Weekly Commentary

Stocks in the US hit another all-time record on Friday, as the US economy continues to outperform expectations on both a micro and macro level.  The government released jobs numbers for April, showing that employment remains strong, while on a company-level, more than 80% of companies in the S&P 500 have beaten earrings estimates in Q1 2026.  These factors have overshadowed geopolitics and the volatility revolving around the Middle East in particular, as investors have focused on the positives rather than the negatives, at least for the moment.  With markets at an all-time high, it does seem prudent to rebalance equity portfolios to more defensive positioning, especially given the Mag7 recent leadership.  Furthermore, given the low volatility levels, it also makes sense for some to buy protective puts, rather than time the market or take profits.

In terms of fixed income, rates are still range-bound on the 10-year, but with increasingly unfavorable risk-reward dynamics, meaning that we would sell on strength in this environment (as opposed to equities, which is “buy the dip”).  Furthermore, more risky asset classes in the fixed income bucket are less attractive given their tight spreads when compared to equities.  Therefore, we would be short duration with less credit exposure—or in other words, defensive all the way around.

Gold continues to be an underperformer vis-à-vis other asset classes, and we would also buy the dips, especially given the outlook for inflation risks, fiscal problems globally, and natural buyers in central banks.

In summary, although we would prefer some kind of consolidation following an incredible run, we would prefer to rebalance and buy relatively cheap option protection rather than profit taking, given the strong momentum, incredible earnings power, and resilient macro backdrop.  Fixed income remains challenging given the macro situation and tight spreads, so risk allocation should continue to be allocated to equity risk rather than credit or duration risk at this time.

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