Quarter in Review
It appears equity investors were dealt another risk card during the first quarter 2026. Last year “Liberation Day” increased uncertainty and permeated various aspects affecting the markets, fiscal and monetary policy, impact on inflation, the consumer, etc.
During the first quarter 2026, investors have been presented with another material event; the U.S. – Iran conflict. As mentioned in our most recent Weekly Insight, equity investors have experienced a “sustained near-term uptrend” in the VIX Index, a measure of 30-day implied volatility for the S&P 500 Index, compiled by the Chicago Board of Options Exchange. During the first quarter the VIX surged from 14.95 to 25.25, an increase of 68.9%, exacerbating uncertainty within the equity markets.
For the quarter, foreign markets continued their relative outperformance versus domestic. The MSCI All Country World Index ex-USA declined 0.7% as emerging markets fell 0.2% while foreign developed was off 1.2%. Within the U.S., the Russell 3000 declined 4.0%, as a decline of 4.2% in large cap stocks offset the positive return of 0.9% for small caps.
A Forward Mindset
Given the turbulence of the first quarter, the easy path would be to “avoid” the risk associated to equities with this current environment. Recall the following quote from Warren Buffet:
“Be fearful when others are greedy, and greedy when others are fearful.”
In other words, when investors shy away from taking risk, opportunity may be presented to those who understand associated risk. As our fixed income team recently posited, the bond market removed most interest rate cuts in forward expectations but has yet to price prospective hikes in interest rates. This rate scenario has more of an impact versus the near-term impact of oil prices on equity markets.
Our equity process considers the ability of companies to sustain and grow both revenues and earnings per share (EPS). When considering the MSCI USA Index, a broad measure of U.S. large and midcap companies, analysts via I/B/E/S project forward year growth in EPS of 19.8%, supported by revenue growth of 8.9%. This implies a price-to-earnings ratio for the Next Twelve Months (P/E NTM) of 20.3x, below the 22.3x exhibited as of December 31, 2025. This would seem intuitive given the drawdown in the market since yearend.
Another consideration is the earnings yield, which is the reciprocal of the P/E measure. At 4.7%, it currently exceeds the 4.3% yield of the 10-year U.S. Treasury and may indicate opportunity for investors.
Hold the Line
We continue to remain “cautiously” optimistic regarding equities. While we currently are experiencing uncertainty on numerous fronts, we are confident in our process to capture relative risk-adjusted returns.
The information provided has been obtained from sources deemed reliable, but BTC Capital Management and its affiliates cannot guarantee accuracy. Past performance is not a guarantee of future returns. Performance over periods exceeding 12 months has been annualized.
This content is provided for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Statements in this report are based on the views of BTC Capital Management and on information available at the time this report was prepared. Rates are subject to change based on market and/or other conditions without notice. This commentary contains no investment recommendations and should not be interpreted as investment, tax, legal, and/or financial planning advice. All investments involve risk, including the possible loss of principal. Investments are not FDIC insured and may lose value.