View from the Observation Deck

The old axiom in the stock market about selling your stocks at the close of April and buying them back at the start of November used to make some sense from a seasonality standpoint. Back when the U.S. was more of an industrialized economy, it was common for plants and factories to close for a month or longer in the summer. This downtime allowed businesses to retool and gave employees time to vacation. The “Sell In May” theory was that companies would conduct less commerce in that six-month span, which would likely translate into lower earnings, and temporarily reduced stock prices. In our view, the U.S. economy has become so technologically advanced and globally competitive that companies can no longer afford these extended periods of stagnation.

• From 2006 through 2025, there were just three instances (2008, 2011 & 2022) in which the S&P 500 Index posted a negative total return from May through October.
  
  
• The average total return for the S&P 500 Index for the May-October periods in the table was 4.84%.
   
• Seventeen of the twenty top-performing sectors in the table posted total returns in excess of 10.00% and eight of them returned at least 20.00% (May-October). 

Takeaway: We publish today’s table on an annual basis as a reminder to investors that not all market maxims should be taken at face value. In this case, the data presented does not support the notion that investors should “sell in May and go away”. Over the last 20 years, an investor who remained fully invested in the S&P 500 Index from May through October enjoyed an average annual total return of 4.84% during those months alone, a significant figure when compounded. We continue to advocate that investors consider their time horizons and take risk as appropriate.

This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions and other expenses incurred when investing. Investors cannot invest directly in an index. The S&P 500 Index is an unmanaged index of 500 companies used to measure large-cap U.S. stock market performance, while the 11 major S&P 500 Sector Indices are capitalization-weighted and comprised of S&P 500 companies representing a specific sector.

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View from the Observation Deck

In today’s discussion, we investigate the catalysts behind the year-to-date (YTD) price returns of five major U.S. equity indices through 4/24/26. As the chart reveals, equity prices continue to march upward, despite a tenuous geopolitical landscape, surging energy prices, and increasingly hawkish monetary policy expectations.

Small and mid-sized companies outperformed their peers by a large margin over the period. For reference, YTD price returns for the five indices in today’s chart were as follows: 

S&P SmallCap 600 Index: 13.0%
S&P MidCap 400 Index: 10.2%
S&P 500 Equal Weighted Index: 5.4%
S&P 500 Index: 4.7%
Bloomberg Magnificent 7 Index: 1.4%

Bloomberg Magnificent 7 Index: 1.4%Valuations for the S&P 500 Equal Weight, S&P SmallCap 600, and S&P MidCap 400 Indices remain more attractive than those of the Blomberg Magnificent 7 and broader S&P 500 Indices.

As of 4/24/26, the forward price-to-earnings ratios for each of the indices in today’s chart were as follows: Bloomberg Magnificent 7 Index (30.65); S&P 500 Index (21.85); S&P MidCap 400 Index (17.09); S&P 500 Equal Weighted Index (17.03); and S&P SmallCap 600 Index (16.13).

Takeaway: The S&P SmallCap 600 and MidCap 400 Indices are off to a phenomenal start this year, increasing by 13.0% and 10.2% (price-only), respectively, through 4/24. Larger companies have not fared as well, with the S&P 500 and Bloomberg Magnificent 7 Indices realizing price returns of 4.7% and 1.4% over the time frame. Early-year rate cut expectations faded as investors began accounting for surging energy prices amidst the Iranian war. Large caps appear to have borne the brunt of the resultant revaluation, with price returns declining to time-series lows near the end of March 2026 (see chart). Stretched valuations may offer insight into these results, with large cap P/E multiples hovering well-above their mid and small-sized counterparts. That said, analysts expect strong earnings results from each of these indices, which may lend support to elevated multiples. Notably, each index presented today is estimated to see earnings increase to record levels in 2026. As investors charge toward the second half of the year, we feel a good question to ask might be: “what investments are worth the weight they’ve been assigned in my portfolio?”

This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions and other expenses incurred when investing. Investors cannot invest directly in an index. The S&P 500 Index is an unmanaged index of 500 companies used to measure large-cap U.S. stock market performance. The S&P 500 Equal Weighted Index is the equal-weight version of the S&P 500 Index. The Bloomberg Magnificent 7 Price Return Index is an equal-dollar weighted equity benchmark consisting of a fixed basket of 7 widely-traded companies in the U.S. The S&P MidCap 400 Index is a capitalization-weighted index which measures the performance of the mid-range sector of the U.S. stock market. The S&P SmallCap 600 Index is an unmanaged index of 600 companies used to measure small-cap U.S. stock market performance.

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View from the Observation Deck

Tracking the direction of worldwide semiconductor sales can provide investors with additional insight into the potential demand for tech-oriented products and the overall climate for technology stocks, in our opinion. As evidenced by continued developments in artificial intelligence (AI) and robotics, as well as the vast market for smartphones, tablets, and wearables, we continue to find creative and innovative ways to integrate semiconductors into our everyday lives.

Worldwide sales of semiconductors surged 26.2% year-over-year (y-o-y) to a record $795.6 billion in 2025, up from $630.5 billion in 2024.

Semiconductor sales continue to benefit from rising demand. Global sales totaled a record $238.9 billion in Q4’25, an increase of 13.9% quarter-over-quarter. Demand increased the most in the Asia Pacific region, where semiconductor sales increased by 45.0% y-o-y in 2025, followed by the Americas (+30.5%) and China (+17.3%), according to the Semiconductor Industry Association.

Semiconductor sales appear to follow fluctuations in the price of technology stocks.

As observed in today’s chart, changes in semiconductor sales often mirror changes in the performance of the S&P 500 Technology Index (Technology Index). Case in point, the Technology Index realized a total return of 24.04% in 2025. As noted above, annual semiconductor sales increased by 26.2% over the same period.

Takeaway: Volatility among technology stocks has been elevated so far in 2026, with the Technology Index shedding 9.1% (total return) in the first quarter before rebounding by a staggering 15.2% month-to-date through April 21. Even so, it appears the general correlation between sales and total return persists, for now. AI’s impact continues to evolve in unexpected ways. One such development is the current global memory chip shortage. Nikkei Asia reported that memory chip shortages are expected to persist through 2027, with top U.S. and South Korean suppliers increasing production at a pace that will cover just 60% of estimated demand over the period. Insufficient supply growth has led to surging prices, sending the Philadelphia Semiconductor Index soaring by 36.44% year-to-date through 4/21/26. Record sales have led to astronomical earnings growth estimates. On 4/17/26, data from Bloomberg showed semiconductor subsector earnings are estimated to grow 88.9% in 2026 alone. As always, these estimates are subject to change. Stay tuned!

This chart is for illustrative purposes only and not indicative of any actual investment. There can be no assurance that any of the projections cited will occur. The illustration excludes the effects of taxes and brokerage commissions or other expenses incurred when investing. Investors cannot invest directly in an index. The S&P 500 Information Technology Index is capitalization-weighted and comprised of S&P 500 constituents representing the technology sector. The S&P 500 Communication Services Index is capitalization-weighted and comprised of S&P 500 constituents representing the communication services sector.

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View from the Observation Deck

In a sharp turn of events, investors directing capital into U.S. mutual funds and exchange traded funds (ETFs) favored active management over passive investing during the 12-month period ended 3/31/26.

Active mutual funds and ETFs reported estimated net inflows totaling $1,142 billion, compared to net inflows of $1,075 billion for passive funds over the trailing 12 months (TTM) ended 3/31/26. Net inflows into actively managed commodities surged amidst a rapidly deteriorating geopolitical landscape. TTM net flows into the category increased from $1 billion in Q4’25 to $1,258 billion in Q1’26.

Equity mutual funds and ETFs saw significantly lower inflows than their fixed income counterparts over the trailing 12-month period ended 3/31/26.

Combined, active and passive equities experienced inflows of $145 billion over the trailing 12 months (not in table). For comparison, the active and passive Taxable and Municipal Bond categories reported net inflows of $713 billion over the same time frame. The S&P 500, S&P MidCap 400, and S&P SmallCap 600 Indices produced total returns of 17.8%, 17.3%, and 20.6%, respectively, over the period. For comparison, the Bloomberg Global-Aggregate Bond, Bloomberg U.S. Aggregate, and Bloomberg Municipal Long Bond Indices saw total returns of 4.3%, 4.4%, and 3.2%, respectively.

Foreign and emerging market equities continue to outpace their domestic peers over the trailing 12 months.

Regarding foreign equities, the MSCI Emerging Net Total Return and MSCI Daily Total Return Net World (ex U.S.) Indices posted total returns of 29.6% and 23.0%, respectively, between Q1’25 and Q1’26. 

Takeaway: Active mutual funds and ETFs saw combined inflows of $1,142 billion compared to inflows of $1,075 billion for passive funds over the past 12 months. Commodities produced the largest disparity between active and passive flows, with active attracting $1,258 billion compared to inflows of $46 billion for passive funds. That said, declining precious metal prices and recent strength in the U.S. dollar has put pressure on the category. Morningstar reported that commodities suffered record monthly net outflows of $11 billion in March 2026. Recent geopolitical strife and building economic headwinds sent investors in search of safe haven assets, despite compelling performance from their equity counterparts. Combined net inflows among active and passive equity funds totaled just $145 billion compared to combined net inflows of $713 billion for active and passive fixed income funds over the TTM period ended Q1’26. International equity performance remains strong, but domestic mid and small cap stocks have taken the lead in 2026, increasing by 2.5% and 3.6%, respectively, year-to-date through 3/31. By comparison, the MSCI Net World (ex U.S.) declined 0.9% year-to-date through 3/31. 

This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions and other expenses incurred when investing. Investors cannot invest directly in an index. The S&P 500 Index is an unmanaged index of 500 companies used to measure large-cap U.S. stock market performance. The S&P MidCap 400 Index is a capitalization-weighted index that tracks the mid-range sector of the U.S. stock market. The S&P SmallCap 600 Index is a capitalization-weighted index that tracks U.S. companies with a small market capitalization. The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets. The MSCI World (ex U.S.) Index is a free-float weighted index designed to measure the equity market performance of developed markets. The Bloomberg Municipal Long Bond Index cover the USD-denominated long-term tax exempt bond market, including local general obligation, revenue, insured, and prefunded bonds. The Bloomberg U.S. Aggregate Bond Index measures the investment grade, U.S. dollar-denominated, fixed rate taxable bond market. The Bloomberg Global Aggregate Bond Index measures global investment grade debt in local currency markets. 

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View from the Observation Deck

The S&P 500 Index (“Index”) closed at 6,967.38 on 4/14/26, representing a price-only increase of 39.83% since its most recent low of 4,982.77 just over one year ago (4/8/25). The Index’s meteoric rise has many investors questioning whether current price levels are sustainable, especially given comparatively stretched valuation metrics, the Iranian war, and diminished interest rate cut expectations in 2026. Today’s post offers an alternative view of current price levels by plotting the Index’s valuation, as measured by its trailing 12-month price to earnings (P/E) ratio, against profitability, as measured by gross profit margins. Click here to view our previous discussion on this topic.

• As revealed in today’s chart, there appears to be a positive correlation between profit margins and P/E ratios.
  
  
• The Index’s P/E ratio increased from 15.03 in Q4’10 (start of our chart) to 23.51 in Q1’26.
   
• Analysts estimate that the Index’s profit margin will reach 14.18% in Q1’26, up from 9.64% in Q4’10, according to data from Bloomberg. For comparison, the Index notched a record profit margin of 14.45% in Q4’25.
   
• While not in today’s chart, data from FactSet revealed that the three Index sectors with the highest estimated net profit margins for Q1’26 were as follows: Real Estate (34.1%), Information Technology (28.9%), and Financials (19.6%).

Takeaway: As today’s chart reveals, the Index’s P/E ratio declined from 25.44 to 23.51 in Q1’26. Gross profit margin likely declined as well, falling from a record 14.45% in Q4’25 to an estimated 14.18% in Q1’26. For comparison, the Index’s profit margin averaged 11.55% between Q4’10 and Q1’26. In our last post on this topic, we posited that surging profit margins lent support to elevated P/E ratios. We believe this relationship remains in effect today, with investors rewarding companies for increasingly efficient capital deployment. Tellingly, the Index’s P/E ratio remains above its average of 18.92 over the observed time frame. While today’s data has largely examined historical results, future earnings estimates may lend further context to current price levels. On 4/14/26, the Index’s earnings per share were estimated to increase by 17.7% year-over-year (y-o-y) to a record 323.15 in 2026.

This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions and other expenses incurred when investing. Investors cannot invest directly in an index. The S&P 500 Index is a capitalization-weighted index comprised of 500 companies used to measure large-cap U.S. stock market performance, while the 11 major S&P 500 Sector Indices are capitalization-weighted and comprised of S&P 500 constituents representing a specific sector.

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View from the Observation Deck

We update today’s table on a regular basis to provide insight into the variability of sector performance by market capitalization. The table above presents the total returns of three major U.S. equity indices and their sectors over two distinct time frames: the 2025 calendar year, and year-to-date (YTD) through 4/10/26.

• The S&P 500 Index’s (“Index”) price was 6,816.89 on 4/10/26, representing a price-only return of 36.81% from its most recent low (4,982.77 on 4/8/25). Even so, the Index remains 2.32% below its most recent high of 6,978.60 (1/27/26). For comparison, the S&P MidCap 400 and S&P SmallCap 600 Indices were 2.34% and 1.64% below their respective all-time highs as of the same date. 
  
  
• Large-cap stocks, as represented by the S&P 500 Index, increased by 17.86% (total return) in 2025, outperforming the S&P MidCap 400 and S&P SmallCap 600 indices, with total returns of 7.48% and 5.99%, respectively, over the period (see table).
  
  
• We’re seeing the opposite occur so far this year, with the S&P 500 Index declining 0.09% vs. total returns of 6.97% and 8.49% for the S&P MidCap 400 and SmallCap 600 indices, respectively, over the same time frame.
  
  
• Sector performance can vary widely by market cap and have a significant impact on overall index returns. Communication Services and Consumer Staples were two of the more extreme cases last year. This year, Information Technology and Communication Services exhibit the largest performance difference between market capitalizations.

Takeaway: As revealed in today’s table, mid cap and small cap stocks outperformed their large cap counterparts YTD through 4/10. At the sector level, small-cap stocks beat out their large and mid-sized peers in seven of the eleven sectors presented. Notably, not a single large cap sector stood atop today’s YTD data. As we see it, there are several points to be made about large cap’s underperformance so far this year. First is that we believe it represents a continuation of the broadening out which began in the fourth quarter of last year. Surging energy prices and the consequent increase in the consumer price index is another factor, which led to heavily diminished expectations regarding U.S. rate cuts in 2026. The resultant revaluation appears to have hit large cap stocks harder than their peers. Even so, earnings are expected to increase among each of these market capitalizations this year, presenting investors with potential value opportunities. As of 4/10/26, earnings per share for the S&P 500, S&P MidCap 400, and S&P SmallCap were estimated to increase by 17.5%, 20.3%, and 16.6%, respectively, in 2026, up from 14.9%, 19.1%, and 15.5%, respectively at the start of the year.

This table is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions and other expenses incurred when investing. Investors cannot invest directly in an index. The S&P 500 Index is an unmanaged index of 500 companies used to measure large-cap U.S. stock market performance. The S&P MidCap 400 Index is a capitalization-weighted index that tracks the mid-range sector of the U.S. stock market. The S&P SmallCap 600 Index is a capitalization-weighted index that tracks U.S. stocks with a small market capitalization. The 11 major sector indices are capitalization-weighted and comprised of S&P 500, S&P MidCap 400 and S&P SmallCap 600 constituents representing a specific sector.

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View from the Observation Deck

Today’s post compares the performance of consumer stocks to the broader market, as measured by the S&P 500 Index, over an extended period. Given that consumer spending has historically accounted for roughly two-thirds of U.S. gross domestic product, we think the performance of consumer stocks may offer insight into potential trends in the broader economy.

Staples have dominated their discretionary peers year-to-date (YTD). 

The S&P Consumer Staples Index had a strong start in 2026, increasing by 7.71% (total return) in January amidst ballooning AI capital expenditures and faltering consumer confidence. Consumer discretionary stocks, by contrast, increased by just 1.71% during the month. Since then, the performance differential between these indices has grown substantially, with staples increasing by 6.65% (total return) YTD through 4/7, compared to a decline of 9.82% for discretionary stocks over the period.

So, just how healthy is the U.S. consumer?

Real consumer discretionary spending totaled $14.2 trillion over the trailing 12-months ended January 2026, an increase of 2.9% from $13.8 trillion over the same period last year. We maintain that burgeoning U.S. household net worth is one catalyst behind the increase. The Federal Reserve reported that U.S. household net worth totaled a record $184.1 trillion in Q4’25, an increase of $2.2 trillion from the previous quarter, according to Bloomberg. Household debt levels also grew, increasing by $191 billion quarter-over-quarter to $18.80 trillion in Q4’25. Even so, consumers do not appear to be struggling with the increased debt burden. The share of consumers with accounts in collections fell to 4.6% in Q4’25, a near record-low for the data series. 

Takeaway: As shown in today’s table, total returns for the S&P 500 Consumer Discretionary Index generally outpace those of the S&P 500 Consumer Staples Index, over time. This year’s results have defied this convention, with staples extending their lead over discretionary companies through 4/7. Even so, we wonder if these results reflect systemic issues or near-term, exogenous factors like the Iranian war. The data appears to support the latter, in our view. While true that U.S. households carry more debt than ever before, their capacity to service that debt has also increased, resulting in the lowest share of accounts in collections on record. Furthermore, capitalism continues to prove itself as the world’s most potent wealth generation engine. According to the American Enterprise Institute, 31.1% of U.S. households earned enough to be considered “upper-middle class” in 2024, up from just 10.4% of households in 1979. Amazingly, 2024 was the first time in U.S. history where more households were above the “core middle class” (34.8%) than below it (34.5%). We truly live in unprecedented times! 

This table is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions and other expenses incurred when investing. Investors cannot invest directly in an index. The S&P 500 Index is an unmanaged index of 500 stocks used to measure large-cap U.S. stock market performance. The S&P 500 Consumer Discretionary Index is a capitalization-weighted index comprised of companies spanning 19 subsectors in the consumer discretionary sector. The S&P 500 Consumer Staples Index is a capitalization-weighted index comprised of companies spanning 12 subsectors in the consumer staples sector.  

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View from the Observation Deck

We are often asked what our favorite sectors are. Sometimes the answer is evident while other times hindsight offers the best clarity. Today’s blog post is one that we update each quarter to lend context to our responses. While the above chart does not contain yearly data, just three sectors in the S&P 500 Index (“Index”) have been the top-performer in back-to-back calendar years since 2005. Information Technology was first, posting the highest total return in 2019 (50.3%) and 2020 (43.9%). Energy was second, posting the highest total return in 2021 (54.4%) and 2022 (65.4%). Communication Services was the most recent addition to this exclusive club, posting a total return of 40.2% in 2024 and 33.6% in 2025, according to data from Bloomberg.

• The top-performing sectors and their total returns in Q1’26 were as follows: Energy (38.3%), Materials (9.7%), and Utilities (8.3%). The Index’s total return was -4.4% over the period. The other eight sectors generated total returns ranging from 7.7% (Consumer Staples) to -9.5% (Financials).
  
  
• By comparison, the total returns of the top-performing sectors in the first quarter of 2025 were as follows (not in chart): Energy (10.2%), Health Care (6.5%), and Consumer Staples (5.2%). The worst-performing sectors for the period were: Communication Services (-6.2%), Information Technology (-12.7%), and Consumer Discretionary (-13.8%).
  
  
• Click here to access our post featuring the top-performing sectors in Q2’24, Q3'24, Q4'24 and Q1’25.

Takeaway: Despite prevalent weakness in the month of March, six of the Index’s eleven sectors saw positive total returns in Q1’26, with Energy, Materials, and Utilities forming the trio of top sectors during the quarter. The obvious standout is the Energy sector, which increased by 38.3% over the period, propelled upward by the ongoing Iranian conflict and subsequent closure of the Strait of Hormuz. Inflation expectations edged higher in the wake of surging oil prices, resulting in diminished rate cut expectations over the near term. The broader Index declined by 4.4% in Q1’26 (total return), led lower by the Information Technology, Consumer Discretionary, and Financials sectors. As we see it, recalibrated interest rate expectations likely explain the weakness in these cyclical sectors. Will a different sector rise to the top in the second quarter of 2026? We look forward to seeing what the data reveals.

This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions or other expenses incurred when investing. Investors cannot invest directly in an index. The S&P 500 Index is an unmanaged index of 500 stocks used to measure large-cap U.S. stock market performance. The respective S&P 500 Sector Indices are capitalization-weighted and comprised of S&P 500 constituents representing a specific sector.  

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View from the Observation Deck

Today’s table offers a comparison of 2-year and 10-year government bond yields across ten countries. We also include the trailing 12-month yield change for each country’s respective tenor. We last updated this topic in November 2025 (click here to view it).

Global government bond yields surged over the period captured in the table, with 10-year yields increasing in all but two countries (China and Switzerland) over the 12-months ended 3/30/26.

Australia, France, and Italy saw the largest increase in their 2-year yields, which surged by 97.9 basis points (bps), 65.6 bps, and 64.1 bps, respectively, over the period. Japan, Australia, and Canada saw the largest spikes in their 10-year yields, with trailing 12-month increases of 82.8 bps, 61.0 bps, and 49.7 bps, respectively.

Despite recent declines, headline inflation is expected to surge in the coming months.

While the data is not presented above, the months following our last post brought some relief to the global pace of rising prices, with headline inflation declining within six of the ten countries in the table. That said, energy price shocks from the war with Iran have reignited near-term global inflation concerns. Tellingly, seven of the ten countries above have year-end inflation forecasts that exceed their current headline observations.

Most real yields (yield minus inflation) offered by 10-year government bonds increased since our last post.

Higher yields, combined with declining inflation (noted above), resulted in nine of the ten 10-year government bonds offering greater real yields than they were in November 2025. The only exception was China, whose real yield declined by 1.58 percentage points since 11/3/25. At 2.31 and 1.30 percentage points, respectively, Japan and the U.K. had the largest increase to their real yields over the period. As shown in the column marked “12-Month Change (Basis Points)”, China and Switzerland were the only governments whose 10-year bond yields did not increase over the trailing 12-months.

Takeaway: As we see it, energy price shocks from the war with Iran present a real challenge to fixed income investors. On one hand, the resultant current real yields may offer an opportunity. On the other, persistent inflation could result in increasingly restrictive central bank policies, which may push yields even higher (and prices lower) over the near term. It appears investors expect the latter scenario. On 3/30/26, the U.S. federal funds rate futures market revealed that the federal funds target rate is expected to settle at 3.61% in 2026, up from an implied rate of 3.05% at the start of the year. For context, it currently sits at 3.75% (upper bound). That said, we believe investors should be wary of becoming too reactionary. The recent surge in energy prices is largely a byproduct of war rather than a systemic breakdown. While it’s impossible to time the war’s end, we expect these price pressures will subside when peace reigns again.

This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions and other expenses incurred when investing.

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View from the Observation Deck

Today’s post provides a snapshot of the total returns of 11 major bond indices since 8/4/20. We chose this as the starting date because the yield on the 10-year Treasury note (T-note) closed at an all-time low of 0.51% that day, according to data from Bloomberg. The 10-year T-note’s yield increased substantially since then, climbing to 4.99% on 10/19/23 (most-recent high) before settling at 3.62% on 9/16/24 (most-recent low). On 3/24/26, the yield on the 10-year T-note yield stood at 4.36%, representing an increase of 386 basis points from its all-time low. To view the last post we did on this topic, click here.

Eight of the 11 debt categories presented in today’s chart registered positive total returns over the period.

This marks an improvement from our last post on this topic (July 2025) when just six categories were positive but masks the fact that most of these asset classes have generated negative total returns so far in 2026. At just 0.07%, the 1-3 Year U.S. Corporate Bond Index is the only index in today’s chart with a positive total return year-to-date (YTD) through 3/24. We suspect some investors will find this surprising given fixed income assets generally act as havens during periods of economic and geopolitical turmoil like those we are currently experiencing.

Expectations regarding upcoming Federal Reserve (“Fed”) policy decisions have exhibited significant variance this year, lending context to recent returns among fixed income asset classes. 

As of 12/31/25, the federal funds rate futures market implied more than two cuts were expected throughout 2026. In a stunning reversal, the market now implies that the Fed could raise its policy rate by year’s end. In our estimation, this rapid reversal is likely the result of surging energy prices (and their subsequent pressure on near-term consumer price index levels) as well as heightened geopolitical risks resulting from the war with Iran.            

Let’s get real.

Inflation, as measured by the trailing 12-month rate of change in the consumer price index (CPI) stood at 2.4% in February 2026. As we noted in our discussion from Thursday of last week, February’s result marks the second month in a row where the CPI was below its 25-year average of 2.5%. By contrast, the 10-year T-note offered a yield of 4.36% on 3/24/26, representing a real yield (yield minus inflation) of 1.96%. While we expect near-term CPI may increase (as energy prices are reflected in the data) we do not expect the return of negative real yields seen in COVID’s wake. 

Takeaway: Total returns for ten of the eleven fixed income indices tracked in today’s chart have improved since our last post on this topic in July 2025. That said, YTD returns reflect mounting headwinds which stifled this momentum. Notably, the 1-3 Year U.S. Corporate Index is the only index in today’s chart with a positive total return YTD through 3/24. In a stark reversal from the start of the year, investors now largely expect the Fed may increase interest rates in 2026, pressuring fixed income prices. As the fourth week of the war with Iran ends, we are reminded that there is no way to gauge its duration, and therefore the depth of its impact on global markets. Will energy price shocks lead to restrictive central bank policy in the coming months, or will a cease fire ease these mounting pressures first? We plan to update this discussion as conditions warrant.

This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions or other expenses incurred when investing. Investors cannot invest directly in an index. The ICE BofA U.S. High Yield Constrained Index tracks the performance of U.S. dollar denominated below investment grade corporate debt publicly issued in the U.S. domestic market. The Morningstar LSTA U.S. Leveraged Loan Index is a market value-weighted index designed to measure the performance of the U.S. leveraged loan market. The ICE BofA Emerging Markets Corporate Plus Index tracks the performance of U.S. dollar and euro denominated emerging markets non-sovereign debt publicly issued in the major domestic and eurobond markets. The ICE BofA Fixed Rate Preferred Securities Index tracks the performance of investment grade fixed rate U.S. dollar denominated preferred securities issued in the U.S. domestic market. The ICE BofA U.S. Mortgage Backed Securities Index tracks the performance of U.S. dollar denominated fixed rate and hybrid residential mortgage pass-through securities publicly issued by U.S. agencies in the U.S. domestic market. The ICE BofA 1-3 Year U.S. Corporate Index is a subset of the ICE BofA U.S. Corporate Index including all securities with a remaining term to maturity of less than 3 years. The ICE BofA 1-3 Year U.S. Treasury Index tracks the performance of U.S. dollar denominated sovereign debt publicly issued by the U.S. government with a remaining term to maturity of less than 3 years. The ICE BofA 22+ Year U.S. Municipal Securities Index tracks the performance of U.S. dollar denominated investment grade tax-exempt debt publicly issued by U.S. states and territories, and their political subdivisions with a remaining term to maturity greater than or equal to 22 years. The ICE BofA U.S. Corporate Index tracks the performance of U.S. dollar denominated investment grade corporate debt publicly issued in the U.S. domestic market. The ICE BofA 7-10 Year Global Government (ex U.S.) Index tracks the performance of publicly issued investment grade sovereign debt denominated in the issuer's own domestic currency with a remaining term to maturity between 7 to 10 years, excluding those denominated in U.S. dollars. The ICE BofA 7-10 Year U.S. Treasury Index tracks the performance of U.S. dollar denominated sovereign debt publicly issued by the U.S. government with a remaining term to maturity between 7 to 10 years. 

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