance with 9.9% comp sales growth, while Macy's flagship business saw a modest increase of 0.4% [5][6] Lululemon - Lululemon reported adjusted EPS of $5.01, exceeding the expected $4.77, with revenue at $3.64 billion, above the forecast of slightly over $3.5 billion [9][10] - The company provided weaker-than-expected guidance for the first quarter, anticipating sales between $2.4 billion to $2.43 billion, attributed to tariff pressures and internal challenges [10][11] - Lululemon is facing brand fatigue and is attempting a brand reset by reducing discounting and returning to a premium pricing model, as tariffs are expected to cost the company up to $380 million this year [12][13]

Core Insights - Macy's reported stronger-than-expected profits in the fourth quarter, with comparable sales rising due to an overhaul of merchandise and improved customer service [1] - The company provided a mixed outlook for the year, projecting sales above Wall Street expectations but offering a conservative profit forecast [1] Financial Performance - Macy's net income for the three-month period ended January 31 was $507 million, or $1.84 per share, compared to $342 million, or $1.21 per share, in the previous year [6] - Adjusted per share results for the latest quarter were $1.67, while net sales decreased to $7.64 billion from $7.68 billion in the year-ago period [6] Market Context - The U.S. has seen changes in global trade due to tariffs, leading to higher prices and shifts in consumer spending habits [3] - The ongoing Iran war has contributed to rising gasoline and diesel prices, which may impact retail prices in the near future [3] - Retailers, including Macy's, face challenges from increased costs due to tariffs and changing consumer behavior, particularly in a "K-shaped economy" where higher-income households spend more freely while lower-income families cut back [4][5] Strategic Initiatives - Under CEO Tony Spring, Macy's has closed unprofitable stores and invested millions in modernizing others, while enhancing customer service [5] - The company aims to differentiate its luxury offerings from competitors by providing exclusive merchandise [5] Competitive Landscape - Bloomingdale's, a subsidiary of Macy's, achieved its highest holiday sales performance on record, partly due to the bankruptcy of competitors like Saks Fifth Avenue and Neiman Marcus [2] - Despite this success, Macy's faces similar challenges as its rivals in the retail sector [2]

Core Insights - Delta Airlines and American Airlines have raised their revenue forecasts due to strong demand, with Delta expecting high-single-digit growth and American Airlines projecting over 10% year-over-year revenue growth in Q1 [1][2] Group 1: Airline Performance - Delta Airlines is experiencing strength across all segments, particularly focusing on high-income customers in the 'K-shaped' economy, which is positively impacting its performance [3][4] - American Airlines has also increased its guidance, now expecting record revenue growth of more than 10% in its first quarter, up from a previous forecast of around 8.5% [1] Group 2: Market Dynamics - The closure of the Strait of Hormuz due to geopolitical tensions is affecting oil supply, yet airlines like Delta and American Airlines are benefiting from customers willing to pay higher prices [1][2] - Alaska Airlines noted a spike in demand as travelers are eager to book flights before prices increase further, indicating a proactive consumer behavior in response to rising costs [2] Group 3: Competitive Landscape - Airlines targeting affluent customers are less affected by rising jet fuel prices compared to budget carriers, which are struggling with thinner margins and less flexible supply chains [4] - Budget airlines like Frontier and Spirit are facing significant challenges, with Spirit having filed for bankruptcy for the second time in less than a year [4] Group 4: Strategic Initiatives - Delta Airlines is concentrating new seat growth in premium cabins and expanding its premium lounge network to attract higher-income flyers [6]

Group 1: Tax Refund Trends - The average federal tax refund has increased to $3,676, reflecting a 10.6% rise compared to the same week last year [3] - Tax refunds have surged more than 10% year-over-year, approaching an average of $3,700 [1] - As of last Friday, nearly 44 million refunds have been processed, totaling almost $161 billion returned to taxpayers [4] Group 2: IRS Website Activity - Visits to the IRS website reached 321.5 million last week, marking an increase of nearly 53% from the same period in 2025 [2] - The surge in website traffic indicates taxpayers are focusing on their obligations and potential benefits amid a complex tax year [2] Group 3: Economic Implications - Experts suggest that the increase in tax refunds may have temporarily alleviated the spending gap between lower- and higher-income consumers, contributing to the "K-shaped" economy [3] - Bank of America data indicates that higher-income households have seen larger increases in their tax refunds compared to other income groups [4]

Group 1 - Visits to the IRS website surged to 321.5 million during the 2026 filing season, marking a nearly 53% increase from the same period in 2025, as taxpayers focus on their obligations and potential benefits due to new tax deductions introduced by the One Big Beautiful Bill Act [1] - The average federal tax refund has reached $3,676, reflecting a 10.6% increase from the same week last year, with expectations of larger refunds this year [2] - As of last Friday, the government processed nearly 44 million refunds, returning almost $161 million to taxpayers, with the filing deadline set for April 15 [6] Group 2 - Bank of America Global Research indicates that higher-income households have seen larger increases in their tax refunds compared to lower-income cohorts, highlighting a disparity in the benefits received [3] - The stimulus effects from the One Big Beautiful Bill Act have primarily manifested through lower tax payments rather than refunds, which may disproportionately benefit higher-income households [5]

Economic Insights - The US Federal Reserve should consider cutting rates in response to inflation driven by rising energy prices due to the US-Iran war, according to Barry Knapp, managing partner at Ironsides [1] - Weak consumer demand, indicated by a slowdown in goods and services consumption, is expected to weaken further due to supply-pull inflation, suggesting no risk of the economy overheating with a rate cut [2] Impact on Financial Institutions - A rate cut to approximately 3.00% would benefit Americans in the lower half of the "K-shaped economy," as current Fed policy rates are deemed too tight for small banks, businesses, and households without assets [3] - Lower interest rates would steepen the yield curve, encouraging small banks to lend more, which could lead to higher economic growth [3] Stock Market Valuation - A reduction in interest rates would likely relieve pressure on stock market valuation multiples, which have been affected by concerns over AI [4] - According to the Gordon Growth Model, justified P/E multiples are influenced by interest rate levels and terminal growth rates, meaning lower rates would increase the justified P/E multiple [5] Company-Specific Analysis: American Airlines Group Inc. (AAL) - American Airlines is identified as one of the 15 most undervalued NASDAQ stocks, but faced a downgrade from Rothschild & Co Redburn to Neutral with a target price of $12.50 due to the US-Iran war impacting fuel costs [9] - Goldman Sachs raised its Q2 Brent crude oil price forecast by approximately 15% to $76 per barrel, warning that prolonged conflict could push prices to around $100 per barrel, significantly affecting AAL's operating margins [10] - AAL's fuel expenses accounted for roughly 20% of its revenue in 2025, and a 15% increase in oil prices could reduce operating margins by 3 percentage points, while a 52% increase could reduce margins by 10 percentage points [10] Company-Specific Analysis: CarGurus Inc. (CARG) - CarGurus is also listed among the 15 most undervalued NASDAQ stocks, with Oppenheimer reducing its target price by 5% to $38 while maintaining an Outperform rating [12][13] - The decline in CarGurus' stock price, down approximately 18% year-to-date, is attributed to the AI disruption narrative affecting tech and software valuations [13] - Oppenheimer sees potential upside for CarGurus due to new products and features that leverage the company's scale, leading to high incremental margins [14] - Management's 2026 revenue guidance indicates that subscription upgrades and higher new-product attach rates will enhance average revenue per subscribing dealer [15]

Core Insights - The company reported a net income of $6.3 million for the quarter, an improvement of $44.1 million compared to the prior year, which included significant goodwill and trademark impairment charges [1] - Adjusted net income decreased to $4.6 million from $12.6 million year-over-year [1] - Gross margin expanded to 46.8%, up 120 basis points year-over-year, attributed to pricing discipline and operational improvements [2] - Fourth-quarter net sales reached $155.4 million, a 10.9% increase year-over-year, with core net sales growth of 13.5% [3] - The company achieved full-year sales growth for the first time since 2021, with fiscal 2025 net sales of $613.5 million, up 1.9% from 2024 [8] Financial Performance - Adjusted EBITDA for the quarter rose to $33.2 million from $29.1 million a year earlier, with an adjusted EBITDA margin of 21.4% [2] - For fiscal 2025, adjusted EBITDA totaled $124 million, an increase of $13.5 million from 2024, marking the first time since 2021 that adjusted EBITDA margins exceeded 20% [9] - The company generated positive free cash flow of $34.2 million for the year, marking its third consecutive year of positive cash flow [13] 2026 Outlook - The company projects revenue for 2026 to be between $625 million and $655 million, with adjusted EBITDA expected to be between $127 million and $137 million [5][16] - Capital expenditures are anticipated to be elevated at $15 million to $20 million, primarily for ERP and facility work [5][17] - Management aims for incremental savings of $5 million to $7 million and inventory reduction of $10 million to $15 million by year-end 2026 [19] Operational Highlights - The company emphasized growth across all four divisions in the fourth quarter, with new product launches contributing approximately $23 million in sales for the full year [10] - The balance sheet showed progress with total debt prepayments exceeding $100 million since September 2023, and covenant net leverage reduced to 3.75x [6][14] - The company is preparing for a significant ERP implementation in 2026, with a go-live expected in early 2027 [18]