Volatility, Geopolitics, and Staying Focused on Quality –
The first quarter of 2026 should be a reminder to investors that markets rarely move higher in a straight line. Significant geopolitical developments over the past 90 days have once again renewed uncertainty, increased headline risk, and contributed to elevated volatility across global markets. While these events have understandably captured attention, they have not changed our investment philosophy.
In prior commentaries, we noted that market leadership had become increasingly narrow, valuations in certain technology and AI segments were elevated, and investor positioning was historic by some measures. We also discussed the likelihood of rotation beneath the surface rather than the popping of a broad speculative bubble. The volatility experienced in the first quarter was consistent with this view. Periods of geopolitical stress often act as catalysts for repricing, particularly in areas where expectations were already elevated.
It is important to remind ourselves that market volatility does not necessarily mean a deterioration of fundamentals. Corporate balance sheets remain generally healthy; credit markets are not signaling systemic stress, and economic activity—while moderating in some areas—continues to demonstrate resilience with regards to consumer consumption. High-yield credit spreads, a traditional early warning indicator, have not meaningfully changed levels that would suggest deep structural concerns.
At the same time, we are seeing the type of sector rotation we anticipated in our last market commentary. Areas that had significant underperformance—such as Consumer Staples and other defensive sectors—have begun to move constructively relative to the previously dominant momentum trades. Small- and mid-cap equities are also showing signs of improved participation after years of lagging large-cap growth stocks. This broadening of market leadership is very healthy for the long-term trend and reduces reliance on a narrow group of companies to carry overall market performance.
Technology and AI-driven investment themes remain powerful long-term forces. However, as we previously discussed, the digestion phase following significant capital expenditures can take time. Markets periodically reset expectations, especially when valuations become extended. This is a normal and healthy part of a market cycle.
Geopolitical tensions understandably create “unknowns” and markets dislike “unknowns”. When uncertainty rises, volatility sets in. Yet history consistently shows that markets adapt to geopolitical events, and in some cases, rather quickly. Once clarity begins to emerge—even if outcomes are not ideal—capital reallocates and long-term trends reassert themselves.
This current environment that we find ourselves in today reinforces why we emphasize quality and discipline. Quality company stocks—those with durable cash flows, strong balance sheets, consistent earnings growth, and conservative capital allocation—tend to navigate uncertain environments better than highly cyclical or speculative businesses. Dividend paying, defensive oriented stocks help dampen portfolio volatility when markets shift abruptly.
We continue to believe that the most conservative course of action is not reacting to headlines, but instead maintaining exposure to well-positioned businesses across sectors. Rotations always happen and these rotations create opportunity. And disciplined portfolio construction helps manage risk.
No one can predict the exact path markets will take in the coming quarters. However, we remain confident that staying focused on fundamentals, maintaining diversification, and emphasizing quality investments positions portfolios to weather geopolitical volatility while remaining aligned with your objectives.
As we have stated before, volatility is not a matter of if, but when. Preparing for it through quality, rather than attempting to time it, remains our guiding philosophy.
| Thomas A. Toth, Senior Chairman | Kenneth Bowen, II President & CEO |